An American judge ordered that the $539m Argentina paid to Bank of New York Mellon, a bank holding some of the South American nation's restructured debt, must be returned as it contravenes a judge's ruling.
US District Judge Thomas Griesa said the attempt to pay selected bondholders was an "explosive action" by Argentina and that it was counterproductive to the ongoing discussions over Argentina's debt repayments.
Griesa has previously ruled that the Argentine government cannot pay holders of its restructured debt without also paying those who hold defaulted debt, invoking a pari-passu clause.
The Argentines for their part do not want to pay creditors they see as the "vultures" who bought bonds knowing that the country was at an economic nadir and could default.
Martin Wolf argues in the Financial Times that these rules need review because pari-passu means treating all debt-holders alike when paying back bondholders owed from before and after a default is not the same. The counter argument is that allowing governments to evade their debts sets a dangerous precedent.
Argentina claims it will default, as it did in 2001 to the tune of $95bn, if it is forced to pay all bondholders simultaneously. The judge, it says, is trying to destroy the 2005 debt-restructuring programme.
The likely result today is that the deadline will be extended to 30 July avoiding, at least temporarily, the risk of a default. Billionaire Paul Singer’s NML Capital, the company to whom Argentina owes over $1.5bn, has indicated it is willing to extend the deadline to the end of July if there is progress in negotiations.