UPDATE 1-Hedge funds freeze bank accounts in push for Argentina debt deal

May 7, 2015 11:51 PM

(Adds details on funds frozen, Economy Ministry statement)

By Hugh Bronstein

BUENOS AIRES, May 7 (Reuters) - Hedge funds suing Argentina over its defaulted debt have had some funds in the country's Belgian diplomatic bank accounts frozen in a bid to pressure a settlement in the dispute, a move Buenos Aires described as "attempted extortion" and illegitimate.

The holdout creditors had 52,001 euros in Belgium frozen via a private justice official but without backing by a judge or a prosecutor, the Argentine Economy Ministry said.

It is the latest twist in a legal feud going back to Argentina's record-smashing default on about $100 billion in sovereign bonds in 2002.

Argentina restructured most of that debt in 2005 and 2010, giving holders around 30 cents on the dollar, but a group of holdout hedge funds have sued in the U.S. courts for 100 cents on the dollar. The funds are scouring the world for Argentine government assets that may be seized under a U.S. federal court decision favoring their claim.

"The government of Argentina steadfastly refuses to sit down with creditors and negotiate," NML Ltd, an affiliate of hedge fund Elliott Management, said in a statement. Elliott is the lead fund suing Argentina.

"In the absence of a negotiated settlement, our recourse includes locating and attaching Argentine assets wherever we can find them," the statement said.

An Argentine navy ship was temporarily detained in Ghana following a court order sought by NML.

"The attempts to seize diplomatic accounts in Belgium have already failed more than once," the Economy Ministry said. "Diplomatic goods - like the bank accounts of an embassy - enjoy specific immunity in international law."

Argentina was "adopting the pertinent measures that the case requires for the litigants to stop their abusive conduct," the ministry said.

Argentina was forced into default again in July last year when a U.S. judge prohibited the country from servicing its restructured bonds without striking a deal with the holdout hedge funds.

Investor sentiment has improved since then as the October presidential election approaches and hopes rise that Argentina may do more to tap its vast shale oil and other natural resources in the future. The market last month snapped up a $1.5 billion bond offer from state energy company YPF.

The next government is expected to be more market friendly than that of outgoing leader Cristina Fernandez, whose heavy currency and trade controls have weighed on the economy while inflation remains in the double digits. (Additional reporting by Sarah Marsh; editing by Andrew Hay and Leslie Adler)