GMP Securities Director of Fixed Income Strategy Adrian Miller discusses Argentina's default, the GDP report and Fed tapering


BUENOS AIRES (Reuters) - Argentina called in the United States' top diplomat in the country on Tuesday to express its "deep indignation" over a local newspaper interview in which he made reference the South American country's latest debt default.

Argentina missed a coupon payment on its restructured sovereign bonds in July after a U.S. judge ordered that $539 million deposited by Buenos Aires with an intermediary bank and intended for bondholders not be paid out.

Pointing to the fact that the government tried to make the payment, Argentina denies being in default.

U.S. chargé d'affaires in Argentina Kevin Sullivan nonetheless told local newspaper Clarin that "it is important that Argentina get out of default" in an interview published on Monday. Outside of government circles, the term default is commonly used in Argentina to describe the missed July payment.

Sullivan was called into the office of Foreign Minister Hector Timerman on Tuesday after Timerman issued a statement expressing "deep indignation and energetic rejection" of Sullivan's comments to Clarin.

"If this kind of intrusion into the internal affairs of Argentina is repeated, severe measures will be taken," Timerman's statement said.

Sullivan is Washington's ranking diplomat in Buenos Aires, as no replacement has been named since its ambassador to Argentina left last year. The U.S. embassy had no comment on the spat with the Argentine government or the Sullivan-Timerman meeting.

Debt is a touchy subject in Argentina after millions of people in the middle class were thrown into poverty in 2002 when the government defaulted on about $100 billion in bonds. More than 93 percent of the bad debt was swapped in 2005 and 2010 for paper offering less than 30 cents on the dollar.

A small group of hedge funds that rejected the two restructurings sued Argentina for 100 cents on the dollar. They won a court decision saying Argentina was prohibited from making payments on its restructured bonds without paying them at the same time.

Some of Argentina's original bond contracts were written under U.S. law. So the case ended up in the courtroom of District Judge Thomas Griesa in lower Manhattan, who issued the controversial ruling.

In the Monday interview, Sullivan also rejected Argentina's proposal to use the United Nations as a forum for coming up with a new way to handle sovereign defaults. He said market-based mechanisms remain the best way of handling debt crises.

At Argentina's prompting, the 193-member United Nations General Assembly agreed this month to negotiate and adopt a multilateral framework for sovereign debt restructurings.

The non-binding resolution was adopted with 124 in favor and 11 against. The United States was among the 'no' votes, saying it would create uncertainty in financial markets. There were 41 abstentions.


(Reporting by Hugh Bronstein; editing by Andrew Hay)