A US judge has ruled that Argentina is in contempt of court for refusing to obey an order to repay the debt it owes to two US hedge funds.
Argentina has been mired in a US court dispute with the funds, which bought the country’s debt at a discount after its default in 2001.
In July, Judge Thomas Griesa ruled that Argentina must repay the funds before it can repay other bondholders.
Argentina refused, sending the country into default.
Earlier on Monday, Argentina’s ambassador to the US warned in a letter to US Secretary of State John Kerry that if the country was found to be in contempt of court, it would represent “unlawful interference” in Argentina’s domestic affairs.
Judge Griesa said he would decide on a penalty at a later date.
After Argentina defaulted on its debt in 2001, the country negotiated a settlement with the majority of its bondholders to repay a certain portion of the amount owed.
However, two hedge funds – NML Capital and Aurelius Capital Management – have demanded full repayment of the $1.5bn (£920m) they are owed, and have sued to prevent the country from paying back only its restructured bonds.
Argentina has refused, saying that they are “vulture funds”, and attempted to enact legislation to skirt Judge Griesa’s ruling.
That has left two banks in New York – Bank of New York Mellon and Citigroup – with millions of dollars on hold that Argentina had planned to pay in interest to holders of its renegotiated debt.