Argentine Default Saga: Congress to Vote on Bill Proposing to Remodel Nation's Debt
 The poster reads 'Either you are with Cristina or you are with the Yankees - Vultures get out of Argentina'.Reuters

Argentina is taking a decisive legislative step towards remodelling its debt via a bond exchange with creditors which will navigate around so-called vulture hedge funds that have forced the country into default at the behest of US courts.

The hedge funds, which specialise in distressed debt, bought up Argentine bonds for cheap back in 2002 when the county was in a state of financial collapse. These hold-out funds have doggedly pursued a 100 cents in the dollar return on the bonds, and prevented Argentina servicing its other debts until they are paid in full.

The Argentine Congress has voted in favour of a draft law that will enable Buenos Aires to offer creditors the option to exchange bonds issued within the jurisdiction of New York for those issued in Argentina or another jurisdiction.

The lower house of Congress passed the bill by 134 to 99 this morning. This followed a debate which began on Wednesday afternoon. The law had already been approved last week by the Senate.

This would avoid the latest US court ruling which was in favour of the hedge funds, led by billionaire Paul Singer's Elliott Management and Aurelius Capital.

It also encourages investors to move their Argentine debt from the US or other foreign jurisdictions to either Argentina or France.

US District Judge Thomas Griesa declared the law illegal however, because it violates his order favouring creditors in a dispute over the country's default in 2002.

Argentine hailed it a moral victory, trumpeting UN support for the sovereign-debt restructuring plan, which it said justified its refusal to repay the funds.

However, a practical victory may be harder to come by, FINalternatives reported.

UN General Assembly resolutions are non-binding, and the 11 against votes included five of the world's seven largest economies: the US, the UK, Germany, Canada and Japan.

The US and the UK are permanent members of the UN Security Council and can block any UN action.

The resolution to create a new framework for sovereign-debt restructuring was approved earlier in the week during a UN General Assembly session.

The resolution, drafted by Bolivia on behalf of the Group of 77 developing nations and China, was adopted with 124 in favour, 11 against and 41 abstentions, including from New Zealand, reports said.