ARGENTINA set out new legislation today aimed at settling its debts to friendly bondholders.

Hostile decisions by a US court in favour of profiteering vulture hedge funds had left the country unable to meet its obligations and pushed it into default.

But President Cristina Fernandez unveiled a plan to meet the country’s obligations.

“To protect the payments to bondholders who took part in the 2005 and 2010 debt swaps, we are designating the Banco Nacion Trust as a replacement for Bank of New York, however the bondholders decide,” she said. 

“If bondholders decide — in individual or collective form — to ask for a change of the legislation and jurisdiction of their bonds … the Economy Ministry is authorised to implement a swap for new public bonds under local legislation.”

Holders of non-dollar-denominated Argentine debt insist the New York court does not have jurisdiction over their bonds.

In July, US judge Thomas Griesa ordered a freeze on payments unless Buenos Aires first paid off hedge funds which had sued the country for full payment on bonds bought at hugely discounted rates.

Argentina had placed $539 million (£323.7m) with Bank of New York Mellon at the end of June to meet a scheduled payment to holders of the restructured bonds.

But Judge Griesa forbade the bank from transferring the money to the bondholders.

Griesa has repeatedly ruled in favour of NML Capital and Aurelius Capital Management and threatened to hold Bank of New York in contempt if it transfers or returns the money.