Pro-government demonstrators beat drums in front of an image of late President Nestor Kirchner placed over the Economy Ministry in Buenos Aires' financial district
Pro-government demonstrators beat drums in front of an image of late President Nestor Kirchner placed over the Economy Ministry in Buenos Aires' financial district. Reuters

Argentina has deposited money with a local trustee to pay the holders of its bond, despite being held for contempt of court by a US judge.

The country deposited $161m (£99m, €127m) towards interest payments with the newly appointed local trustee Nacion Fideicomisos on 30 September, according to the economy ministry.

"By making this deposit, Argentina confirms once again its unshakeable commitment to meet its obligations to bondholders," the ministry said in a statement.

Nevertheless, little of the deposit has been transferred to creditors, a source at the trustee bank told Reuters. Foreign intermediaries are unlikely to help the country, as their service could violate the US court orders.

Argentina's inability to pay funds would lead to another default in the country.

The country's decision comes after US Federal Judge Thomas Griesa held Argentina in contempt of court for its failure to follow a court order to continue to pay its bondholders.

Griesa also warned that Argentina must stop efforts to overcome his rulings by making payments locally by replacing Bank of New York Mellon with Banco de la Nacion Fideicomiso as trustee for some of its restructured debt.

Earlier, the Argentine Congress passed a bill to circumvent Griesa's previous ruling to only pay the 92% of Argentina's restructured bond-holders if holdout hedge funds were paid in full.

Griesa had called such moves "illegal".

The country has been engaged in a long legal battle with hedge funds led by Elliott Management Corp and Aurelius Capital Management LP, which refused to take part in the country's debt restructuring.

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Griesa had earlier ruled in favour of the so-called vulture funds, barring Argentina from paying the holders of its restructured debt unless it pays the hedge funds.

However, Argentina organised payment to restructured bondholders via an Argentine bank to avoid paying the hedge funds. Subsequently, the hedge funds asked Griesa to hold Argentina in contempt and fine the country $50,000 per day.