Argentina says debt battle can be resolved if good faith shown

BUENOS AIRES (Reuters) - Argentina stressed on Friday that it was impossible to fulfill a U.S. court ruling ordering full payment to "holdout" investors suing the country but said a deal needed to avert a default on its debt is still possible.

Argentina is staring down the barrel of a second default in 12 years if it is unable, before a July 30 deadline, to reach an agreement with the holdouts, New York hedge funds.

U.S. District Judge Thomas Griesa on Tuesday ordered that Argentine officials meet continuously with the holdouts, whom the government portrays as "vultures" picking over the carcass of its $100 billion default in 2002.

"With the good faith of the vulture funds and a rational attitude from Griesa, this litigation can be resolved," Argentine cabinet chief Jorge Capitanich told reporters.

The hedge funds bought Argentine notes on the cheap after the country's 2001 default and spurned the terms of restructuring deals, under which 92.4 percent of creditors accepted huge writedowns.

Griesa ordered in 2012 that Argentina pay the holdouts $1.33 billion plus accrued interest - a ruling Latin America's No. 3 economy says it cannot comply with.

Argentine officials and the holdouts are expected to meet with a court-appointed mediator, Daniel Pollack, in New York at 10 a.m. on Friday. The two sides met Pollack on Thursday but not face to face.

One of the lead holdouts, NML Capital Ltd, an affiliate of billionaire Paul Singer's Elliott Management Corp, said Argentina's government had made clear "that it will be choosing default next week."

Another default would pile more pain on an economy that is grappling with one of the highest rates of inflation in the world, an ailing currency and dwindling foreign reserves after a long banishment from global capital markets.

Economy Minister Axel Kicillof told finance officials from across South America that Argentina would negotiate but that any talks must be held under fair conditions.

He said Griesa's order was "unprecedented and impossible to fulfill."

Argentina has previously said it needs more time to reach a deal, in part because it worries that it risks running afoul of a provision in the restructurings, known as the Rights Upon Future Offers. The clause bars it from voluntarily offering better terms to investors than what it gave in the restructurings.

It argues it would open itself up to challenges from creditors amounting to anywhere from $120 billion to $400 billion if it broke the RUFO. The RUFO clause expires on Dec. 31.

"Either there are hidden agendas or there is a deliberate attempt to strike down the restructuring of (Argentine) debt that was voluntarily accepted by 92.4 percent of creditors," Capitanich said.

With just five days until the July 30 deadline, the odds of a default have sharply increased.

Earlier this year, Argentina unexpectedly struck a deal with Spanish oil major Repsol to compensate it for the nationalization of energy company YPF . It also reached an agreement with the Paris Club of creditor nations.

(Editing by Steve Orlofsky)

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