"Not paying while having the resources and forcing a voluntary default is something that is not contemplated in Argentine law," Kicillof said. "It would be a clear violation of the debt prospects."
If Argentina does not also pay the U.S. bondholders who refused to join the debt swaps, the ruling bars it from using the U.S. financial system to pay other bondholders.
Robert A. Cohen, a lawyer for the U.S. hedge funds, told Griesa in a letter Thursday that Kicillof's announcement was a "brazen step in violation of this court's orders and it warrants a swift and decisive response."
Cohen said the plaintiffs in the New York court case brought by the U.S. hedge funds against Argentina had contacted Bank of New York Mellon to remind it that it was not permitted to let Argentina forward money to bondholders who accepted the debt swaps. He said the plaintiffs acted after Kiciloff announced that $539 million of the $832 million payment had been deposited at the bank.
The judge scheduled a Friday morning hearing in the case.
Lawyers for Argentina had asked Griesa to delay an end-of-the-month deadline to make payments to U.S. hedge funds. Kicillof had said the payments could sink the nation's economy, forcing a default on $24 billion of debt, and trigger financial havoc around the world.
Lawyers for the holdout bondholders led by New York billionaire Paul Singer's NML Capital Ltd. have countered that Argentina was just trying to delay paying the $1.65 billion it owes.
Griesa also said in Thursday's order that the handling of any further payments due bondholders who had exchanged their bonds for lesser value will be handled as part of negotiations involving a special master he appointed this week.
The winners of the more than decade-long debt battle asked Griesa on Tuesday to deny Argentina's request for more negotiating time to avoid a default. The plaintiffs said Argentina must first show it's serious about paying the judgment and that Argentina will only try to evade court's orders with additional time.
Argentina President Cristina Fernandez has said she favors a process that would enable her government to resolve 100 percent of Argentina's debts — including holders of the last 7 percent of bonds that went into default in 2001 and are held by investors who weren't part of the winning case.