Argentina clashed in a US appeals court with holdout bondholders demanding a $1.3 billion payment, triggering fears that the country could witness a repeat of its huge 2001 debt default.
In a sign of the importance of the hearing for Buenos Aires, Economy Minister Hernan Lorenzino and President Cristina Kirchner's vice president, Amado Boudou, were in attendance in the packed New York courtroom to hear the arguments from lawyers representing Argentina, holdout creditors and other parties.
"Argentina is not going to go beyond its public policies," Jonathan Blackman, a lawyer for Argentina, told a three-judge panel, referring to the government's refusal to pay investors who declined to take part in the restructuring deal.
"Governments cannot be forced to do something that fundamentally violates their principles."
Despite his hints that Buenos Aires would welcome a solution that includes renegotiating the payment, Circuit Judge Reena Raggi expressed frustration at Argentina's adversarial stance.
"You say you will not obey other than your proposal," Raggi said in a biting tone.
"The parties who submit to the jurisdiction of the court usually obey," she said.
Argentina defaulted on some $100 billion in debt in 2001, and has since restructured its debt twice, covering around 75 percent of the nominal value of the bonds.
Almost 92 percent of the bondholders agreed to cut their losses and take the exchange bonds.
But NML Capital Ltd and Aurelius Capital Management are demanding 100 percent repayment plus interest.
The appeal comes after US District Court Judge Thomas Griesa backed the two funds, sparking fears in Argentina of a flood of similar new claims that could send the country sliding towards default once more.
Griesa ordered Argentina to treat all creditors equally.
Theodore Olson, a lawyer representing the dissident bondholders, said that while Kirchner's government "had every opportunity, over and over, Argentina never made any proposal."
Boudou, the vice president, insisted that Argentina would not agree to "situations that would break Argentine law, where a creditor would get more than what was given to those who took the exchange bonds in 2005 and 2010."
The 2nd US Circuit Court of Appeals is expected to rule in the coming weeks. After that decision, the two parties could seek to bring the case before the US Supreme Court.
"We pray that they will side with the people of Argentina, the US government and the world's poorest people," said Eric LeCompte, executive director of debt relief group Jubilee USA Network.
"If the judges rule in favor of these hedge funds, it will mean these funds will more aggressively target poor countries in fragile financial recovery. If they rule with Argentina, it will mean that it will be harder for these types of funds to exploit countries in financial distress."
Critics worry that so-called "vulture" funds would take advantage of countries like debt-ridden Greece should NML and Aurelius win the case.
The row has also dragged in exchange bond holders, who had agreed to the restructured debt but now fear their own deals will collapse if Argentina is ordered to pay the holdouts.