The US judge overseeing litigation about Argentina’s defaulted debt has scheduled an emergency hearing in New York this afternoon to consider arguments the South American nation’s latest plan to avoid complying with his orders constitutes contempt of court.

District Judge Thomas Griesa set the hearing today hours after lawyers representing Paul Singer’s NML Capital, and other holders of bonds Argentina repudiated in 2001, called the nation’s plan to pay its restructured bonds locally a “grave affront” to his orders and asked him to consider contempt sanctions against the South American nation.

On Tuesday Argentine president Cristina Fernandez de Kirchner said her government plans to pay its foreign debt locally, to avoid complying with Griesa’s orders requiring Argentina to pay NML and the other holdouts more than $1.5 billion before it pays holders of its restructured debt.

Griesa’s orders triggered a new default on the restructured debt July 30 after Argentina refused to pay the holdouts.

In June, Griesa blocked Bank of New York Mellon Corp, the trustee for Argentina’s restructured debt, and other intermediaries from distributing $539 million Argentina set aside for bondholders.

Fernandez said in a nationwide address that her government will introduce a bill in congress to authorize the debt swap.

Argentina plans to use its central bank to make the payments, replacing Bank of New York Mellon. Griesa has made clear that a move by Argentina to evade his orders by exchanging its debt for locally paid bonds paid would be illegal.

Bloomberg