Argentina risks technical default by the end of Monday in its combat with so-called vulture funds over a US court ruling that it must settle unpaid debts to bondholders.
The country must reach an agreement to pay $1.3 billion to these "vulture" hedge funds by the end of July to avoid default -- but a decision by a judge on Friday has brought that danger even closer.
Wheeling overhead are speculative funds that bought Argentinian bonds at the bottom of the market on the chance that they could extract full repayment later on.
If they do, Buenos Aires could face a bill of up to $15 billion, which it says would bring it to its knees.
Argentine President Cristina Kirchner has condemned what she terms "extortion" by the vulture funds.
Argentina has made a first payment of $225 million (165 million euros) to bondholders who in 2005 and 2010 accepted that the value of debt owed by the country would be cut by 70 percent.
That debt comes to maturity, or is due for repayment, on Monday.
On Thursday, Argentina lodged slightly more than $1.0 billion, some of which was placed in a US bank, to redeem those bonds.
But a New York judge, Thomas Griesa, has ordered that money be returned and instead said two funds, which had bought bonds at a hugely depressed price on the market and refused to accept the restructuring terms, should be paid first.
US judicial authorities ruled recently on long-running litigation that these funds, NML Capital and Aurelius Management, are entitled to full payment of the bonds, which Argentina was unable to honour when it went bankrupt in 2001.
Negotiations on how payments might be made began under the aegis of a mediator in New York on Wednesday.
The two funds have signalled that they would accept payment in treasury bonds.
But such a settlement would have a big domino effect since other funds, known as holdouts, which refused to accept the restructuring terms, could demand similar treatment.
That could cost Argentina a total of $15 billion.
- Wide implications of the case -
The central bank of Argentina has only $28.5 billion in reserves, the country has to import energy, and the economy is heading into recession. The government has warned that an extra bill of $15 billion would have the effect of tipping it into bankruptcy.
To make the situation worse, a final payment to creditors who accepted the restructuring falls due on July 30. This is the second deadline, which could trigger default.
"If, within a month, there is no agreement with the holdouts, the situation will become extremely difficult," said Daniel Marx, an executive at financial consultants Quantum Finanzas in Argentina.
The permanent council of the Organization of American States was due to hold an emergency meeting on Monday at Argentina's request to assess the situation.
The case could cloud future restructuring of public debt by encouraging bond holders to reject deals with countries in financial difficulty in the belief that some of them will eventually obtain full repayment.
This has led the International Monetary Fund to express concern that the outcome of this case could have far wider implications for the entire debt-market system.
A former director of the Argentinian central bank, Javier Gonzalez Fraga, has said that the country is trying to reach agreement with the vulture funds without triggering what is known as the Rufo clause. That stands for Rights upon future offers, meaning the right for a creditor to obtain the terms of the best offer.
Since bankruptcy in 2001, Argentina has been paying restructured debts owed to 93 percent of the private creditors, which accepted the 70-percent write-down in 2005 and 2010.
Since 2002, Argentina has done well out of exporting agricultural produce at high prices. In 2006, it settled debt owed ot the IMF and last month it reached an agreement with the Club of Paris of official creditors.