New York Judge Thomas Griesa has ruled that the Republic of Argentina is in contempt of court for refusing to obey an order to repay the debt it owes to two US hedge funds.

Argentina has been mired in a US court dispute with the funds, which bought the country’s debt at a discount after its default in 2001.

In July, Judge Thomas Griesa ruled that Argentina must repay the funds before it can repay other bondholders.

Argentina refused, sending the country into default.

On September 29, Argentina’s ambassador to the US warned in a letter to Secretary of State John Kerry that if the country was found to be in contempt of court, it would represent “unlawful interference” in Argentina’s domestic affairs.

And in a strong statement, the Argentine Foreign Ministry in Buenos Aires said Judge Thomas Griesa’s ruling “violates international law” and “has no practical effect other than to provide new elements helpful to the slanderous political and media campaign conducted by vulture funds against Argentina”.

Argentina has been found in contempt of court for refusing to obey an order to repay the debt it owes to two US hedge funds

The statement added: “Griesa holds the sad record of being the first judge to declare a sovereign state in contempt for paying a debt, after failing in his attempt to block the restructuring of the foreign debt of Argentina.”

Judge Thomas Griesa said he would decide on a penalty at a later date.

After Argentina defaulted on about $100 billion of debt in 2001, the country negotiated a settlement with the majority of its bondholders to repay a certain portion of the amount owed.

Some bondholders accepted swaps for lesser-valued bonds but were not paid interest on those bonds.

However, two hedge funds – NML Capital and Aurelius Capital Management – have demanded full repayment of the $1.5 billion they are owed, and have sued to prevent Argentina from paying back only its restructured bonds.

Argentina has refused, saying that they are “vulture funds”, and has attempted to enact legislation to skirt Judge Thomas Griesa’s ruling.

This has left two banks in New York – Bank of New York Mellon and Citigroup – with millions of dollars on hold that Argentina had planned to pay in interest to holders of its renegotiated debt.