"The government always pushes issues to a cliff, but they don't take another step forward," said Martin Redrado, who served Mrs. Kirchner as central bank president until he was forced out in 2010 after resisting government plans to use reserves to make debt payments.

Mr. Redrado said that the government is "rightly" scared of an agreement signed with the nearly 93% of bondholders who had restructured after the default. Those bonds contain a clause that stipulates that any voluntary deal with holdout creditors would entitle those who restructured to receive the same payout. Argentina contends those costs would swamp its finances.

Argentina Economy Minister Axel Kicillof said of the holdout creditors in a statement earlier this month: "They think they can obtain the total of its claim, or force Argentina into default, but that won't happen. Argentina will defend the successful restructuring of its debt."

Economists who have closely followed the case say that the so-called RUFO clause, or Right Upon Future Offers, blocks Mrs. Kirchner's government from making a voluntary deal with the holdout creditors.

It would be a challenge, though, to convince any court that a deal now is voluntary, when Argentina has for more than a decade marshaled its diplomatic and legal power to avoid payment.

Mr. Redrado, the former central bank president, said Argentina could negotiate a deal to avoid paying holders of restructured bonds. And because the RUFO clause expires at the end of the year, Argentina could work out a deal that stalls payment to the holdouts until New Year's Day, extinguishing the threat.

"They need to have a deal," he said of the government. "It's critical to leave the final negotiations for a settlement until January so we don't have any future surprises and we can finally get this thing over."

There are tens of thousands of people, as well as many companies, still hanging on to Argentina's defaulted bonds in the hope of full payment, ranging from the hedge funds to pensioners in Italy who saw their retirement vanish with the default.

There are three different categories of holdout creditors, said Arturo Porzecanski, an economist and specialist on Argentina at American University:

Once payment to the holdout hedge funds Aurelius and Elliott are made, another group that has also received favorable court rulings — most of them from Judge Griesa — will be in a position to collect another $5 billion, Mr. Porzecanski said. Payments to those holdouts would have to be made quickly as it is expected the creditors will ask Judge Griesa to enforce their awards, Mr. Porzecanski said.

There is a second group, made up of thousands of people and companies, that would be entitled to another $5 billion. But that group would need to bring claims to court and win a judgment, Mr. Porzecanski said. The length of that process would buy some time for Argentina as holdouts across the world prepare lawsuits.

Another group is made up of about 50,000 Italian bondholders who have brought a claim seeking another $2.7 billion at a World Bank arbitration tribunal, which is expected to rule soon. Nicola Stock, president of Rome's Task Force Argentina, a group lobbying for payment from Argentina, said those bondholders "are open to negotiation, like always, but otherwise will pursue claims to the very end."

There are also thousands of individual pensioners and investors both in Argentina and abroad who bought small amounts of Argentine bonds before the 2001 default. At the time, they were tempted by some of the highest interest rates available and the false belief that they couldn't lose. Some have won awards against Argentina in Judge Griesa's court and are optimistic that they will be paid, said an Italian lawyer, Pietro Adami, who represents about 30 of the individual holders.

"It's just a matter of time," said Mr. Adami, several of whose clients have small claims ranging from $10,000 to $1 million. "These aren't vultures. They're real people."

One investor, Pier Giorgio Pagliani, a 69-year-old Italian navy captain who retires in December, invested $20,000 in Argentina in 2001, months before the country's economic collapse. He rejected the debt swap offers and is now eagerly awaiting being paid in full.

"This was money I had earned honestly," said Mr. Pagliani from his home in Magliano Sabino, 43 miles from Rome. "And I wanted it all back."

There are important signs that Argentina, long seen as a pariah by international financial markets, is inching toward settling its debts.

In May, Argentina agreed to pay $9.7 billion it owed the Paris Club of creditor nations for cash and bonds at between 3% and 3.8% interest over the next seven years. In April, Argentina paid about $5 billion in bonds to Spain's Repsol for seizing its controlling stake in the oil company, YPF. Argentina also paid about $500 million in October to end litigation with a host of foreign companies over contract disputes.

Paying the holdouts, though costly, would bring an important benefit: Argentina's return to global bond markets.

That could ease the financial struggles of a country hard hit by a stubborn recession, rampant inflation and a shortage of dollars that has rattled the exchange rate. The economy contracted 0.8% during the first quarter and most economists expect a drop in gross domestic product this year. Borrowing abroad would bring in badly needed dollars and the country has a relatively low debt burden of about 46% of annual GDP, down from 166% in 2002 before it restructured its defaulted debt.

http://online.wsj.com/articles/if-ar...ome-1405525916