BUENOS AIRES, Aug 14 (Reuters) - The hedge funds suing Argentina over its 2002 debt default are an "international mafia" out to wreck the country's finances, the government said on Thursday, pumping up the rhetoric in a battle that is squeezing the struggling Argentine economy.
With its peso currency at record lows, foreign reserves down more than 5 percent over the last year and vast shale oil and gas resources laying undeveloped in its southern Patagonia region, Argentina is desperate to tap foreign financing.
But the debt case, which stems from Argentina's default on nearly $100 billion in sovereign bonds 12 years ago, is blocking its access to the international bond market.
"Today we are in the hands of an international financial power comprised of small, voracious interests that form a real international mafia," Jorge Capitanich, the Cabinet chief and government spokesman, told reporters in Buenos Aires.
Many Argentines side with their government against a group of hedge funds that rejected the country's 2005 and 2010 debt restructurings in which holders received less than 30 cents on the dollar.
Holdout funds led by Elliott Management Corp and Aurelius Capital Management bought Argentine bonds at a discount before and after the 2002 default and have pressed their demand for payment of 100 cents on the dollar in the U.S. courts.
In 2012, a federal judge in New York awarded them $1.33 billion plus interest and barred Argentina from repaying holders of exchanged debt without paying the holdouts too.
The case pushed the country into default again last month, effectively slamming the door on Argentina's hopes of tapping global bond markets.
"The world has to say 'enough' to the vultures," Capitanich said. "They are trying to harm the Argentine people and violate our sovereignty."
Left-leaning President Cristina Fernandez and her ministers have long disparaged the holdout funds as "vultures" picking at the bones of Argentina's traumatic 2002 default.
But the country says a clause in the deal to restructure its debt, set to expire in January, prohibits the government from offering better terms to the holdouts than were offered in the 2005 and 2010 restructurings.
With no negotiated solution on the horizon, Argentina's peso weakened more than 1.5 percent on Wednesday to a record low of 13.15 per U.S. dollar in unofficial trading.
Foreign exchange controls force most Argentines to buy dollars on the black market, which is widely seen as a truer rate of exchange than the official rate of 8.2750 to the greenback.
Local government bonds also fell and reserves stood at $28.967 billion, down 5.33 percent over the last year. (Additional reporting by Walter Bianchi; Editing by Paul Simao)