A federal judge in New York City Monday found Argentina in contempt of court for failing to repay the debt it owes two U.S. hedge funds before it pays other bondholders, something the judge ordered in July. U.S. District Judge Thomas Griesa accused Argentina of “taking steps … to evade critical parts” of the U.S. court order, the Wall Street Journal reported.

"There's a very concrete proposal that would clearly violate the injunction,” Griesa said at the federal courthouse in Manhattan. However, Griesa spared the country from additional fines.

Griesa’s ruling is part of an ongoing bond dispute between the South American country, which began borrowing money from foreign investors in the 1990s, and investors who purchased the country’s debt for pennies on the dollar. Argentina defaulted on $95 billion in debt in 2001, Bloomberg reported. Holders of about 92 percent of the repudiated debt agreed to restructurings in 2005 and 2010, but some investors, including two U.S. hedge funds -- NML Capital and Aurelius Capital Management -- sued for full payment and to prevent the country from paying back only its restructured bonds.

Argentina agreed in 1994 to allow any disputes regarding the bonds to be litigated in U.S. courts. However, the country has attempted to avoid Griesa’s ruling, saying the two hedge funds are “vulture funds” that invest in debt considered to be fragile or in looming default and then sue the debtor for a larger amount than the purchase price.

Lawyers for Argentina sent a letter to Secretary of State John Kerry Monday calling the contemptruling an “absurdity,” the Journal said. "A declaration of contempt would result in an unprecedented escalation in the conflict," the letter said. "Indeed, such a declaration would not only affect the rights of third parties, but also further violate the sovereignty of the Argentine Republic."