Argentina’s central bank plans to pay local lenders rather than American creditors for its debt Tuesday, exactly the opposite of what a U.S. judge ordered the South American country to do. It's just the latest chapter in a long and bruising battle between Latin America's third-largest economy and U.S. hedge funds, which took Argentina to court to force the country to deliver on promises to pay them back for the Argentine bonds they own.

Many emerging economies, from Russia to Brazil, began taking on significantly more short-term debt from developed economies in the early '90s, which paid for projects like roads and social services, and fueled economic growth. But short-term capital is volatile. When the U.S. Federal Reserve raised interest rates in 1994 to stave off inflation, borrowing costs for people, businesses and countries increased. That pitched Brazil, Russia and others into recession, and Argentina into its Great Depression (1998-2002). During that downturn, Argentina's economy shrank by 20 percent, inflation soared and eroded the value of Argentine peso, half of Argentinians lived in poverty, foreign investment fled, and the country defaulted on its foreign debt. That drove up interest rates Argentina would have to repay to issue new bonds, amounts of money borrowed over an agreed time period and for a fixed interest rate, to finance its budget as government revenue nosedived.

After creditors around the world bought bonds on which the country had defaulted in 2001, about 93 percent of the creditors swapped their bonds for new ones worth about 70 percent less in 2005 and again in 2010. That helped Argentina slash its government debt at a loss to the creditors. But the American hedge funds did not agree to trade in their bonds for a loss.

The group of investors is led by billionaire investor Paul Singer’s NML Capital Ltd., a subsidiary of Elliot Capital Management. Singer is a lawyer by training and has successfully sued the governments of Peru and the Republic of Congo to deliver payments on their bonds.

When a big business flops on payments owed, it lands in bankruptcy court. But countries have no international court to mediate deals with creditors. In bond sales agreements, the terms usually state legal battles must occur in either New York or London, the world’s two biggest financial capitals.

Sovereign governments usually win in legal tussles with investment funds in bond cases because when negotiating with lenders, governments disclose the threat of default. And creditors usually accept restructuring deals to at least receive something when a country defaults. But NML Capital is pushing for full payment.

In 2012, U.S. District Judge Thomas Griesa in New York ordered Argentina to pay Singer’s group. The amount it's owed, $1.5 billion, wouldn’t break Argentina, which has about $16 billion from which to draw when excluding amounts on loan to other countries, deposits with the International Monetary Fund and other assets that aren’t easily accessed. The problem is that all the other litigants could join in and ask for full payment, and Argentina still owes regular interest payments to other bondholders.

At the end of June, the U.S. Supreme Court ruled Argentina must pay off the American hedge funds, even though President Cristina Fernandez de Kirchner said the country couldn’t afford to pay them and keep up with regular interest payments to other lenders. In July, Argentina defaulted for the second time in 13 years.

So far, Griesa has put off deciding whether to impose sanctions on Argentina, but he warned Monday the country must stop trying to get around his ruling. The Argentine government passed legislation this month that allows it to replace Bank of New York Mellon Corp. as trustee for restructured debt with local bank Banco de la Nacion Fideicomiso and then swap debt for bonds. Argentina’s central bank planned to deposit an interest payment of at least $200 million with Banco de la Nacion Fideicomiso Tuesday.