2 March by Bodo Ellmers
Argentina’s ‘agreement’ to award vulture funds
Vulture fund Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors. US$4.6bn (€4.26bn) demonstrates why nations need a new global system to resolve debt issues and avoid being held to ransom.
While 93% of Argentina’s creditors agreed to reduced repayments in order to restore the country’s solvency after the debt crisis of 2001, a group of ‘vulture funds
Vulture fund Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors. ’ bought up some of the debt at a cheap price, and sued for full repayment.
This week they won, following years of litigation. The vulture funds - NML Capital, Aurelius Capital Management and two other hedge fund creditors – stand to make more than 1000% profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. , which Argentina will have to finance through more borrowing.
Bodo Ellmers, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad), said: “The perverse truth is that this payment is only possible because the vast majority of cooperative creditors restored Argentina’s solvency. Now Argentina needs to borrow even more money to pay the vultures – a huge sum for a country struggling to finance many essential services. This disgraceful situation is allowed because no insolvency regime exists that can enforce all creditors’ participation. All governments must now come together to resolve this unacceptable situation.”
Last year, the United Nations attempted to set up a new sovereign debt Sovereign debt Government debts or debts guaranteed by the government. restructuring regime, but all attempts to debate the issue were boycotted by the US and EU governments.
Ellmers added: “Argentina should send this $4.65bn invoice straight to Washington, London and Berlin. They are the governments that have allowed the vulture funds’ strategy of non-compliance to pay off.”
Argentina is the second major feast for the vulture funds in recent years. In Greece, creditors holding bonds worth €6.4bn refused to participate in a 2012 debt restructuring. The Troika
Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.
IMF : https://www.ecb.europa.eu/home/html/index.en.html then forced Greece to pay them in full - using Greek as well as other EU taxpayers‘ money.
The UN is mandated to make a new attempt to create a fair and effective insolvency regime for states. This work is expected to resume in the Autumn.
Ellmers said: “This time we want to see European and US diplomats at the table. Citizens are tired of seeing their governments feed their tax money to predatory vulture funds bent only on making obscene profits. If things don’t change, they will continue with their destructive business model.”
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