Argentina Negotiates Debt Dispute with “Holdout” Hedge Funds

14 January 2016 by Jubilee USA

CC - Flickr - Gobierno de la Ciudad de Buenos Aires - Mauricio Macri

Washington DC- Argentina’s new government begins negotiations in New York with groups that sued the country for more than $1 billion after the country defaulted on its debt in 2001. President Mauricio Macri took office in December and announced his intention to reach a settlement. The investor groups are known as “holdouts” because they refused to participate in Argentina’s debt restructuring deals that 92 percent of investors accepted. US courts ruled Argentina could not pay the restructured debt holders unless it paid the holdout funds in full. Argentina refused and defaulted again in July 2014.

“Argentina’s new government wants to put this dispute behind them‎ so they can better access the markets again,” said Eric LeCompte, executive director of the religious debt relief group Jubilee USA, which filed a brief to the US Supreme Court in the debt dispute. “Poor interpretations of US law by US Courts led to this moment.”

The meeting includes Argentine Finance Minister Luis Caputo, representatives of the holdouts and court-appointed mediator Daniel Pollack. Pollack previously attempted to negotiate a settlement between the two sides.The holdouts include so-called “vulture funds 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. ” that are known to target countries struggling with financial crisis.

After the Supreme Court refused to hear Argentina’s case in 2014, several groups promoted various solutions to ensure the precedent in the Argentine debt dispute wouldn’t negatively impact other countries. The International Monetary Fund IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org , United Nations, US Treasury and the largest consortium of banks and investors proposed or enacted ways to protect countries when restructuring their debt.

“Argentina is a good example of why we need to improve debt restructuring processes,” noted LeCompte, who serves on UN expert groups that devise solutions to the kinds of crises that Argentina experienced. “As countries around the world deal with debt crisis, we need resolution processes that are transparent, fast, fair and orderly.”

Read a timeline of the Argentina debt dispute

Read Jubilee USA’s Supreme Court brief

Source : Jubilee USA