Europe should learn from Argentina’s experience of fighting off vultures, before it’s too late

11 August 2011 by Nick Dearden


Last year we won a campaign against what we call 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.
 [1] - companies that buy up defaulted developing country debt cheaply in order to sue the country concerned for the full value of that debt. These companies have blighted countries like Democratic Republic of Congo, Zambia and Liberia for years, threatening to drain their already depleted treasuries in order to make a substantial 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. .

The day before the British Parliament was dissolved for the 2010 election, parliamentarians passed a law [2] that effectively made such activity impossible against low income countries in UK courts - at least on the basis of old debts.

Made permanent two months ago, the law contributed to vulture funds backing off from a case they brought against Liberia in the UK [3] last year. What could have cost Liberia $40million ended up being settled for $3million - good news for one of the most impoverished countries in the world.

The British law against vulture funds is a world first, but it is only one small step towards a more just debt system. As things stand, the law protects up to 40 very poor countries. But dozens more indebted countries from Ecuador and Peru to Vietnam and Tajikistan, not to mention Greece and Portugal, are not protected by the law.

Finance is able to go on profiting from a country’s debt crisis. And it’s something Europe might need to wake up to pretty soon.

Last month a case against Argentina in a UK court highlighted this need for further change. A vulture fund called NML has been after Argentina for years. NML is a subsidiary of Elliott Associates, a US hedge fund that pioneered ’vulture fund’ activity by winning a case against Peru in the 1990s, getting back 400% what they paid for Peru’s debt.

Argentina carried out one of the biggest defaults in history [4] back in 2001 when the people of that country decided they’d had enough of implementing IMF 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
policies which were only deepening their crisis. As an aside, activists had been pushing for Argentina to have some of its debt cancelled for many years, regarding it as illegitimate. The country first became indebted under the brutal dictatorship of the late 1970s and early 1980s, a period is known as the ’dirty war’ in Argentina, when 30,000 people were ’disappeared’ and loans poured into the military, speculation, capital flight and interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. payments.

In any case, default was undoubtedly the right thing to do. After several years of stagnation Argentina’s economy started growing within a few months.

Even when right, default is never pain-free. Argentina has spent many years convincing its creditors to accept a write down on their debts - essentially accepting they will not get all of their money back, and agreeing to a restructuring under which they will get some of it back.

Vulture funds have prolonged this difficult process significantly. In fact vultures never risked losing out in a default because they only buy debt cheap after a default has already occurred, or at least when it’s in sight. They then harass the country concerned to pay up, even while other creditors accept a more reasonable approach.

NML, based in the Cayman Islands, has been harassing Argentina through foreign courts for years. It claims Argentina owes it for bonds which it bought for only half their face value. Last month it won a stage of its case [5] in London, when the UK high court ruled that Argentina’s state immunity cannot be used to prevent NML from enforcing previous court judgments against the country.

NML is part of a lobby Lobby
Lobbies
A lobby is an entity organized to represent and defend the interests of a specific group by exerting pressure or influence on persons or institutions that hold power. Lobbying consists in conducting actions aimed at influencing, directly or indirectly, the drafting, application or interpretation of legislative measures, standards, regulations and more generally any intervention or decision by the Public Authorities.
group called the American Task Force Argentina which is trying to change US law to give more protection to the vultures. Their activities include pressuring the US Government to ensure no World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

funds are given to Argentina and trying to throw Argentina out of the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). . In other words, they aim to capture US foreign policy in order that this handful of creditors get paid.
Argentina’s problems today could well become Europe’s problem tomorrow. A recent article claims that hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. are buying up Greek debt [6] on the so-called ’secondary debt market’. Just as in the NML case, Greek debt is currently selling for 50 percent of its face value. The vultures could make a lot of money - and if Greece does default as seems almost certain, they will hound the country for years to come.

There are solutions to these practices, but they involve governments taking action which would protect people from the unscrupulous demands of vulture investors. This in turn means challenging the notion that the rights of finance trump the rights of people.

A piece of legislation proposed by Congresswoman Maxine Waters [7] in the US House of Representatives in 2009 would have capped the profits vultures could make on country debt to a certain percentage of what they paid for the debt. This would mean the type of legal activities vultures engage in against Argentina would be unprofitable.

Another solution which has been on the table for many years is the idea of a Debt Court - a neutral body at an international level which could write off debt which is unjustly contracted or is unpayable. Again, such a body would have the effect of making future loans more responsible because of the risk that irresponsible loans will not be paid back.

One way or another we must move the balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. against the ’right of finance’, towards the right of the people. This has been a serious matter for developing countries for many years. As the European crisis lurches into default, it’s time for people in the developed world to make sure their countries’ debt does not become rich pickings for the most unscrupulous of companies.




Nick Dearden is the Director of Jubilee Debt Campaign

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