Recent decision in favour of “vulture funds”: A new page in the story of illegal and illegitimate debt

12 September 2013 by ATTAC/CADTM Argentina , CADTM AYNA

CC - Antonio Marin Segovia

The recent decision by the New York appeals court declaring that Argentina must pay its holdout creditors in full demonstrates that until Argentina repudiates its illegal and illegitimate debt, it will continue to be harassed by international capitalism.

The case concerns 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 purchased Argentine bonds in 2001 at 20% of their face value, then refused the exchange offer made in 2005, which was repeated in 2010, preferring to prosecute Argentina in New York courts. Government guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). that State of New York jurisdiction mentioned in the bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. contracts gave them the right to do this, and included the renouncement of any claims of sovereign immunity or most favoured creditor status. This was a standard condition in Argentine sovereign debt Sovereign debt Government debts or debts guaranteed by the government. emissions throughout the 1990s and during the Kirchner period.

Limited by its own actions, the government’s reaction to the ruling has been limited to confirming its own commitment to pay, and trying to curry the favours of the US justice system and the international financial sector. It is hastily presenting a law to congress that will reopen negotiations with the 7% of holdout bondholders in the same conditions as in 2005 and 2010, and moves the payment office of the renegotiated bonds that resulted from these offers to Argentina, so as to guarantee payment possibilities should Argentine assets be seized or impounded following this New York ruling.

The capacity of public authorities to borrow in order to repay existing debts has reached its limits (BCRA, ANSES, National Bank, etc. ), the government may find it necessary to return to international capital markets to continue refinancing its debt. This provides the World’s powers with the means to pressure our country into reimbursing 100% of the debt to the holdout investors and the Paris club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.


Creditors will clearly try to maximise their gains, as is the case of the New York holdout creditors, but this does not imply that the government offer to pay in the same conditions granted under the 2005/10 exchange is not already a fabulous deal for the creditors. Although the initial agreement reduced the amount by 43.3%, the difference was made up within a few years through payments linked to growth in GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
. In this way alone, $15 billion – of an estimated total of $40 billion— has already been repaid. To this must be added, 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. , currency adjusted bonds and repurchase agreements.

This huge outflow explains, in part, the fiscal unbalance that the country is experiencing and the measures taken to adjust to it, but beyond the official position of debt reduction, public debt is still the most important element in our economy. As the president has recently acknowledged nearly $174 billion has been paid since 2003. This incredible figure shows that without debt repayment, there would be no need of foreign borrowing or foreign investments, and that funds would be available to assure indexed retirement benefits at 82%. Resources exist, they simply must be reallocated.

But what the president does not say is that total debt has increased from $144.212 billion in 2002 to $209 billion today, yet nearly $174 billion was paid back during that same time . These figures demonstrate that this debt is a gigantic fraud scheme, a system that expropriates the productive resources of Argentina’s workers. Its origin is illegal and illegitimate, and it has already been paid back several times over.

The first urgent measure is to immediately suspend payments for the time required to conduct an audit of the debt, which will highlight that it is both illegal and illegitimate. Hereby following the example of the emblematic process that began in Ecuador in 2007 when president Raphael Correa created, by decree N° 472, an audit of that country’s public debt, carried out by a special commission (CAIC) which identified the illegal, illegitimate and corruption-born part of its external debt. In our country we have the invaluable contribution of Alejando Olmos in the “Olmos” case, which proved the illicit nature of the external debt taken on during the period from 1976 to 1982, and established the responsibility of the dictatorial regime in contracting illicit and fraudulent debts repayable to international organisations such as the 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.
. Through periodical restructuring, this debt continues to this day and constitutes part of the Paris club claim.

The debt is also and above all, since the 1970s, International Capitalism’s favourite instrument of domination to impose its liberal agenda. Debt Repudiation is a legal process permitting the restructuring of the economy that has, over the last 35 years, favoured the productive extractive economic model imposed by international capitalism.

For these reasons, we call for an audit of the public debt, leaving the ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.
, and the construction of a new regional financial architecture (Bank of the South, SUCRE, ALBA Bank) as a necessary step towards the construction of an anti-capitalist project aimed at meeting the needs of the people.

There is no other way. As Alejandro Olmos said: “Either we serve the interests of the people against those of debt, or we are against the people and serve the interests of debt.”

Translation : Mike Krolikowski and Charles La Via

Other articles in English by ATTAC/CADTM Argentina (4)


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Abya Yala is the name given by the Kuna Indians of Panama and Colombia to the American continent before the arrival of Christopher Columbus and the Europeans. The expression “Abya Yala” means “land in its full maturity” in the language of the Kunas. The indigenous Aymara leader of Bolivia Takir Mamani proposed that all indigenous peoples of the Americas should name their homelands by this name, and use this name in their documents and oral declarations, arguing that “to place foreign names on our cities, towns and continents is to subjugate our identity to the will of our invaders and their heirs.” Abya Yala was chosen in 1992 by the indigenous nations of America to name America instead of Amerigo Vespucci.




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