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Europe should learn from Argentina’s experience of fighting off vultures, before it’s too late
by Nick Dearden
11 August 2011

Last year we won a campaign against what we call vulture funds [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.

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 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 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 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 funds are given to Argentina and trying to throw Argentina out of the G20. 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 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 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

Nick Dearden

is the director of Global Justice Now