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With the title ‘How hedge funds held Argentina for ransom’ Martin Guzman and Joseph E. Stiglitz (*) state: ‘Perhaps the most complex trial in history between a sovereign nation, Argentina, and its bondholders — including a group of United States-based hedge funds — officially came to an end yesterday (March 31) when the Argentine Senate ratified a settlement.’
The payment to the hedge funds, one of them co-led by Paul Singer, had been resisted by the previous Argentinean government for years but the new president, Mauricio Macri, decided to bring the country into deep debt giving the vultures the US$4.65 billion which represent a return of 1,500% on their initial investment. It is important to note that there was no loan or investment by these funds to Argentina but they simply bought the debt at a heavily discounted price when Argentina’s economy collapsed in 2001 and refused to accept the restructuring of the debt negotiated with more than 90% of investors. In 2012 US Judge Thomas Griesa ruled in favour of the vulture funds in order to make Argentina pay them at full value and huge profit.
According Greg PALAST, US investigative journalist, Paul Simger invested heavily in the campaign that led to President Macri being elected. During the US presidential campaign he is supporting Rubio, for the same reasons, to make sure vulture funds get their ill gotten money. Hillary Clinton called him a ‘financial terrorist’ and Bernie Sanders has also denounced his tactics.
Now that the Argentinean Senate has finally ratified President Macri’s settlement (surrender) and also paid the legal fees for the vultures a precedent has been established that threatens many other countries in similar conditions:
‘This resolution will carry a high price for the international financial system, encouraging other funds to hold out and making debt restructuring virtually impossible. Why would bondholders accept a haircut if they could wait and get exorbitant returns for a small investment?’ explain Stiglitz and Guzman.
‘Most countries are (they add) intimidated by the creditors and accept what is demanded, with often devastating consequences. According to our figures, 52 percent of sovereign restructurings with private creditors since 1980 have been followed by another restructuring or default within five years. Greece, the most recent example, restructured its debt in 2012, and only a few years later it is in desperate need of more relief.’
Before the change of government Argentina took to the United Nations the need to regulate the behaviour of vulture funds, and the UN overwhelmingly approved nine principles that should guide sovereign debt restructuring. Countries that voted against the proposal included those most likely to house the hedge funds involved in vulture behaviour, making it less likely that the UN guidelines will have any real effect.
(*) Martin Guzman, is a research fellow at the Columbia University Business School and a senior fellow at the Center for International Governance Innovation.
(*) Joseph Stiglitz, a professor at Columbia, won the Nobel in economic science in 2001.