Campaigners slam 'vulture fund' attack on Argentina

The recent seizure of an Argentine naval ship in Ghana by a vulture fund has served to highlight the nefarious role of such funds.

JUBILEE Debt Campaign, a UK-based coalition campaigning for cancellation of unjust and unpayable debts, has condemned the latest move of vulture fund NML to seize an Argentine naval ship in Ghana in an attempt to get a payout on odious Argentine debt. NML is owned by US hedge fund Elliott Associates, run by Paul Singer, one of Mitt Romney's major donors. The ship has been impounded by a Ghanaian court.

Nick Dearden of Jubilee Debt Campaign said: 'This case shows how, despite political progress, vulture fund activity is still thriving. For well-known figures in the financial and political world to be involved in profiteering from economic crises is something which many people find abhorrent. Over 10 years after doing the right thing by its people, and defaulting on unpayable and often odious debts, Argentina is still not free of these hedge funds.

'Leaving financial markets free to make profit at any price has already plunged the world into a deep economic crisis. Vulture funds are a prime example of unregulated finance. If we don't take fundamental action to deter the vultures, the situation faced by Argentina today will be faced by Greece and others tomorrow.'

Vulture funds are companies that buy up defaulted sovereign debt cheaply in order to sue the country concerned for the full value of that debt. These companies have blighted countries like the Democratic Republic of the Congo, Zambia and Liberia for years, threatening to drain their already-depleted treasuries in order to make a substantial profit.

The UK government passed a law in 2010 that effectively made such activity impossible against low-income countries in UK courts on the basis of old debts, but it does not cover middle-income countries like Argentina.

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. It is based in the Cayman Islands.

NML's claim is based on debts which Argentina defaulted on back in 2001. Much of the debt from this time was regarded as illegitimate by Argentina's people, originating in the brutal dictatorship of the late 1970s and early 1980s, a period 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. At the time of the default, Argentina had experienced three years of recession and over half the population - 20 million people - were living below the poverty line.

Most of Argentina's creditors from this time accepted a restructuring of their debt, but a number of vulture funds such as NML 'held out' against such a deal, even though the company bought the debt for only half of its face value, knowing the country was in economic crisis. - Jubilee Debt Campaign

The background IN December of 2001 the government of Argentina defaulted on about $81 billion (plus interest) of its sovereign debt, as a result of a general economic collapse that followed a deep recession. In 2005 about 75%   of the defaulted bondholders reached an agreement with the government that paid about 30 cents on the dollar. The remainder, with some $19.4 billion, held out with the hope of getting more later. The holdouts have a lobby group in Washington, the American Task Force Argentina (ATFA). It is headed by former Clinton administration officials, who are trying to use Congress to put pressure on Argentina. The lobbyists include vulture fund investors, who buy up defaulted debt at a small fraction of face value and then use lawsuits and other pressure tactics to fight for the face value of the bonds. Who are the constituents that ATFA represents? A look at 15 bondholders that hold more than $25 million each in claims against Argentina shows that nine of them have addresses in the Cayman Islands. One of these is NML Capital Ltd, a vulture fund affiliate of the hedge fund firm Elliott Associates (a member of ATFA), run by founder Paul Singer. According to Bloomberg News, NML Capital bought at least $182 million of Argentine debt for 15-30 cents on the dollar. Singer has taken a gamble that paid off in Peru in 2000. He made a 400% profit from the Peruvian government through lawsuits and pressure.

Source: Mark Weisbrot, 'Vultures circle Argentina', www.guardian.co.uk, 5 June 2009

*Third World Resurgence No. 263, July 2012, p 12