As the dispute over the repayment of lingering debt by Argentina continues to drag on, U.S. vulture funds are seeking to cash in on huge profits from debt they purchased at bargain prices when the South American nation suffered a financial crisis in 2002.
The effects of Argentina’s “great depression” that lasted from 1998-2002 are still being felt and the country is still negotiating debt payments dating back to that crisis period. Still lingering today are claims from certain vulture funds seeking to make the country pay 100 percent on the dollar of its outstanding debt obligations.
Taking up this issue – including recent U.S. court decisions that are actually preventing Argentina from making its sovereign debt payments – is Dennis Small, the Ibero-American editor of the Executive Intelligence Review.
Small declares that “vulture funds are simply the worst of the worst” investments. “They are the tip of the iceberg of a usurious collection apparatus, which is not simply trying to collect 100 cents on the dollar as you said, which is true. But they’re doing is, having bought Argentine bonds at about four cents on the dollar.”
The vulture funds came in when Argentina was in default and in the middle of a successful renegotiation of its debt, which it did with about 93 percent of its creditors at the time (in 2005). It was able to reorganize the debt, at about 35 cents on the dollar, with 93 percent of bondholders going along with the deal, as well as international regulators.
Small points out one vulture fund that is represented by NML Capital controlled by Paul Singer, a principal backer of Republican U.S. congressional candidates.
The funds demanded 100 percent of the face value of the debt, despite having payed only 4 percent and then went to court to sue for the amount and lawsuits have dragged on for years.
A district court ruled in favor of the vulture funds and this decision was also recently backed by the U.S. Supreme Court. Argentina has pointed out that the latest court decisions effectively mean that the vulture funds would get – over a 5-6 year so-called financial investment – a return of 1,680 percent.
The reason the situation turned into a crisis is that Argentina wants to pay the 93 percent, and has made payments to the 93 percent who settled, over a nine-year period, according to Small. The recipients, those 93 percent, want to be payed in full.
“But the U.S. Supreme Court decision prohibits the fiduciary bank involved, which happens to be the Bank of New York, the trustee in the case,” Small said. “It prohibited them from transferring the payments which Argentina has made, to the 93 percent who settled.”
He added: “So in one sense, as the Argentine government has argued, it is not accurate at all to say that they are trying to make Argentina pay its debt. What the vulture funds are doing is they are preventing Argentina form paying the debt that has been legitimately renegotiated.”
Small predicts that the recent court decisions will have a broad impact worldwide. “And what this does in a word is to blow up and completely put a landmine under every single sovereign debt renegotiation which has occurred on the planet, both in the past, the present, and which is scheduled perhaps for the future, under conditions of a meltdown of the entire Transatlantic system.”
He said this is why many economists and world banks are concerned about what has been going on in Argentina. He also thinks Argentina might be so fed up with the way its debt repayment has been handled that its citizens might eventually rise up themselves in a Cold War-style bid to forge change.
“When people and nations reach the point where they say, ‘Enough is enough, we are going to fight because of very existence is at stake, who we are as a nation is at stake,’ that’s when you get major cracks in the whole system.”
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