The Debt ‘Trial of the Century’ – Vulture Hedge Funds v. Argentina
February 26th, 2013US Government Files Brief Supporting Argentina Faith Community to Vigil Outside Court Proceeding on Wednesday
On February 27th, two holdout vulture funds, including Paul Singer’s NML Capital, are in a New York Federal court verses Argentina. The Financial Times has dubbed the proceeding the “‘the trial of the century’ in sovereign debt restructuring.” The US Government filed a friend-of-the-court brief noting a ruling against Argentina could make it much harder for countries in financial recovery or countries facing economic stresses to access credit and debt swaps.
The faith community and other groups, organized by Jubilee USA, will vigil out of concern for poor people affected by vulture funds during the proceeding outside the Federal 2nd Circuit Court of Appeals Wednesday, February 27th starting at 1:00 PM in New York City. Vigils will also take place in London and Buenos Aires.
“If these vulture hedge funds win, it will mean they will more aggressively target poor countries in fragile financial recovery. If we win, it will mean that it will be harder for vulture funds to target the monies that develop social infrastructure in many poor countries,” said Eric LeCompte, Jubilee USA Network Executive Director. The US Province of the Missionary Oblates of Mary Immaculate is an organizational member of Jubilee USA, and has supported debt relief work for several decades.
In 2001, when Argentina defaulted on roughly $81 billion, NML Capital purchased some of Argentina’s debt on a secondary market. When Argentina defaulted, they restructured with some of their creditors in 2005 and 2010 but holdout creditors, led by NML Capital, rejected the proposal and sued Argentina for the full amount in NY courts – thus, naming NML Capital a holdout vulture fund. Vulture funds buy the debt of poor countries or countries in financial recovery for pennies on the dollar and then sue to make as much as a 400% profit off the backs of the poor. Jubilee USA Network introduced legislation in 2009 to stop vulture funds from making a profit off of poor countries. The International Monetary Fund and World Bank assert that vulture funds negatively impact debt relief and restructuring efforts in poor countries.
“Vulture funds hurt both legitimate investors and poor people. That’s why the US government got involved, that’s why the IMF and World Bank are against vulture funds,” stated LeCompte.
In June, these same vulture funds supported legislation in the New York State Senate and Assembly which would have allowed the funds to continue to litigate even after post-court judgment. Jubilee USA Network came out against the legislation by mobilizing 4,000 supporters in NY to write, e-mail and call their State Assembly and Senate Members. With American Jewish World Service, Jubilee USA put enough pressure on the New York legislative bodies to stop the legislation from coming to a vote.
In October, the vulture funds were able to convince Ghanaian Courts to temporarily seize an Argentine ship. The ship was eventually returned to Argentina. Then this past November, the vulture funds made a pari passu or parity argument in the US District Court and the court ruled in favor of the vulture holdout creditors. Argentina was ordered to pay $1.3 billion on December 15, the same date they were to pay the creditors that had restructured. Now, the federal appeals court has frozen the payout to hear new arguments on the case in the 2nd U.S. Circuit Court of Appeals in New York on February 27.
Jubilee USA Network is an alliance of more than 75 US organizations, 250 faith communities and 50 Jubilee global partners. Jubilee USA Network has won critical global financial reforms and more than $130 billion in debt relief for the world’s poorest countries. For more information please visit: www.jubileeusa.org