Not Venture But Vulture Funds Vs. Argentina
|August 4, 2014||Posted by Staff under Financial|
A 2014 excerpt of Telesur, July 30.
Vulture funds are hedge funds who buy from bondholders the debt of countries in economic crisis at very low prices and then when nations receive debt relief, or enter economic stability, they sue the country for repayment at face value. Vulture funds remain protected by the law, and generally win their lawsuits.
In 2005 under President Nestor Kirchner, Argentina exchanged US$62.3 billion of the US$81.8 billion in principal owed for a lower price.
A diverse group of holdouts representing US$18.6 billion did not tender their bonds and opted to litigate. Another US$12 billion was renegotiated in 2010 with most of the holdouts, but still around US$6 billion remained. Argentina was able to negotiate discounted repayment rates with the 92.4 percent of creditors but not hedge funds Elliott Management and Aurelius Capital Management.
As part of the struggle with the vulture funds, the Argentine navy frigate “Libertad” was impounded in Ghana in October 2012, at the request of U.S. hedge fund NML Capital Ltd, which says Argentina owes it US$300 million on bonds which have been in default since 2002. The International Maritime Organization (IMO) said the ship couldn’t be seized.
In a ruling by the U.S. Supreme Court this June, Argentina was ordered to pay the holdout vulture funds, who had demanded to be paid the face value of the bonds. The U.S. Federal Judge Thomas Griesa also ordered that the country could not pay its other creditors, without also paying the vulture funds, blocking the US$539 million payment made by Argentina in June 30 to the other 92.4 percent of creditors.
And Argentina is supposed to pay all its creditors the same. Therefore, if Argentine pays the vulture funds the full US$1.3 billion they are claiming, it could be forced to pay all the other creditors in full also.
Argentine President Cristina Fernandez de Kirchner said that the country would be forced into default if subject to pay this amount.
The IMF along with other international organizations and governments have supported Argentina on the grounds that the ruling could set a precedent, making the restructuring of unmanageable debt more difficult for struggling countries.
The vulture funds may be after Argentine natural resources, principally the second largest shale oil gas field in the world, Vaca Muerta, which is located in the Neuquen province of southwest Argentina.
Ed. Notes: Government bonds and debt in general is a trick as old as the hills. In the American Revolution, Congress paid soldiers with IOUs, which could not be used as real money, and never reimbursed the soldiers. So soldiers sold the scrip for pennies on the dollar to rich, insider speculators. Only then did the US Treasury, under the orders of Alexander Hamilton, pay the holders of the IOUs in full.
But why do governments borrow so much in the first place? Part of the answer is many are very corrupt; politicians and their business cronies steal from the public treasury. And they are wasteful, operating bureaucracies that are little more than welfare for the middle class.
Further, they hobble their economy — their small businesses and workers. They levy taxes on sales, incomes, and buildings. And they fail to recover the socially-generated value of land. That lets speculators under-use the best urban sites and when prime locations lie fallow, nobody can make any money there, so the economy is hobbled again.
Rather than borrow, all Argentina or any nation need do is look to its land for revenue.