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Stop feeding the vulture funds: Argentina’s agreement to hand over $4.65bn proves the world needs a new, fairer insolvency regime

Added 01 Mar 2016
March 1 2016

Argentina’s ‘agreement’ to award vulture funds US$4.6bn (€4.26bn) demonstrates why nations need a new global system to resolve debt issues and avoid being held to ransom.

While 93% of Argentina’s creditors agreed to reduced repayments in order to restore the country’s solvency after the debt crisis of 2001, a group of ‘vulture funds’ bought up some of the debt at a cheap price, and sued for full repayment.

This week they won, following years of litigation. The vulture funds - NML Capital, Aurelius Capital Management and two other hedge fund creditors – stand to make up to 1000% profit, which Argentina will have to finance through more borrowing.

Bodo Ellmers, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad), said:
“The perverse truth is that this payment is only possible because the vast majority of cooperative creditors restored Argentina’s solvency. Now Argentina needs to borrow even more money to pay the vultures – a huge sum for a country struggling to finance many essential services. This disgraceful situation is allowed because no insolvency regime exists that can enforce all creditors’ participation. All governments must now come together to resolve this unacceptable situation.”

Last year, the United Nations attempted to set up a new sovereign debt restructuring regime, but all attempts to debate the issue were boycotted by the US and EU governments.

Ellmers added: “Argentina should send this $4.65bn invoice straight to Washington, London and Berlin. They are the governments that have allowed the vulture funds’ strategy of non-compliance to pay off.”

Argentina is the second major feast for the vulture funds in recent years. In Greece, creditors holding bonds worth €6.4bn refused to participate in a 2012 debt restructuring. The Troika then forced Greece to pay them in full - using Greek as well as other EU taxpayers‘ money.

The UN is mandated to make a new attempt to create a fair and effective insolvency regime for states. This work is expected to resume in the Autumn.

Ellmers said: “This time we want to see European and US diplomats at the table. Citizens are tired of seeing their governments feed their tax money to predatory vulture funds bent only on making obscene profits. If things don’t change, they will continue with their destructive business model.”

ENDS

Media contact: Julia Ravenscroft, Communications Manager at the European Network on Debt and Development (Eurodad) on jravenscroft@eurodad.org/ +32 2 893 0854.


Notes to editors:


• The agreement, made between 28 and 29 February and conditional on Argentine parliamentary action, means that Argentina will make a cash payment of US$4.65 billion to the vulture funds Elliott Management, Aurelius Capital, Davidson Kempner and Bracebridge Capital. This agreement complemented a number of smaller agreements already made with other holdout creditors since January.

• The United Nations General Assembly passed a Resolution (resolution 68/304) to setup an Ad Hoc Committee mandated to create a multilateral legal framework for sovereign debt restructurings on 14 September 2014. Following the boycott of the Committee’s work by the USA, EU and other developed countries, the Committee developed the ‘Basic Principles on Sovereign Debt Restructuring’ as an interim step. These Principles were adopted by the UN General Assembly on 19 September 2015 by 136 votes to 6, with 41 abstentions (resolution 69/319). The countries that voted ‘no’ were Canada, Germany, Israel, Japan, Germany, United Kingdom, and the USA.