The long 2nd Circuit Court saga between Argentina and hedge funds commonly referred to as "vulture funds," will likely come to an end soon. Judges in the 2nd US Circuit Court of Appeals gave holdout funds until April 22, 2013 to respond to Argentina's payment plan. In late March, Argentina outlined a payment plan that would give holdout creditors virtually the same deal that 93 percent of creditors took in 2005 and 2010 debt swaps.
"Argentina's payment plan protects the integrity of deals made with other debt holders, but most importantly it ensures that these holdout hedge funds can't take further advantage of the poor in developing countries," said Eric LeCompte, Jubilee USA Network's Executive Director. "We feel that Argentina's proposal to pay the holdout funds the same percentage as what was restructured in 2010 is a positive step."
In 2001, when Argentina defaulted on roughly $81 billion, NML Capital purchased some of Argentina's debt on the 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. "Vulture" funds buy the debt of poor countries or countries in financial distress for pennies on the dollar and then sue to make as much as a 400% profit. Jubilee USA Network introduced legislation in 2009 to stop these 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.
"The religious community has a deep commitment to protect the poor and the behavior of these vulture funds is morally bankrupt," said 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 and mobilized 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 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. On February 27, the federal appeals court heard new arguments on the case and later gave Argentina until March 31 to outline a payment plan. Argentina laid out a plan that would essentially give the holdout creditors the same deal as the majority of creditors that restructured. The court has now said that the vulture holdout creditors have until April 22 to respond to Argentina's payment plan.
As part of the 2nd Circuit Court Proceedings, 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. "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.
Jennifer Tong is the Communications Director at Jubilee USA Network, 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. www.jubileeusa.org