The Vultures are circling again

Not_a_Common_Visitor_to_SomersetI am from Argentina and was only 18 years old when my country fell into the deepest of crises. Back then our economy didn’t make much sense: we were seriously misgoverned, had an expensive currency and phrases like “Country Risk”, “Foreign Debt” or “Default” were heard every day in the news.

Eventually everything crashed down, there were riots in the streets and we ended up having 5 different presidents in just one week. I wish I was kidding but I’m not.

What I didn’t know was that whilst everybody was losing their money, a few others were getting ready to make huge profits. Before the government defaulted, a sizeable part of the debt was bought by a Vulture Fund. If you’ve never heard of Vulture Funds before, it is because they operate mostly in Africa and Latin America, where the economies are weaker and the governments easier to push around.

Vulture Funds are hedge funds that buy debt from companies or countries that are near bankruptcy at very low prices so they can sue them for the full value of the debt later on.

These organizations add no value whatsoever to the world’s economy; they aren’t legitimate investors trying to provide funds that would allow countries to grow. What they do is hinder all efforts to fight against poverty. 1st World nations and international organizations like the IMF spend billions of Dollars and Euros in debt relief plans only to have Vultures take part of that money.

In Argentina, the government is currently appealing a court decision in the US ordering the state to pay their Vulture debt collectors. There are 1.330 billion dollars at stake and it is very likely that other entities will join the “let’s sue Argentina” club causing another economic collapse. To make this situation even more complex, there are other debt holders who were legitimate investors who should be entitled to every dollar they loaned us. Winning this lawsuit would give us the possibility to re-negotiate this debt, and to help the Argentine economy move forward. Losing it would place us dangerously close to another default and another catastrophic crisis.

Fortunately some organizations like the Jubilee Debt Coalition have made some progress at slowing down their actions  and the U.K. passed the Debt Relief Act in 2010 placing a limit on the amount of debt they can collect. I hope more countries can follow this example, take things even further and ban Vulture Funds. If we ever want to have a world without poverty we need to protect countries from those who profit from crisis.

Increasingly often the world receives turbulent reminders of what happens when we let financial gamblers follow their hearts. Such dangerous international speculation needs to be stopped. It is preventing genuine beneficial investment, it is keeping the developing world poor.

I just hope that one day we can send the vultures to bed without dessert. As for Argentina, we shall see what the outcome of the appeal is. Growth or collapse, the effect it has will be very obvious.

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Federico Marucco is The Libertarian Press’ Argentine correspondent.

Comments

  1. Michael JR Jose says:

    Personally I think the vulture pols and bankers are to be blamed – why do business with a so-called ‘vulture’ fund if you know it is? It makes no difference whether the bonds were bought in the secondary or primary market, the Argentinian govt knows who it owes money to, because the registrar for the national debt tells the central bank who owns it and how much they are to paid in interest.

    Or perhaps you think that the total dishonesty and incompetence of Argentinian pols and bankers who run up unpayable debts should be rewarded by just allowing them to walk away from their debts? Perhaps you are just a no-hope banana republic and we should just write you off and never lend to you again. And are the people (who sensibly keep very quiet) who are resident in Argentina, both now and then, who saw it all coming and switched their savings in to Swiss francs or gold and silver bullion (held out of the country in banks and depositories), vultures too? Or are they just law-abiding and prudent? Perhaps you think the coming US-debt-default-of-all-time is just to be written off as bad luck and unforseen chaos, and that the equally corrupt ‘Republican’ and ‘Democrat’ (whatever the difference is between them now) pols are to be let off and allowed to continue? Your thoughts?

  2. Federico Marucco says:

    In this article I tried to shed light on the issue of the Vulture Funds and the fact that they do not operate as legitimate investors but as a lawsuit factory. That is the scope of the article.
    Argentinean politics and bankers are also to be blamed since they put us in this position on first place. As I pointed out on the article, we have a lot of legitimate debt that we must cover (i.e. the debt we hold with Italian pensioners) and I hope we do it soon. The fact that I did not cover every aspect of Argentina’s debt and that some of my countrymen are guilty of Capital Flight does not mean that all the people responsible for our economy are automatically absolved. They are such a huge topic to cover that I would need to write an entire book to give it the treatment it deserves.
    About the “No-hope banana republic” bit and the liberal use of straw men… let’s keep this conversation civilized, shall we?

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