31 July 2014 – Argentina has been judged to be in technical default on some of its debts as talks at the end of a 30-day grace period on a bond payment blocked by US courts broke up. (1)
It follows a case brought by two US vulture funds, NML Capital and Aurelius Capital Management, who bought Argentine debt for pennies in the dollar following its last default in 2001, and are seeking huge profits through the legal action.
Commenting on the situation, Sarah-Jayne Clifton, Director of Jubilee Debt Campaign said:
“This situation has been forced upon Argentina by predatory vulture fund speculators and the bizarre rulings of a US judge. Thankfully this time the default is unlikely to have a serious impact on Argentina. Its first default in 2001 actually kick-started economic recovery.”
“Paying the vulture funds, on the other hand, would be genuinely disastrous, leading to billions of dollars in counter-claims from other holders of the debt. This case will have a deeply troubling global impact, making it harder for countries across the world to resolve future debt crises.”
Argentina defaulted in 2001 following a two decades long economic crisis, a result of irresponsible lending to its military junta in the 1970s and 1980s and closely following IMF economic policy requirements. The 2001 default happened after debt payments reached a completely unmanageable 45 per cent of export revenues.
Prior to the default the Argentinian people suffered four years of recession. However, after the default its economy began to grow almost straight away. Through the 1990s economic crisis, the proportion of people living on less than $2 a day increased from 3% to over 20%. Following the default, the poverty rate fell rapidly, to 9% by 2005 and less than 2% today.(2)
US vulture funds NML Capital and Aurelius Capital Management bought debts following the default, knowing that Argentina was unable to pay. 93% of the country’s creditors agreed to reduce the amount owed to 30 cents in every dollar. The vulture funds refused to accept this and have been seeking payment in full through legal action in the US, through which Argentina’s debt repayments are routed. Analysts estimate that would represent a profit of over 1000%.
New York court Judge Griesa has ruled that the vulture funds should be paid in full before any other creditors are paid, and made it illegal for US banks to process Argentina’s payments to the 93% of creditors who accepted the debt restructuring unless Argentina pays the vultures. Argentina launched an appeal to the US Supreme Court but it refused to hear the appeal.
Much of Argentina’s large debt first originates from the military dictatorship in the 1970s, when more than 30,000 people were ‘disappeared’. Campaigners in Argentina are calling for an audit into the debt and the ending of payments on all illegitimate debts which originated in this period.
1. Reuters has reported that S&P has cut Argentina’s credit rating to ‘selective default’: https://twitter.com/davidgaffen/status/494580939201462273
2. World Bank, World Development Indicators database.