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Expected Hedge Fund vs. Argentina Ruling Will Impact Global Poverty
Any day, the US 2nd Circuit Court will rule between Argentina and hedge funds; the ruling will impact global poverty and poor country access to credit. Argentina preemptively filed an appeal with the US Supreme Court. Christine Lagarde, International Monetary Fund Managing Director, is requesting the Fund’s executive board file an amicus curiae brief to the US Supreme Court urging Argentina’s case be heard.
“The IMF understands the ruling will go well beyond Argentina - it will have serious repercussions on poverty around the globe. If these hedge funds win it will harm legitimate investors and poor people,” stated Eric LeCompte, Jubilee USA Network’s Executive Director.
In the early 2000s Argentina defaulted on nearly $81 billion in debt. NML Capital, a subsidiary of billionaire Paul Singer’s Elliott Management, purchased some of Argentina’s distressed credit. After the nation defaulted, ninety-two percent of the creditors restructured. Holdout creditors, led by NML Capital, rejected the proposal and sued Argentina for the full amount in NY courts where the original loans were contracted.
NML Capital is known as a “vulture fund.” Vulture funds are hedge funds that buy the debt of poor or financially-distressed countries for pennies on the dollar and then sue to make high profits. These funds often target monies allocated to benefit vulnerable populations in a poor country.
“The religious community is deeply concerned with any group that profits by taking from the poor,” noted LeCompte.
In addition to the concerns expressed by the IMF and World Bank, the US government filed an amicus or friend-of-the-court brief, during the 2nd Circuit Court proceedings, noting a ruling against Argentina could make it much harder for countries in financial recovery or stress to access credit swaps. Recently, German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany.
In June 2012, Elliott Management supported legislation in the NY State Senate and Assembly that would have allowed hedge funds to continue to litigate a country even after a court had ruled. Jubilee USA and partners prevented the legislation from being voted on.
In late 2012, NML Capital persuaded a lower Ghanaian court to order the seizure of one of Argentina’s ships the Libertad. Ghana seized the ship temporarily but later released it after the United Nations Tribunal on the Laws of the Sea noted that the seizure was illegal. Recently, Ghana’s Supreme Court condemned seizure of the Argentine ship.
At the end of 2012, Argentina was ordered to pay holdout creditors $1.3 billion due to the US District Court's interpretation of a pari passu, or parity clause. Argentina appealed and the 2nd Circuit Court suspended this ruling to hear new oral arguments in February. After arguments, Argentina was ordered to outline an alternate payment plan to holdout creditors. Holdout creditors rejected the proposal that was essentially the same deal that 92 percent of creditors previously took. In June, Argentina filed an appeal to the US Supreme Court, known as writ of certiorari, asking the court to overturn the US Circuit Court ruling ordering Argentina to pay holdout creditors.
“The faith community would like to see this kind of hedge fund behavior end,” said LeCompte. “It’s one thing to make a fair profit; it’s another thing to make an extraordinary profit off the backs of the poor.”
Jennifer Tong is the Communications Director for Jubilee USA Network. Jubilee USA Network is an alliance of more than 75 US organizations, 250 faith communities and 50 Jubilee global partners working. Jubilee's mission is to build an economy that serves, protects and promotes participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world’s poorest people. www.jubileeusa.org