Vulture Funds are just such a phenomenon. The idea that a billionaire hedge fund manager would make a strategy out of buying up the distressed debt of poor countries and attempting to squeeze hundreds of millions of dollars out of those countries regardless of the social cost is a testament to the power of greed. That there is virtual unanimity in opposition to that strategy even when the victim is not a poor country but rather a well-established economic power like Argentina is a testament to the degree to which Vulture Funds offend our basic sense of human decency.
But it’s also a testament to the fact that Vulture Fund Elliot Capital Management is attacking more than just Argentina; it is striking at the foundation of sovereign debt restructuring agreements and at the international system of global finance that lies beneath. By asserting that it has the right to be paid in full for debt that it bought cheaply on the secondary market, and to be paid in full immediately, billionaire Vulture Fund manager Paul Singer is undercutting the ability of countries to restructure their debt with the thousands of creditors (including governments and multi-lateral banks) who were willing to work with the debtor collaboratively to ensure repayment. After all, why would anyone wait in line and accept 20% payment of their loan when they could push to the front of the line and be paid in full plus interest by using the types of aggressive tactics Vulture Funds have become known for?
And so as the Argentina Vulture Fund case heads to the Supreme Court, civil society groups like Jubilee are joined by powerful western governments and even the IMF in supporting Argentina.
Vulture Funds, it would seem, embody a greed that shames even the greedy.
Because make no mistake, the system of global finance that the IMF and US (and now France as well) are so keen to maintain is not one that benefits the global poor. Deals that restructure debt are usually laden with economic policy conditions that hypocritically demand austerity from the countries least able to afford it. They assume irresponsibility on the part of the borrower, even though the government that borrowed the money is often long gone, but ignore completely irresponsibility on the part of the creditor, who usually loaned the funds to corrupt and repressive governments knowing full well that they would be spent on weapons and champagne.
What Argentina did was forcibly wrest control of its own economy from the clutches of its creditors. From the time of its debt default until 2007, Argentina did this:
More than 11 million people, or 28% of the population, were pulled above the poverty line as Argentina’s economy grew by more than 50%. Its 8.2% annual economic growth was more than twice the average for Latin America. Unemployment has dropped from 21.5% to 8.5%, and real (inflation-adjusted) wages have grown by more than 40%. (LA Times, 2007)
As Mark Weisbrot of the Center for Economic Policy and Research (CEPR) notes, Argentina was successful largely because it took basic, sound macroeconomic steps to improve its economy, steps that are often precluded by IMF policies. And countries in the developing world are often subject to IMF dictates only because they are in debt, even though they are in debt in many cases largely because of irresponsible lending by the IMF and World Bank. (LA Times, 2007) The only way for those countries to break free of this system is complete debt cancellation, not conditional partial debt relief.
So saving the current system of debt restructuring agreements is not in the interest of the global poor. But Vulture Funds blow up that system much in the same way that a tsunami disrupted Japan’s nuclear power industry. In the short-term, they must be stopped.
In the long-term, the entire system must be changed.
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