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| Proletarian issue 61 (August 2014) |
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| Vulture funds swoop on Argentina |
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| The US plays a dirty trick on its imperialist rivals, and a whole nation could pay the price. |
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After having defaulted on its foreign debt in 2001 after years of political and economic turmoil, Argentina is close to being forced to do so again owing to imperialist bullying and meddling.
Following decades of military dictatorship and neoliberal economic experiments, Argentina was faced with hyperinflation and economic collapse. In 2001, the country finally declared that it could no longer pay its creditors and defaulted.
Subsequently, over the course of various debt restructurings, the vast majority of the country's creditors agreed to accept significant write-downs of 70 percent, but a small minority held out for repayment in full. And now, thanks to an outrageous court ruling, these ‘hold-out creditors’ are on the verge of bringing down the Argentine economy once again.
Led by notorious billionaire speculator Paul Singer and his New York hedge fund NML Capital, the group of vulture capitalists (as Argentina's president Cristina Fernández de Kirchner has correctly dubbed them) have been suing Argentina in courts around the world for over a decade. The New York judge’s most recent decision has given a huge boost in their parasitic venture.
Singer is no stranger to getting rich by taking advantage of exploited and oppressed countries in economic trouble. “In 1995 [he] bought Peruvian bank debt for $20m and then sued until he got a $58m payout [and] in 2002 and 2003 Singer made over $100m in interest alone from buying $30m worth of debt owned by Congo-Brazzaville.” (‘ This is how a hedge funder brings an entire country to its knees ’ by Linette Lopez, businessinsider.com, 27 June 2014)
A fine example of the parasitism of imperialism he is!
Only a few weeks ago, an agreement was reached between Argentina and the so-called Paris Club of creditors (an informal group of financial officials from 20 of the world’s leading capitalist economies who have agreed to the restructurings) that seemed to have finally ended the disputes. The government agreed to pay $9.4m in two instalments by 2015.
However, while the Paris Club may seem like the 'good' creditors next to the vulture funds, it is quite obvious that their stance is in fact an act of business calculation rather than good will. Instead of hoping for potentially high but risky returns in the distant future, they have cut their losses and accepted a lower but secure repayment.
Creditors like NML Capital are speculating in the opposite way, and now a friendly New York judge has ruled that payments to the Paris Club would be illegal if the hold-out vultures are not also paid, according to a pari passu clause in the bond contracts.
But not only does this include bonds issued in dollars under US law but also those outside US jurisdiction – including, for example, those issued in Euros under English law. If this ruling were enforced, nobody would be able to lend money to Argentina and expect it to go anywhere other than straight into the maws of the vulture funds, effectively preventing Argentina from borrowing at all and paralysing its economic activity totally – to the frustration of many a multinational concern hoping to do business in the country.
As we go to press, the vulture funds are claiming a victory and demanding their money, the imperialist press are announcing another default, and Argentina is denying that the country is defaulting, saying that it is willing and able to pay all the Paris Club creditors that had agreed to the new terms. By forcing the issue, the vulture funds are not that likely to get paid themselves, since the country will simply have to default again – but they will ensure that no-one else gets paid and that the country’s economy collapses.
One thing that this whole saga highlights is the parasitic nature of imperialism, and the contradictions between oppressor and oppressed nations that remain despite formal decolonisation. Individuals like Singer are able, and encouraged, to accumulate vast sums of money not only by engaging in entirely unproductive activity, but by actively ruining the lives of hundreds of millions of people.
But it also highlights the contradictions between imperialists themselves. On the one hand, within the US itself: the government advised the judiciary against such a ruling but was ignored. And now there is disagreement over whether the decision will make New York more or less attractive as a financial centre.
One 'senior European banker' is quoted as saying that he “would not want to choose New York over London”, while others have celebrated the court's decision. (Quoted in ‘ Argentina in default as contest with holdouts enters endgame ’ by JP Rathbone, ft.com, 29 June 2014)
Despite all the talk of a 'special relationship' and the popular view of Britain as the lapdog of the US, the two countries remain in the end imperialist rivals, with competing financial centres of parasitism.
Whether or not this ruling can be enforced is also likely to show how far US imperialism is in decline. The US has asked foreign banks to refuse to handle Argentine debt repayments, but it is highly unlikely that they will all comply.
Just like unilateral military aggression, the US is finding it harder and harder to exert 'soft power'. This can also be seen with regards to the US’s sanctions on Russia and the opposition to them coming from capitalists in European countries such as Germany and Austria.
The shift towards a more multipolar world will also be aided by the recently established BRICS bank, which is intended to undermine the institutions of US imperialism that are the IMF and World Bank. (‘ BRICS establish 100bn dollar bank and currency pool to cut out western dominance ’, rt.com, 15 July 2014)
The timing of this could not be better for Argentina. Furthermore, following a state visit by President Xi Jinping, China has announced it will deepen its ties with Argentina, which hopefully means that the latter will not have to deal with US imperialism and its vulture funds alone.
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