What’s Argentina’s Current Situation Regarding Vulture Funds?
To begin, let’s go back to The Bubble’s own Bianca Fernet’s explanation of how Argentina got into its (in)famous dispute with the so-called vulture funds and then look into the latest developments.
You probably know Argentina defaulted on US$100 billion in 2001. A group of hedge funds affectionately known as “vulture” funds purchased some of the defaulted bonds and refused to accept a debt restructuring that would have exchanged the original bonds for bonds worth 30 cents for every dollar. Instead, the vultures sued at face value.
New York Justice Thomas Griesa ruled that Argentina must pay these holdout creditors to the tune of US$1.3 billion in order to 1) continue making payments on the 30 cents-to-the-dollar restructured debt and 2) issue new international debt that may come into contact with US financial institutions. Argentina appealed the decision, but the US Supreme Court refused to hear it, meaning the legal battle reached an official end.
Where are we now? Argentina is in contempt of Griesa’s court for repeatedly and unapologetically attempting to evade his ruling. The country raised US$1.4 billion in May by issuing the BONAR 2024 bonds under local law — which therefore don’t fall under US law — but Griesa has yet to rule on whether the BONAR bonds constitute foreign debt or not. If he decides they do, he will be able to block their payment as that would fall under his sphere of influence.
In June, Griesa ruled that Argentina must pay an additional US$5.4 billion to 500 so-called “me-too” creditors. However, Argentina won a small victory in August when the 2nd US Circuit Court of Appeals overturned this particular ruling. (However, it said that Argentina must still pay the original holdouts).
The government scored another point in September when the United Nations General Assembly approved a resolution put forward by Argentina to create a new regulatory framework for the restructuring of the sovereign debt and avoid taxing litigation battles such as the one Argentina has with the funds. Sadly, this was an entirely symbolic win because, as a non-legal body, the UN has no way of enforcing said plan.
In the end, Argentina is beholden to the US Supreme Court because at the time of borrowing, Argentina explicitly stated that in the event of a problem, all arguments would be heard and decided by the courts of New York. So let’s take a look at what candidates have said about the litigation when it started and what they’re saying now.
What Are The Candidates’ Stances On The Vulture Funds?
Even though the three main candidates expressed opposing views at the time of the ruling in 2014, their opinions have become more similar the closer we’ve gotten to the elections. Essentially, they’ve all increasingly showed a willingness to negotiate with the holdouts and have highlighted the need to end the dispute.
Daniel Scioli – Victory Front
Lately, the FpV has been divided when it comes to agreeing on an official stance. While there are still members who cling to the current government’s refusal to negotiate, others point to the need to reach a quick solution. Scioli did what he does best and tried to find the middle ground.
The latest clash took place last week when Economy Minister Axel Kicillof said it was “strange to hear that there are people in Argentina who say we have to settle,” probably making reference to a statement made by Juan Manuel Urtubey — who, rumor has it, might be Scioli’s foreign minister should he win — stating the FpV candidate should seek a settlement with the holdouts if he won the elections on October 25.
Finally, Scioli said that even though negotiating is “not a priority” on his agenda, both he and the FpV are willing to do so: “Argentina has the will and the capacity to pay and everyone’s been saying that in their own way. There are people trying to create division [within the party] when they say Urtubey said this or that, but we’ve all been saying the same thing. Even Axel [Kicillof] himself stated he’s willing to normalize the situation,” he said.
Mauricio Macri – Cambiemos
The Cambiemos candidate’s stance has fluctuated as elections have neared. After Griesa’s ruling, Macri was vocal about his disapproval of the government’s strategy: “We have to avoid absolute default, sit down with Griesa, settle with this group of bondholders and see how we can pay them. We have a narrow margin to work with,” stated Macri at the time and added that not paying would return the country to a 2001-like scenario (when Argentina defaulted its entire debt and everything went to hell). When consulted about how he’d resolve the dispute, he said he’d be willing to meet the vultures’ demands: “If we have to pay, then we’ll pay.”
However, as the elections have approached, he’s adopted a different stance and stated he’d be a “tough negotiator” if elected President.
“Obviously, I won’t pay what I think is unfair, but what I’m not going to do either is scream and not fix things. We have to negotiate with Griesa,” he said.
Predictably, Macri’s “pancakism” (flip-flopping attitude — read all about it here) on the matter made him the perfect target to get shit on by all ends of the political spectrum.
Sergio Massa – A New Alternative
Massa stated Argentina needed to normalize the situation right after the news broke in June 2014: “This ruling is not a punishment to a government, but a sanction to Argentina, which has to resolve its situation in the international market.”
Much like the other main candidates at the time, he pointed at the need to negotiate fairly: “Argentina doesn’t have to get down on its knees to go to Griesa’s office,” said Massa, whose official macroeconomic platform also indirectly highlights the need to end the dispute, since it promises to “generate a stable environment to attract investments by establishing clear rules and creating trustworthy institutions so that investing in the country is not a high-risk operation but a safe bet for the future.”
Margarita Stolbizer – Progressive Front
Stolbizer has been very critical of the way the government has handled the conflict and called its attitudes “erratic” and “highly improvised”: “The government lacked strategic vision. We have to be careful it won’t want to turn this into an ‘epic battle’ against the vultures. It ends up tricking people to support something that doesn’t have the best future in store.”
Even though a statement from Stolbizer about a possible solution was nowhere to be found, the Progressive Front’s foreign affairs platform does provide some hints about what she would do. A passage from her platform alleges she would “return Congress its role in the payment of the nation’s home and external debt, guaranteeing a policy of public sovereign debt that would be compatible with national growth.”
Nicolás Del Caño – Leftist Workers’ Front
Faithful to his party’s style, Del Caño has always been against paying the country’s foreign debt. He’s put all three main candidates in the same bag and claimed the solutions they propose will return the country an early-2000s panorama: “It’s extremely important for the working class to remember what the 2002 devaluation did to salaries because Macri, Massa and Scioli plan on taking the same measure: paying the vulture funds, devaluating the currency and taking more debt.”
“We are the only ones who propose something different to make sure our economy doesn’t remain stagnant,” he said.
Adolfo Rodríguez Saá – Federal Commitment
“All debt-related issues have to go through Congress.” With those words, Rodríguez Saá avoided saying anything with substance.