Quit Crying “Vulture”: Argentina, You Deserved This Ruling


EspañolBy Nicolás Márquez

As if the discredited and dilapidated populist regime of Cristina Kirchner was in need of more bad news — it is involved in scandals of destabilizing inflation and corruption — now the US Supreme Court has ruled in favor of Argentina’s bondholders. These creditors have been mislabeled “vulture funds,” a pejorative nickname that the defaulting debtor uses to qualify those who justly and legitimately demand what is rightfully theirs.

Vultures enough, Argentina is united for a national cause" appeared today in the streets of Buenos Aires. (@marianorinaldi)
“Enough with the vultures. Argentina is united for a national cause.” Posters on the streets of Buenos Aires. (@marianorinaldi)
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What Is a “Vulture Fund”?

It is nothing more than a venture capital fund or hedge fund that invests in the public debt of an entity that is considered weak or close to bankruptcy. The modus operandi of such funds is simply to buy public and private debt in crisis situations, usually at a significantly lower price than face value, while assuming the risk and effort associated with the litigation necessary to collect the full value of those bonds. In other words, these are investors who buy debt securities of countries in difficult economic situations at a low price and then litigate in international forums and try to collect the full value of those bonds.

The nickname “vulture fund” [i] is just a demagogic metaphor voiced by the usual irresponsible crowd that comprises the derailed Argentinean government. They are always ready to blame “international imperialism” for Argentina’s ills, not because of “colonialist conspiracies,” but due to inefficient and corrupt Peronista and/or interventionist administrations that have governed for decades virtually uninterrupted.

The Origins of the Novel

The disputed titles to the Argentinean debt in question were issued in 1994, by Peronista President Carlos Menem (during which Nestor Kirchner was a submissive governor) [ii]. That was under the Fiscal Agency Agreement, an agreement that prohibits the debt issuer from granting future creditors guarantees or conditions that are more favorable than the rest of the purchasers of said loan (what is known as a pari passu clause).

But after the 2001 default — following the overthrow of President Fernando de la Rua and the brief presidency of Peronista Adolfo Rodriguez Saa — Argentina offered first in 2005 and then in 2010 a debt swap to its creditors (during the governments of Nestor and Cristina Kirchner respectively). Both debt swaps reduced the principal, and payments were deferred. The deal was accepted by 93 percent of the bondholders.

So far so good, but what happened to the remaining 7 percent of bondholders who did not accept Argentina’s proposal, and still wanted to collect the full amount? On December 7, 2011, US Judge Thomas Griesa [iii] ruled in favor of the remaining bond holders (NML Capital, Aurelius Capital, and some individual stakeholders) and stated that Argentina had violated the pari passu clause. Griesa ordered the country to pay the full amount to the bondholders.

Argentina appealed this decision in the Second Circuit Court of Appeals. However, this Court confirmed on October 26, 2012, the orders issued by Judge Griesa and also stated that Argentina had violated the pari passu clause. Finally, under the leadership of the Kirchner clan, Argentina appealed the decision with the US Supreme Court, along with a gang of leaders that included Brazil’s President Dilma Rousseff (a former Marxist guerrilla) [iv], Mexican President Enrique Peña Nieto (belonging to hegemonic populist PRI [v], and even the academic endorsement of Joseph Stiglitz [vi], a known advocate of Keynesian economic politics.

Finally, on June 16, 2014, as is well known, the US Supreme Court denied Argentina’s makeshift appeal against the bondholders of the remaining unpaid sovereign debt, which amounts to approximately $1.33 billion.

The Kirchnerista “Arguments” and the Chauvinist Serenade

Argentina’s President Cristina Fernandez makes an appearance this month. (USA Hispanic Press)

The truth is that during this awkward period, Kirchner’s Argentina committed hilarious maneuvers. She refused to pay the debt in spite of the judicial outcome [vii] and alleged, among other nonsense, that it was biased for the US justice system to settle the dispute, because it “undermined the principle of fairness” — an unusual argument since it was Argentina itself that freely and voluntarily emitted its bonds in the unfriendly jurisdiction of New York City, where Judge Griessa works.

After discovering that these inadequate, third-world gestures weren’t providing any dividends to Kirchner’s stance, she tried to provide certain gestures of curious seriousness, to “improve [Argentina’s] image.” However, instead of sending a delegation of notable and prestigious scholars to the hearing convened by the Court of Appeals of New York, her administration sent the discredited Vice President Amado Boudou [viii], who is peppered with multiple corruption and embezzlement scandals weighing down on him [ix].

Meanwhile, as the court case has progressed through its natural channels, Argentina has suffered 28 asset seizures in the past decade, including the shameful seizure of the Liberty Frigate in Ghana at the Port of Tema in 2012.

As the old and popular aphorism goes, “the thief thinks that everyone is like him.” It appears likely that, following this maxim, the Kirchner government ended by pinning their hopes on the helping hand of an extrajudicial leader, anticipating that President Barack Obama would intervene on its behalf [x]. (The belief was that the United States is like Argentina and that the executive branch would violate the independence of the US judiciary.)

Obama’s alleged sympathy for the Argentinean position has been joyously recognized by the state-controlled propaganda arm of the Argentinean regime. That includes the newspaper Pagina 12 [xi], a loyalist outlet created in the 1990s with illegal funds provided by the criminal Nicaraguan guerrilla, as admitted by its founder and former director. [xii]

But beyond Obama’s personal tastes or preferences, the US justice system operates within the limits of the law and not at the behest of despotism, so Argentina now has no other option but to accept the consequences of a ruling that is consistent with the law.

In this regard, Argentinean jurist and market expert Carlos Maslatón has explained that Griesa’s ruling (later confirmed in various higher courts) “is overwhelming in legal definitions and policies that are diametrically opposed to Argentinean thinking [both the ruling and opposition parties] in relation to what it means to sign a contract, meet obligations, the effects of failing to abide by contracts, and in the rights of those who buy a sovereign bond either from the government or discounted in a secondary market … for the court this is simply the case of a contract where Argentina refuses to pay certain creditors for bonds that were issued by the country in 1994 using US laws.” Further, “the concept of a ‘vulture fund’ does not even exist in the securities markets or as a legal concept. This is another Argentinean political term that lacks all meaning when it’s time to collect a debt.” [xiii]

What Now?

After learning the extent of her most recent court defeat, the ailing President Cristina Kirchner did nothing more than what she’s done in the past: speak via the national broadcasting media and repeat her redundant jingoistic rhetoric aimed at denouncing “imperialism,” the “powerful,” and “foreign usurers” to justify future defaults and “righteous” statements of default [xiv]. She tirelessly pursues the repetitive goal of demonizing creditors that the ill-fated Peronista country had voluntarily entered and signed commitments with.

Yet not everything can be as easily resolved as throwing a party to celebrate “national liberation.” From now on, as political scientist Rosendo Fraga has pointed out, there are increased risks to face: “the decision of the court ends the injunction that protected Argentinean trade goods abroad, and vulture funds will surely advance on them. Two months ago, half of the US states sided with the position of the vulture funds, so it is in these areas where they will now move quickly to seize Argentinean assets. It is a delicate moment: markets for stocks and bonds will show steep declines, the country’s risk has risen, and so has the blue [black market] dollar. Therefore, now is a time for caution and not fiery speeches.” [xv]

The Tango Is Always Right

Once again, Argentina — that enviable classical liberal Republic that respected private property and individual liberties during the first half of the 20th century and was able to accommodate 20 percent of the world’s immigrant population with an extraordinary climate of upward social mobility — appears to have fallen prey to the lyrics to Gardel’s tango “Cuesta Abajo.” One stanza reads: “the shame of having been, and the pain of no longer being.” It’s nearly an exact description of the political and economic reality of a mysterious country that despite its great wealth and distinguished human resources, diligently strives to remain in the faded and insignificant place where it finds itself.

This article was originally published in the USA Hispanic Press.


[i] The market men prefer to speak properly and instead speak of distressed debt or “special situations funds.”

[ii] Former President Nestor Kirchner was governor of Santa Cruz Province from 1991 until 2003 when he assumed the presidency of the nation, which he then delegated to his wife Cristina Kirchner.

[iii] Thomas Griesa Poole was born in Kansas City, USA in 1930. He is a federal judge for the Southern District of New York.

[iv] Dilma Rousseff, a former guerrilla who took power in Brazil. Diario El Universo, Ecuador, Sunday, December 26, 2010 .

[v] The Institutional Revolutionary Party (PRI) is a political party in Mexico that kept the hegemonic political power over Mexico between 1929 and 1989 and currently holds power in this country once again.

[vi] Joseph Eugene Stiglitz, economist and professor, won a Nobel Prize in economics in 2001 and is known for his critical view of globalization.

[vii] Argentina refuses to pay vulture funds despite U.S. court ruling. lainformacion.com, Friday, 26.10.12.

[viii] Vulture funds: Boudou joins the official delegation to attend the hearing in New York. http://www.telam.com.ar/notas/201302/8775-fondos-buitres-boudou-se-suma-a-la-comitiva-oficial-que-asiste-a-la-audiencia-en-nueva-york.html

[ix] The vice president is increasingly complicated. Diario Clarín, Opinion. 06/13/14.

[x] It is speculated that President Obama would have been willing to mediate on behalf of the defaulting government and Cristina Kirchner’s wastefulness at the expense of his own compatriot Paul Singer, since the latter would be frowned upon by Obama for being a supporter of the Republican Party.

[xi] Obama played for Argentina against the vultures. The Obama administration objected to the authorization granted by Judge Thomas Griesa and members of the Court of Appeals of New York for information on Argentine assets and accounts abroad. By Thomas Lukin.

[xii] Jorge Lanata: secrets and sins of a journalist.

[xiii] Vulture funds do not exist, and Argentina will have to pay what they owe, by Carlos Maslatón. Infobae. Friday August 23, 2013.

[xiv] One of the most notorious cases occurred in December 2001 when the flamboyant and fleeting de-facto President Adolfo Rodriguez Saa declared a default in Congress amid public applause and cheers as if lawmakers were not facing an extreme institutional and economic gravity but were in a stadium celebrating goals from Diego Maradona Che Guevara.

[xv] “The victory of the vulture funds,” by Rosendo Fraga.

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