Untwisting Reality

Argentina: Under Attack of the Debt Vultures . . . or Rather of the War Hawks?

• By Poetry X
• 4 July, 2014
• No Comments

CURRENT EVENTS

The United States has bestowed the financials cartels of Wall Street way too many liberties, and now these companies are armed with lethal financial instruments that can bring down entire countries into total submission – among those instruments they have the so called hedge funds – extremely predatory speculator firms. Now, it seems the power of these financial groups, known as vulture funds, have gone out of hand and there are conflicts even among the financial class since their practices are driving the economic and financial system of developing countries to a total debacle [Wall Street Journal Jul 13-2014].

Argentina defaulted its foreign debt on 2001 but  by 2010 the majority of the bond holders agreed to new terms. However, 13 vulture fund entities refused to accept the restructuring of the debt. NML Capital,one of the vulture funds, had bought 1% of the defaulted Argentine bonds on 2008 and took Argentina to court demanding full payment on its defaulted bonds. There is plenty of evidence the vulture firms have been cashing in gains from hedging on these bonds [RT Aug 2-2014].

These vulture funds have prevented Argentina from borrowing on international markets taking the country to an economic crisis [Business Insider Jun 17-2014]. Among other actions, in order to collect its payment, NML Capital got the Argentine ship Liberty seized when coming from Ghana – there were at least 80 attempts to seize Argentinian state assets including the embassy in the US [Cristina Fernandez Jul 23-2014]. Argentina was even forced to pay to these vulture funds with the reserves of the Central Bank [Vtv Jul 2-2014] .

The U.S. Court of Appeals for the Second Circuit ruled in favor of the vulture funds to collect the full value of Argentine debt plus penalties. The court sentenced Argentina to pay $1.5B to these vulture funds. Thomas Griesa is the judge that gave the decision and he has become extremely unpopular even among his colleagues [Clarin Jul 3-2014].

NML Capital had paid $48.7M which represents just 20% of their face value of the bonds, but expects the payment $832M on 2014 – a win of 1608% of the original payment. That represents the face value of those bonds plus penalties, fees and hight risk interests. On top of that, Argentina must make the payment ahead of all the rest bond holders and in full [Democracy Now Jun 19-2014].

People may think the law must be followed so Argentina has to pay. But the reasoning behind this decision is not just immoral but inconsistent in terms of logic. The interest that judge Griesa is conceding to the vulture funds is applied only on high risk investments. which means the investor may not get paid.  However Griesa eliminated any risk of no payment and orders Argentina to pay a hight interest and at the same time secure the payments [Business Week Aug 7-2014].

Argentina went to appeal this decision to the U.S. Supreme Court. The U.S. Supreme Court was expected to overturn the decision but refused to even review the ruling. Note that The Supreme Court from 1969 until 2005 ruled in favor of corporation 50% of the time, but since 2011 until 2014 it has ruled in favor of corporation 88% of time.

The court decision could easily generate a domino effect and the other 92,4% of bond holders, that did agree to the restructuring – the ruling would give them legal ground to get same payment conditions. On top of that, this would devastate the financial systems around the world and even the United States would most likely be adversely affected. No country would be ever able to reach an agreement to restructure its debt during a crisis [Port Side Jun 17-1014]. Meanwhile EM, another vulture fund, filed a sue against  Argentina in the New York Court expecting to get $835M [RT Oct 25-2014].

One interesting point to notice is that Paul Singer has been banned from using United Kingdom courts precisely for these immoral practices. Also Europe and China have banned these firms from using their courts. However, these vulture funds can openly use U.S. courts that are funded with U.S. taxes.  Remember these firms are located on the Caiman Islands and on other tax havens, so they don’t pay taxes to the U.S.

To illustrate a little better the impact of vulture funds take the Cases of Congo.  During the dictatorship of Joseph Mobuto, that country got into massive debt. One of the project was a bridge that required $30M. Mobuto and the financiers involved got the money, but the bridge construction never started. FG Hemisphere, of Peter Grossman, bought $3.3M of that debt, and now they expect to cash in $100M – an amount that can save the life of 200,000 people in Congo. Note this directly affects Congo’s health program to control cholera’s rampant epidemic. Paul Singer himself bought part of Congo’s debt for $10M and expects to cash in $127M [Democracy Now Nov 22-2011].

HISTORY OF THE DEBT

Argentina for many years was the super star of successful capitalism. After years of bloody dictatorships and a controversial democracy, the country was submitted to the mandate of financial organisms such as the IMF, the World Bank and the Paris Club.

The current debt began to accumulate under the dictatorship. In the 90’s, already in democracy, Argentina became one of the most loyal applicants of the Washington consensus. In that way, Argentina fell victim of an extreme crisis. In an attempt to reduce hyperinflation, Argentina applied the convertibility law. The Argentine Currency Board pegged the Argentine peso to the US dollar between 1991 and 2002. This ceded the control over their monetary policy to the US Federal Reserve, which sparked rampant inflation.

In 2001 two corrupted financial mechanisms were applied on Argentina “Blindaje” and “Mega Canje” in trying to cure the deep recession but the situation got even worse [CFK Argentina Jun 16-2014]. By late 2001, unable to pay its huge debt, Argentina defaulted on its 80B foreign debt. Just three months after the default, the Argentine economy began to recover successfully but still with huge social problems [Cristina Fernandez].

In 2003 Néstor Kirchner is elected as president and starts negotiations on the foreign debt obligations but demanding fair conditions. In this way, Kirchner refused to keep applying the corrupt financial peddling of previous governments. His administration got significant fiscal and trade surpluses investing in social programs – its GDP had it biggest growth in 50 years, 5.56% from 2002 – 2010  [TeleSur Jul-7 2014]. Also, with help of Venezuela, Argentina paid off its debt with the IMF.

In 2005, 76% of the bondholders agreed to accept a restructuring of the defaulted debt slashing 70% of the face value on their bonds. By 2010, 92.4% of the bondholders had joined, accepting new bonds in place of the defaulted ones. Even the Paris Club agreed this conditions on a debt from 1956.

Argentina has made all of its payments on time on the new restructured bonds. By the end of 2011, Argentina achieved a record rate of employment, reduced poverty by nearly 70%.

POLITICAL PLOT

As greedy as these financial cartels are, the issue goes beyond a problem of economic interests. Keep in mind Paul Singer’s company extorted successfully  countries like Peru, Congo and also Detroit. Detroit is no a country, but we must know vulture fund pulled $12.9B  in earnings from the U.S. treasury in the auto bail out [678 Nov 6-2014]. They basically took possession of auto parts in Detroit. If the U.S. didn’t paid Singer, General Motors and Chrysler would simply go out of the market in just one day affecting at least 1M jobs. One important benefactor of this rip off was the Anne Romney, Mitt Romney’s wife making $15.3M in earnings [Nation Oct 17-2012]. In Africa the consequences of vulture funds have been mortal.  Countries were ordered to hand money destined to combat epidemics like cholera and ebola [Greg Palast Aug 18-2014].

There is a high political component with powerful interests at stake. Obama caved to vulture funds’ threat in Detroit, but President Fernandez has chosen to fight back. In South America, many countries have finally been able to position nationalist governments that tend to favor the demands of the public rather than the mandate of the infamous Washington consensus. In the effort, to discredit nationalist governments through destabilizing these left leaning governments, the US government institutions have protected these speculative groups. Don’t forget that for over 10 years Argentina has not get any loans from the traditional financial organizations.

The Supreme Court only needed four justices to grant a petition for review of the Argentina’s claim, and the governments of France, Brazil, Mexico, Nobel Prize-winning economist Joseph Stiglitz and some social organizations filed briefs with the Supreme Court supporting Argentina’s claim. For many, the US allowing this court backing up the vultures is an attempt to brake any development project with China and Russia [RT Aug 9-2014]. We must note President has the constitutional power to stop these vulture funds since this interfere with U.S. foreign policy.

It is widely known the IMF presided over Argentina’s terrible economic collapse of 1998-2002, as well as numerous failed policies in the years prior but on July 17, 2013, IMF Managing Director Christine Lagarde committed to file a brief with the Supreme Court. However the US government put pressure on  the IMF not to file their brief. Initially, the US government had filed a brief in the appellate case in favor of Argentina, but decided not to do so with the Supreme Court – The US pretty much stabbed Argentina from behind [New York Times Jun 22-2014].

The question is, who is behind this illogical move from the US not to put pressure on the Supreme Court to block the vulture funds? The vulture fund lobby, a well-connected group led by former Clinton administration officials, known as the ATFA (American Task Force Argentina) spent over $1M in 2013 on the case [Huffington Post Jun 26-2014]. In addition neo-conservative congress people and Florida political groups are famous for their hate against the Cuban government and its allies like Argentina. Also, the man behind the vulture fund problem is Paul Singer, the number one Republican donor and with links JP Morgan.

Under the constitution , the US president can block this case just like George Bush did regarding US assets that were going to be seized in Congo by the same vulture funds  [Real News Aug 8-2014 – Vultures Picnic].  Keep in mind the US has been able to impose its agenda on developing countries easily through their debt as an instrument of extortion. Argentina, heroically standing against this predatory financial practices, could put a precedent for nations around the world seeking justice regarding their controversial foreign debt.

It is important to know the Kirchner administration has been confronting a very virulent opposition since it took office in 2003. This opposition is present also on the street movements and the leaders of those manifestation have been in contact with the vulture funds groups, something that can easily be interpreted as treason.

On April 18th, 2014 a major manifestation against the government took place in the legendary Plaza de Mayo. But it was found on April 16th, two days before the manifestation, prominent representatives of those groups; Yamil Santoro, Maximiliano Mai and Luis Bugallo were in Sao Paolo, Brazil with ATFA (American Task Force Argentina). Among the members of ATFA is Elliott Associates a group that belongs to Paul Singer. Bugallo y Santoro themselves have affirmed there are many opposition personalities meeting the representatives of the vulture funds [LM Cordova May 20-2013].

Argentina is fighting an economic crisis and one of those mechanisms has been the system or fair prices to stop the prevalent speculation on the market. This plan is very similar to what president Nixon did in the US many years ago. Additionally, on January 24th, the Argentinian government decided to stop the unlimited purchase of dollars. Immediately, the inflation rose to $8 per Argentinian peso. But even worse, a black market took place paying $13 per peso, which is worsening conditions to fix the economy. The highly technical implications of the measures have given a wide spectrum to be exploited by the press.

Corporations and organizations like Royal Dutch Shell, the SRA (Sociedad Rural Argentina), Cargill, Bunge, Dreyfuss and ADM have been retaining up to 11M tons of cereal grain, just to worsen inflation inside Argentina. A day before the new rule on purchase of dollars took place, Luis Etchevehere, president of SRA, said they rather speculate with their money than producing products. The SRA is the principal organization composed of the groups that produce agricultural products. It is a group that fully supported the dictatorship and that fiercely opposes the gornvernment since Nestor Kirchner became president.

On September 2014 president Fernandez received death threats from the Middle East extremist groups. Later on October, the Argentinian government claimed they found out the threats had been sent from the US [The Guardian Oct 1-2014].