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Renaud Vivien, No Need to Negotiate with Vulture Funds.

Originally published by CADTM here, during the negotiations between the liberal Macri Government of Argentina, then newly elected, and its creditors. In August 2019 the world saw the results of this disastrous policy, starting with with the collapse of the peso and of the electoral prospects of the Macri Government.

Some of these vulture funds had also attacked Greece, where the prospects of the current Mitsotakis Government look similar to Macri's. The Belgian Anti-vulture Fund Law, presented in the article, is sorely lacking in Greece too.

Translated from the French by Vicki Briault, Mike Krolikowski and Snake Arbusto (CADTM).

Argentinazo Revolt. Buenos Aires Obelisk, December 20th, 2001. Photography by Dionisio Dennis

Since his victory in the November elections, the new President of Argentina, Mauricio Macri, has given priority to resolving the dispute between his country and “vulture funds” – investment funds that buy up heavily marked-down sovereign debt from hard-up States then instigate legal actions with the sole aim of making colossal profits. 1600% was the increase in value that a New York judge saw fit to demand of the people of Argentina in 2012. It is on the basis of this judgement, dubbed “the trial of the century” by some observers, that Macri is now negotiating.

“The trial of the century”

The New York judge Thomas Griesa arrived at this figure of 1600% by merely counting the face-value of the debt paper (bearing no relation to the purchase price paid out by the vulture funds [1]) plus the interest and then applying an erroneous version of the pari passu principle, which states that all creditors must be treated equally. Traditionally this legal principle means only that the debtor may not alter the conditions initially agreed with the first creditors who accepted debt rescheduling [2]. It so happens that the New York judge adopted a completely different interpretation based on a judgement pronounced in the Brussels Court of Appeal in 2000 to settle a dispute between a vulture fund (the Elliott Fund that turns up again in the Argentine case) and Peru [3].

According to this interpretation, applying the pari passu principle would give the minority of creditors who hold out against negotiations the right to be reimbursed at 100% of the nominal value of the bonds, plus interest. In other words, the negative consequences of this judgement on the fundamental rights of the Argentine population are not considered at all; no more than the speculative manoeuvring of those creditors along with their averred abuse of legal process. The fact that Argentina has already made an agreement to reschedule her debt with 93% of her private creditors is also totally ignored, as is the vulture funds’ categorical refusal to take part in two rounds of negotiations instigated by Argentina with all her private creditors in 2005 and 2010.

For Argentina, the negotiations failed before they began

Their position being strengthened by this judgement, the vulture funds are now ready to negotiate. Macri made them an offer of $6.5 billion, which would have meant a reduction of 25% of the amount fixed by the judge. The vulture funds had themselves proposed a discount of 30% to Macri’s predecessor, Cristina Kirchner, who had refused to concede different conditions than those agreed with the other 93% of creditors, who had accepted a 70% haircut following the negotiations in 2005 and 2010.

Among several vulture funds who have already accepted Macri’s offer are Montreux Equity Partners and Dart Management who also successfully attacked Greece in 2012 [4]. However four vulture funds [5] led by NML (Elliott), which belongs to the US billionaire Paul Singer, have still not accepted the offer and clearly intend to take maximum advantage of Macri’s extreme benevolence towards the holdouts and the financial markets in general [6]. ‎

It should be mentioned that Singer’s investment fund is notorious among political leaders and other creditors for bringing actions all over the world in the last twenty years, picking on such victims as the populations of Peru, Ivory Coast, Panama, Poland, Vietnam and the DRC.

Argentina trapped in a vultures’ nest

The deal that Macri has proposed, were it to be accepted, will have dire consequences for Argentina, well beyond the $6.5 billion to be paid. It would open up the way to further payments for all the other holdouts (the 7% of creditors who oppose debt rescheduling) to the tune of $15 billion [7]. This money paid to abusive creditors will automatically be deducted from social spending and will increase the State’s indebtedness. Moreover, in order to “honour” the vultures, the Argentine government has just borrowed $5 billion from a consortium of Wall Street banks [8].

And that will not be the end of it, as there are more repayments to come, such as those related to the transnational company Repsol. Following its nationalization in 2012, Repsol was exclusively compensated with State bonds at a face value of 5 billion dollars. The Argentine State has thus incurred a debt of $5 billion not counting interest. Argentina is also supposed to pay the member States of the Paris Club (the informal group of the twenty richest countries) $9.7 billion, $3.6 billion of which corresponds to interest on arrears! Yet these payments to the Paris Club relate to fraudulent debts which, among other things, served to finance the Argentine dictatorship, as was clearly brought to light by a judgement of the Supreme Court known as “the Olmos Judgement” in 2000. The payment of these debts could therefore be brought into question on the basis of this Argentine ruling and international law. Indeed, under international law, States are not obliged to repay debts in all circumstances, as was pointed out by the UN’s Expert on Foreign Debt and Human Rights [9], Juan Pablo Bohoslavsky, in his last report [10] presented to the UN General Assembly.

Under international law, States are not obliged to pay their debts in all circumstances

Like his predecessor Cephas Lumina, Juan Pablo Bohoslavsky refutes the usual argument that debts must always be repaid. He demonstrates that there are many exceptions inherent in the legal principle pacta sunt servanda (contracts must be honoured) cited by creditors in demanding total and unconditional reimbursement of debts.

[A]n absolutist view of pacta sunt servanda in the sovereign debt field cannot be understood to be a feature of customary international law” (paragraph 46). […] “If a State and its population must always repay debt under any circumstance, no matter the purpose for which the funds were borrowed, how they were spent or the amount of effort put into reimbursing them, this idea clearly relies on an overly simplistic notion of sovereignty and contract” (paragraph 49) [11].

Debt audits with citizens’ participation should therefore be carried out in order to elucidate all the ways in which the debts were incurred and to identify all the debts to be cancelled, that is debts that are shown to be illegal, odious, illegitimate or unsustainable [12].

Repercussions which go beyond the borders of Argentina

The fall-out from the current negotiations based on the New York ruling will be felt all over the world. They clearly give the green light to vulture funds to carry on with their nefarious scheme. They give legal validity to the Griesa ruling, with its biased interpretation of the pari passu clause which prevents any effective rescheduling of debt. This concerns all countries, North and South, as the recent attacks on Greece should remind us.

The countries most exposed to immediate threat are those States which are currently over-indebted and those at imminent risk of over-indebtedness. This is especially the case of low to middle-income countries that export raw materials (such as oil) that are experiencing dramatically falling prices. Such countries risk finding themselves in a similar situation to that of the 1980s. Then, the debt crisis that broke out in the South was due to the combined factors of the fall in the prices of raw materials and the rise in interest rates decided unilaterally by the US Federal Reserve in 1979. Faced with the risk of payment default, present-day creditors are highly likely to shuffle off their debts… which the vulture funds will seize upon, at knockdown prices.

And it is no good expecting institutional creditors to defend the States that the vulture funds have in their sights. For the last ten years the IMF, the World Bank, the Paris Club, the G8 and then the G20 have made a great public show of concern about the damage the vulture funds do and have been promising to put an end to it. However it is glaringly obvious that nothing serious has been done. The number of actions brought by these speculative funds has even increased since 2004 [13]. African countries are the main targets with an average of eight new trials a year.

Urgent action is needed, in face of a new crisis looming and the inertia of the international financial institutions and other cartels of creditors. Fortunately, the tools are available to all States to quickly put a stop to the vulture funds’ strategy. Here, we will limit ourselves to two existing legal tools: the adoption of laws against “speculative creditors” and the application of the UN General Assembly’s resolution on the restructuring of sovereign debt adopted on 10 September 2015.) [14]

How the law can stop the vulture funds in their tracks

States can act fast and effectively by passing laws to neutralize vulture funds; they need not negotiate with them at all. The UN strongly recommends such legal initiatives at the national level. For example, there is a resolution of the UN Human Rights Council (UNHRC) dated 23 September 2014 which “[r]eaffirms in this context that the activities of vulture funds highlight some of the problems in the global financial system and are indicative of the unjust nature of the current system, which directly affects the enjoyment of human rights in debtor States, and calls upon States to consider implementing legal frameworks to curtail predatory vulture fund activities within their jurisdictions;” [15]

This is exactly what Belgium has done by passing a Vulture Funds Act on 1 July 2015 [16]. This act was urged by the CADTM and the CNCD and 11.11.11 groups which represent Belgian organizations for North-South solidarity. The law, of which there is no equivalent elsewhere to date, prohibits any creditor who buys up debt from demanding more than the price he paid to acquire the debt when a minimum of two conditions are met. For the law to be applicable and for a creditor’s case in Belgium to be dismissed, the obligatory condition is “the existence of manifest disproportion between the value paid by the creditor to buy up the loan or the debt and the nominal value of the loan or debt, or else between the value paid by the creditor to buy up the loan or the debt and the amount he demands in payment.

Besides this obligatory criterion, the judge must also identify at least one of the following characteristics:

the debtor was in a confirmed or imminent state of bankruptcy or suspension of payments at the time when the loan or debt was purchased; the creditor’s company headquarters are in a tax haven [17] ; the creditor has systematic recourse to legal action to obtain repayment of the loan or loans that they had previously purchased; the creditor has refused to participate in debt rescheduling measures taken by the indebted State; the creditor has taken advantage of the indebted State’s vulnerability to negotiate a repayment agreement that is manifestly unfair; full reimbursement of the amounts demanded by the creditor would have a markedly adverse impact on the public finances of the debtor State and would jeopardize the socio-economic development of its population.

If the judge observes one of these elements, as well as the obligatory criterion, then the creditor’s claim is judged to be “illegitimate” according to the terms of the law [18]. Consequently, creditors thus designated by the law will only be entitled to repayment of the amount they paid for the State-backed debt. This includes cases where the creditor may have obtained a favourable decision in another country, for example a judgement handed down in the USA ruling that the creditor is entitled to be repaid 100% of the nominal value of the debt, plus interest. Quite clearly, if there is to be a complete stop to vulture funds’ actions, the maximum number of States should pass such laws.

The example of the Belgian law, backed by the UN, shows that it is perfectly possible for States to adopt legitimate unilateral measures against vulture funds. So governments cannot pretend that a solution is required at the supra-national level before they can act, especially as not one Western creditor State voted for the resolution on sovereign debt restructuring processes adopted by the UN General Assembly on 10 September 2015.

A State’s right to restructure its debt in line with the UN resolution of 10 September 2015

The particular aim of this resolution, voted by a very large majority (136 votes for, 6 against and 41 abstentions), is to counter vulture funds by indicating an international legal framework for the restructuring of public debt. Despite the fact that the resolution takes great care to preserve the interests of creditors and fails to lay down any new legal obligation, six States voted against it (the United States, Canada, Germany, Japan, Israel, the United Kingdom) while other European Union countries, including Belgium, abstained. By doing this they were contravening a resolution adopted by the European Parliament on 19 May 2015 which demands that the European Union should construct a multilateral legal framework for the restructuring of sovereign debt [19].

The obvious absence of political will to solve the problems of debt outside existing frameworks dominated by the creditor nations (the IMF, the Paris Club) may well encourage the government of a debtor country to take the lead not only in adopting laws against vulture funds but also – and this concerns all their creditors – in asserting “the right, in the exercise of its discretion, to design its macroeconomic policy, including restructuring its sovereign debt, which should not be frustrated or impeded by any abusive measures,” in line with the UN Resolution of 10 September 2015.


[1] For example the funds NML Capital (a subsidiary of Elliott Management) and Aurelius purchased $222 million of Argentine sovereign debt for only $48 million.

[2] See G. Mitu Gulati and K. Klee, “Sovereign Piracy” in The Business Lawyer, University of Maryland, vol.56, February 2001, p.640.

[4] In May 2012, in order to avoid threatened legal actions, Greece decided to repay €436 million of its debt contracted under foreign jurisdictions that came under foreign law. The fund Dart Management is thought to have received 90 % of that amount.

[5NML Capital (Elliott), Aurelius Capital Management, Davidson Kempner Capital Management and Bracebridge Capital.

[6] After the failed negotiations between Eurogroup and the Greek government (which had refused to use all legitimate means of pressure at its disposal against its creditors, such as the Audit Report of the Greek Debt Truth Committee) the Argentine case shows once again that the government of a debtor State has every interest in taking unilateral actions before negotiating begins, if they wish to reset the balance of power with regard to their creditors. The unilateral actions may be the suspension of debt payments, setting up a debt audit committee, establishing strict control of capital flows or even – as was the case of Argentina under Kirchner – refusing to obey a decision (judgement or statutory rule) that would disserve the population and/or that was a blatant violation of the right of peoples to self-determination. Such acts are thus in line with international law, which places the protection of basic human rights at the top of the hierarchy of standards.


[9] His precise title is: Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights.

[10] Report of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights (A/70/275).

[11] United Nations A/70/275* General Assembly Distr.: General 4 August 2015 Original: English 15-12541* (E) 031215 *1512541* 70th session, Item 73 (b) of the provisional agenda.

[12] See definitions for these different notions in the Preliminary Report of the Greek Debt Truth Committee

[13] Schumacher, C. Trebesch and H. Enderlein, “Sovereign Defaults in Court: The Rise of Creditor Litigation”, 23 June 2013, p.4.

[14] United Nations A/70/275* General Assembly Distr.: General 4 August 2015 Original: English 15-12541* (E) 031215 *1512541* 70th session, Item 73 (b) of the provisional agenda.

[17] The law mentions “a State or a territory taken from the list of non cooperative States or territories established by the Financial Action Task Force (FATF)”.

[18] Excerpt from the Belgian law relative to the fight against the activities of vulture funds: “When a creditor seeks illegitimate advantage through buyback of a State-backed loan or debt, his rights regarding the debtor State shall be limited to the price that he paid to buy back the said loan or the said debt. Whatever the law applicable to the legal relationship between the creditor and the indebted State, no enforcement order can be obtained in Belgium and no protective or forced execution measures can be taken in Belgium at the behest of the said creditor with a view to collecting a payment in Belgium if that payment would procure the creditor an illegitimate advantage within the terms of the law.” (Trans. VBM)

[19 point 46. “Insists that sustainable debt solutions, including standards for responsible lending and borrowing, must be facilitated through a multilateral legal framework for sovereign debt restructuring processes, with a view to alleviating the debt burden and avoiding unsustainable debt; asks the EU to engage constructively in the UN negotiations on this framework; urges the EU to push for the implementation of the UNCTAD principles of responsible sovereign debt transactions for both borrowers and lenders;”

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