Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.


Vulture court

Tim Jones explains why a US court ruling has forced Argentina into a debt default

October 1, 2014
4 min read

Tim JonesTim Jones is policy and campaigns officer at Jubilee Debt Campaign

  share     tweet  

On 30 July Argentina ‘defaulted’ on its debt for the second time in 15 years. The difference this time is that it is trying to pay but being blocked by a US judge. In 2001, Argentina’s default led to economic recovery and large falls in both poverty and inequality. Now, its defiance of ‘vulture funds’ – financial speculators seeking to profit from countries in debt crisis – and the US courts is crucial to the wider struggle for debt justice across the world as well as the Argentine people.

The story begins in the 1970s, when western banks awash with money from high oil prices lent large sums to the military junta. More than 30,000 people were ‘disappeared’ during Argentina’s ‘dirty war’, as the regime tortured and killed trade unionists, students and anyone believed to be associated with ‘socialism’.

Argentina’s debt soared as the junta was supported by loans from the World Bank and governments including the US and UK, as well as the banks. After elections in 1983, the new government was saddled with a huge debt, which undermined the economy throughout the 1980s.

In the 1990s, under Carlos Menem, Argentina turned to the IMF and became a poster-child for the ‘Washington consensus’ mix of free market economic policies, including privatisation, trade liberalisation and free movement of capital. Poverty and inequality grew as debt payments continued to suck money out of the country. According to the World Bank the number of people living on less than $2 a day increased from 3 per cent of the population in 1991 to 10 per cent by 2000.

The East Asian financial crisis in 1997 led to a reversal of the foreign capital inflows that had kept the economy afloat. A four-year recession began in 1998 and by the end of 2001 the debt had become unpayable, costing half of the country’s revenues from exports. Argentina defaulted over Christmas 2001.

The default, combined with controls on capital leaving the country, led to stabilisation and recovery. The proportion of people living on less than $2 a day has fallen to less than 2 per cent, while inequality has returned to the levels of the early 1990s, having increased by a quarter in the IMF years.

In 2005 and 2010, Argentina reached deals with 93 per cent of its creditors to pay 30 cents in every dollar owed. Those who refused to accept this have continued to receive nothing.

These ‘holdouts’ are led by two vulture funds: NML Capital, headed by Republican funder Paul Singer, and Aurelius Capital Management, now infamous for its role in the takeover of the Cooperative Bank. The funds bought the debt cheaply following the 2001 default. Their strategy to make money – potentially more than 1,000 per cent profit – rests on other creditors accepting the reduction in the amount owed, and them then claiming the full amount for themselves.

The past decade has seen a succession of court cases, the most recent of which saw US Republican Judge Thomas Griesa rule that Argentina must pay the vulture funds in full, or it is not allowed to pay anyone. In June, the US supreme court refused to hear Argentina’s appeal. Since then, the Argentine government has continued to deposit the agreed debt payments with the banks, which have refused to process them.

Argentina’s refusal to pay the vultures has been bolstered by domestic pressure. Campaigners such as Diálogo 2000 are calling on the government to publicly audit all the debts and repudiate those that are illegal or illegitimate, including debts that can be traced back to the military junta. There has also been international support, including from 100 British MPs who have signed a motion calling for action to prevent vulture funds profiting from Argentina.

A review of the history of government debt defaults for the IMF found that they are usually beneficial for a country’s economy. It is in the interests of financial speculators to present them as disastrous but defaults can be a good thing, and we need to defend them.

Tim Jones is policy officer at the Jubilee Debt Campaign

Red Pepper is an independent, non-profit magazine that puts left politics and culture at the heart of its stories. We think publications should embrace the values of a movement that is unafraid to take a stand, radical yet not dogmatic, and focus on amplifying the voices of the people and activists that make up our movement. If you think so too, please support Red Pepper in continuing our work by becoming a subscriber today.
Why not try our new pay as you feel subscription? You decide how much to pay.

Tim JonesTim Jones is policy and campaigns officer at Jubilee Debt Campaign

Labour Party laws are being used to quash dissent
Richard Kuper writes that Labour's authorities are more concerned with suppressing pro-Palestine activism than with actually tackling antisemitism

Catalan independence is not just ‘nationalism’ – it’s a rebellion against nationalism
Ignasi Bernat and David Whyte argue that Catalonia's independence movement is driven by solidarity – and resistance to far-right Spanish nationalists

Tabloids do not represent the working class
The tabloid press claims to be an authentic voice of the working class - but it's run by and for the elites, writes Matt Thompson

As London City Airport turns 30, let’s imagine a world without it
London City Airport has faced resistance for its entire lifetime, writes Ali Tamlit – and some day soon we will win

The first world war sowed the seeds of the Russian revolution
An excerpt from 'October', China Mieville's book revisiting the story of the Russian Revolution

Academies run ‘on the basis of fear’
Wakefield City Academies Trust (WCAT) was described in a damning report as an organisation run 'on the basis of fear'. Jon Trickett MP examines an education system in crisis.

‘There is no turning back to a time when there wasn’t migration to Britain’
David Renton reviews the Migration Museum's latest exhibition

#MeToo is necessary – but I’m sick of having to prove my humanity
Women are expected to reveal personal trauma to be taken seriously, writes Eleanor Penny

Meet the digital feminists
We're building new online tools to create a new feminist community and tackle sexism wherever we find it, writes Franziska Grobke

The Marikana women’s fight for justice, five years on
Marienna Pope-Weidemann meets Sikhala Sonke, a grassroots social justice group led by the women of Marikana

Forget ‘Columbus Day’ – this is the Day of Indigenous Resistance
By Leyli Horna, Marcela Terán and Sebastián Ordonez for Wretched of the Earth

Uber and the corporate capture of e-petitions
Steve Andrews looks at a profit-making petition platform's questionable relationship with the cab company

You might be a centrist if…
What does 'centrist' mean? Tom Walker identifies the key markers to help you spot centrism in the wild

Black Journalism Fund Open Editorial Meeting in Leeds
Friday 13th October, 5pm to 7pm, meeting inside the Laidlaw Library, Leeds University

This leadership contest can transform Scottish Labour
Martyn Cook argues that with a new left-wing leader the Scottish Labour Party can make a comeback

Review: No Is Not Enough
Samir Dathi reviews No Is Not Enough: Defeating the New Shock Politics, by Naomi Klein

Building Corbyn’s Labour from the ground up: How ‘the left’ won in Hackney South
Heather Mendick has gone from phone-banker at Corbyn for Leader to Hackney Momentum organiser to secretary of her local party. Here, she shares her top tips on transforming Labour from the bottom up

Five things to know about the independence movement in Catalonia
James O'Nions looks at the underlying dynamics of the Catalan independence movement

‘This building will be a library!’ From referendum to general strike in Catalonia
Ignasi Bernat and David Whyte report from the Catalan general strike, as the movements prepare to build a new republic

Chlorine chickens are just the start: Liam Fox’s Brexit trade free-for-all
A hard-right free marketer is now in charge of our trade policy. We urgently need to develop an alternative vision, writes Nick Dearden

There is no ‘cult of Corbyn’ – this is a movement preparing for power
The pundits still don’t understand that Labour’s new energy is about ‘we’ not ‘me’, writes Hilary Wainwright