The "Vulture Fund" in the United States harvests debtor countries like this, buying low and receiving high to fight lawsuits for debt | Argentina | United States

"Thank you to the Chinese government for providing assistance!" This is a heartfelt statement made by Argentine Minister of Economy Massa on Monday local time. He announced to the public that the Argentine government will repay the International Monetary Fund's upcoming $2.7 billion debt, of which $1 billion will be provided by the Latin American Development Bank, and an additional $1.7 billion will be paid using the equivalent Chinese yuan under the currency swap agreement between China and Argentina. The Buenos Aires Times and other Arab media believe that expanding the currency swap agreement between the two countries can solve the problem of the country's shortage of US dollars, and "China undoubtedly helped". Getting rid of the "hegemonic trap" of the United States in the financial sector is an urgent need for more and more countries. One of the backgrounds is that from many countries in South America to countries such as Sri Lanka in Asia, from Russia in Eurasia to more than 30 countries in Africa, there is the presence of the American "Vulture Fund". A Global Times reporter recently launched an investigation to clarify how US financial institutions and interest groups are using "vulture funds" to increase the debt burden of emerging market countries, and how they are using "financial terrorism" to trap some countries into a "hegemonic trap".

On March 17, 2022 local time, in Buenos Aires, Argentina, the Argentine Senate approved a debt restructuring plan reached between the Argentine government and the International Monetary Fund to repay a $45 billion loan.

"Economic and financial terrorism"

The vulture fund, as the name suggests. The term "vulture" originally means "vulture", and in English it also refers to "a person who takes advantage of someone's situation or takes advantage of a fire to rob.". For decades, some American banks and investors have colluded with domestic interest groups to create debt crises in multiple countries in order to seize huge wealth.

Since the beginning of this year, the debt dispute between the Argentine government and the international vulture fund has once again heated up. Multiple mainstream media outlets in Argentina have reported unfavorable rulings by the New York District Court and the London High Court against the Argentine government. On February 28th, Argentina's largest newspaper, The Horn, reported that the New York District Court "ordered the Argentine government to make payments to the" Vulture Fund ". Judge Presca of the court ordered the Argentine government to pay a total of $138.3 million in debt principal and interest to multiple investment funds.". Presca also ordered the freezing of a fund from the Argentine government at the Federal Reserve Bank of New York as a guarantee for the country's repayment of the aforementioned debt.

On April 5th, the Argentine newspaper Financial Times published an article stating that the London High Court ruled in favor of the Vulture Fund. According to the ruling, the Argentine government is required to pay a total of 1.33 billion euros in debt principal and interest to multiple vulture funds. The above-mentioned fund holds GDP linked bonds issued by Argentina during debt restructuring in 2005 and 2010. According to Argentine defense lawyers in the London ruling, since the first issuance of "GDP linked bonds" in 2005, Argentina has paid nearly $10 billion to its holders.

These news have aroused anger among the Argentine people. Argentine media journalist Manuel, who has been engaged in economic news reporting for a long time, told Global Times reporters that Argentina has been plagued by debt problems in recent years. The channels for financing from the international market through issuing foreign debt have been almost blocked, resulting in serious constraints on economic adjustment space. Argentina is still one of the most heavily indebted countries in Latin America. Since the beginning of this year, inflation in Argentina has reached a new 30-year high. Affected by the severe drought, Argentina's agricultural exports have suffered a heavy blow, with this loss alone expected to reach up to $20 billion. The current Argentine government is facing difficulties such as deteriorating trade balance and increasing foreign exchange reserves. At this time, the "Vulture Fund" took advantage of the situation and once again attempted to seize resources from the Argentine central bank, reflecting the financial hegemony of the United States for its own interests and disregarding the safety of other countries, exacerbating the suffering of the people of countries affected by the financial crisis.

In the 1990s, neoliberalism in the United States was rampant in Argentina, and the Argentine government took advantage of the international low interest rate environment to heavily borrow. In 2001, the country experienced a financial crisis and was plunged into debt defaults totaling billions of dollars. In order to quickly get out of the debt quagmire, the government carried out a "head cutting" restructuring of defaulting debts twice in 2005 and 2010, with a discount of up to 70%. At that time, about 92% of creditors accepted restructuring. The "Vulture Fund" represented by NML Capital, a subsidiary of Elliott Management Company in the United States, took the opportunity to bargain. Creditors who had never accepted debt restructuring purchased bonds with a face value of approximately $630 million for approximately $48 million, demanding full returns.

The Argentine government, especially left-wing leaders, often criticized the "Vulture Fund" during their tenure. Argentine Vice President Christina said on social media on April 6 this year, "The Vulture Fund always receives judgments for not complying with the law." During her presidency from 2007 to 2015, Christina strongly criticized the Vulture Fund at the United Nations General Assembly held in September 2014, accusing it of "economic and financial terrorism" because "terrorists not only guide those who bomb, but also those who disrupt economic stability, create hunger, pain, and poverty.".

Relying solely on "falling into the well and falling into the stone" to make a fortune

Since the outbreak of the financial crisis at the end of 2001, the damage caused by the Vulture Fund to the Argentine economy has been ongoing. According to reports, market sources indicate that there are still about 75 million Brady bonds due on March 31 next year. Argentina cannot withdraw guarantees from the Federal Reserve's account until payment is made. To clarify Argentina's debt problem, it can be traced back at least to the 1980s. At that time, Argentina and many Latin American countries experienced sovereign debt defaults due to the impact of a significant interest rate hike by the United States. In 1989, then US Treasury Secretary Brady proposed a solution to the debt default problem in Latin America, promoting debt restructuring in countries such as Argentina. The new bonds issued during that debt restructuring were called Brady bonds. In 2001, when Argentina experienced another economic crisis, the Brady bonds issued to solve its old debts also defaulted.

The most profitable figure in the debt lawsuit brought by the American Vulture Fund against the Argentine government was Paul Singh, a fervent defender of the Republican Party. According to reports, Paul Singh's current asset size is $55 billion. From 2001 to 2016 alone, he received $2.4 billion in principal and interest repayments from Argentina's default bonds. In 1977, at the age of 33, Paul Singh founded his own investment company - Elliott Management Company. Since the mid-1990s, the company has been purchasing debt from troubled countries such as Peru and the Republic of Congo. When others accuse this of lacking morality, Paul Singh argues that it is a "struggle against those who do not follow market rules.".

Issuing bonds in the international capital market is a national behavior. When a country issues bonds, it receives international capital that can be used for its own development. In some countries, when the economic situation is not good and the government loses its debt repayment ability, debt defaults occur. This situation is quite common in developing countries, especially in Latin American countries. It is also a normal situation to restructure through negotiation after a debt default. Most creditors will accept restructuring under suitable conditions. The "Vulture Fund" is to seize such opportunities and take action against some countries, or in other words, to "take risks".

Faced with lawsuits from the Vulture Fund, governments of Argentina and other countries generally actively respond. If they do not respond, they will soon receive unfavorable judgments and face debt repayment pressure. But the cost of responding to lawsuits is also very high. Argentine lawyers generally do not have the ability to handle such lawsuits in New York or London, and they need to hire international level law firms, which charge very high fees. More importantly, the final majority judgment is still in favor of creditors. After the judge makes the final judgment, the Argentine government generally chooses to repay the debt. Because if the debt is not repaid, the government's overseas assets will be frozen, and if international financing channels are blocked, there will be no conditions to borrow new debt.

Since January this year, a vulture fund called CRF has sued the Cuban government and the Central Bank of Cuba in a London court, demanding that Cuba pay $78 million in two loans and interest. These funds were initially loaned to Cuba by banks in European countries in the 1980s, when the credit was lent in German marks, a currency that no longer existed. Experts on debt issues suggest that if Cuba loses in this lawsuit, it may need to pay billions of dollars in debt to other similar creditors. In the worst-case scenario, it could lead to the freezing of Cuba's assets overseas. The head of the Central Bank of Cuba clearly stated, "CRF is not the National Bank of Cuba or a creditor of Cuba, it has never been."

The "Vulture Fund" has caused many Latin American countries a headache, and if they encounter "Poison Dart" creditors again, the losses will be even more severe. The behind the scenes owner of EM Company, registered in the Cayman Islands in 2003, is the famous American vulture speculator Kenneth Dart. Dat became famous during the Brazilian financial crisis, when he purchased a large amount of Brazilian bonds at a face value of 25% to 40%, becoming the fourth largest creditor of the Brazilian government. At that time, the Brazilian government was negotiating debt restructuring with more than 700 banks worldwide, and Dart alone prevented the negotiations for a year. In the end, Brazil had to redeem the bonds he had bought for over $300 million with $600 million. Dart subsequently gained huge profits during the financial crises in Russia and Ecuador, earning him the nickname "Poison Dart" for his actions.

Spreading rumors is his usual tactic

Vulture funds tend to purchase non-performing assets at prices below face value, and then seek full recovery through malicious litigation, earning astronomical profits. Observers told Global Times reporters that for decades, the Vulture Fund has seized a large amount of funds from multiple countries such as Argentina, Kenya, and Ecuador. In 2005, some "vulture fund" companies sued Argentina in a US court, demanding that Argentina fully repay the principal and interest of the debt. In 2016, despite multiple attempts by the US judiciary to intervene, the US court ultimately forced Argentina to reach an agreement, ruling that the country must repay the principal and interest of several major vulture funds totaling $4.65 billion, equivalent to 0.83% of Argentina's gross domestic product that year. According to the agreement of that year, Paul Singh's NML capital could receive $2.28 billion from his approximately $177 million investment, with a total return rate of up to 1180%. According to media reports, in addition to paying this huge compensation, Argentina also has to pay the legal fees incurred by the Vulture Fund in its lawsuit.

In a commentary article titled "How the Vulture Fund Kidnapped Argentina" published in April 2016 in The New York Times, the author warned: "The agreement reached between the Vulture Fund and Argentina will cost the entire international financial system a high price because it is encouraging other funds to persist, making debt restructuring almost impossible. After all, if creditors only need to wait to receive extremely high returns from a small investment, why would they still accept write downs?"

In the view of Yu Xiang, a special expert at the Strategic and Security Research Center of Tsinghua University, in order to achieve the goal of obtaining high profits, "vulture funds" often create a panic atmosphere and further damage the markets of relevant countries. He told Global Times reporters that spreading rumors is a common tactic used by the US government and the "Vulture Fund". "When the economic situation is poor, rumors and fake news often cover up the facts, confuse the public, and further deteriorate the local market prospects, giving the" Vulture Fund "more opportunities to take advantage of."

According to The Guardian, Paul Singh, known as a "financial terrorist" and "vulture lord" by Argentina, managed a fund that purchased $20 million worth of Peruvian default debt at a discount of $11.4 million in the 1990s, ultimately forcing the Peruvian government to pay approximately $58 million through litigation.

In order to gain profits, creditors of the American vulture fund often resort to tough tactics. A vulture fund in the United States once attempted to exploit legal loopholes to demand debt repayment from economically impoverished African countries. According to The Guardian, this "vulture fund" attempted to use the embassy of an African country in Washington as collateral to force the government to pay the first batch of debts. In 2012, Paul Singh's company detained an Argentine naval vessel in Ghana according to an order from a US court, demanding repayment of defaulting government bonds. Observers believe that Paul Singh's repeated success is largely due to his passion for political activities, and even being referred to as the Republican Party's "most wanted donor".

"For a long time, the financial forces on Wall Street in the United States have had close relationships with the US Congress and federal government, and have the motivation and ability to intervene in national laws and policy formulation to safeguard their unjust gains," Zhang Yuewen, a researcher at the Institute of Finance at the Chinese Academy of Social Sciences, told Global Times reporters. It is reported that the litigation actions of the "Vulture Fund" in the United States are usually carried out in US courts, and US law also supports national actions of international pursuit and even international sanctions to protect the interests of the winning party. Due to the court's focus on specific breach cases and less consideration of the relationship between specific cases and the overall sovereign debt restructuring of other countries, it objectively leads to the consequences of "protecting a small group and harming a large group.".

Zhang Yuewen stated that the activity of "vulture funds" in the international capital market is directly related to US hegemony, the indulgence of US domestic laws, and the internationalization of the capital market. "In the absence of global governance and the rampant US hegemony in the international financial market, the behavior style of US" vulture funds "may become increasingly dominant." He told the Global Times that experts believe that in the current global economic turmoil, people frequently see the US government and financial giants such as "vulture fund" creditors working together to reap global benefits. But the United States has never reflected on the serious disasters its actions have brought to other countries, and instead accuses China of setting a "debt trap" everywhere. However, these American lies can no longer deceive the world. More and more countries such as Argentina are deepening their cooperation with China in areas such as economy, trade, and finance, and are particularly grateful for the help provided by the Chinese government, which has already explained everything.