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Hector Timerman Headshot

Africa and Latin America Still Fight Vulture Funds

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Last week I was in Pretoria for a scheduled meeting on political and financial issues. I spent hours conversing with my colleague Maite Nkoana-Mashabane about the amazing transformation that her country is experiencing. As a teenager she had to walk 15 miles daily to fetch a bucket of fresh water. Those were the times when for the vast majority of South Africans drinking water at home was a luxury.

Mrs. Nkona-Mashabane was an activist during the apartheid and is overly familiar with the meaning of political struggle. During our conversation we shared our views on vulture funds, an issue affecting both Africa and Latin America. These investment ventures, marketed as "distressed debt funds," purchase debt of countries on the brink of default for a fraction of the bonds' worth hoping to recoup the full value through legal challenges in foreign courts. Such strategies are frequently rewarded by bailout actions targeted at alleviating poverty and instability -- such as debt restructuring in African nations -- or debt restructuring in which most bond-holders, such as pensioners and small investors receive important "haircuts," as happened in Greece earlier this year.

While vulture fund practices originated in South America, the method has increasingly been used to target Sub-Saharan countries. In the '90s vulture funds took flight and have, since then, landed on the Democratic Republic of Congo, Congo Brazzaville, Liberia, Zambia, Cameroon, Ethiopia secretly acquiring debt at bargain prices. They then waited for debt relief policies from the World Bank, IMF and wealthy nation states to launch their attack presenting their titles before American and European courts and suing for the full value of the debt.

When it was clear that a lion's share of aid to Africa was falling into vulture funds' claws, some organizations managed to question the international financial system, illustrating the corruption, inconsistencies, and injustice it entails. Jubilee Debt Campaing in the UK and Jubilee USA Network are coordinating efforts to pressure their respective governments and the international financial institutions into taking action.

Knowing the audacious schemes that vulture funds have been using to take African money, my couterpart was eager to know more details about a new chapter of this saga, currently taking place in Ghana, where a judge has impounded Argentina's Libertad navy training frigate in the port of Tema, following the request of the vulture fund NML Capital. A piece of Argentina's national patrimony has been detained, in clear violation of international law, in yet another attempt to cash out on speculative debt purchased for pennies in the wake of a default a decade ago.

The global economy allows debts to be traded like commodities. Vulture funds abuse the system, acquiring distressed debt in secondary markets to multiply profits at the expense of the poor and weak. As these activities are ethically repellent, well-prepared propaganda machinery keeps their lucrative business alive. For obvious reasons, vulture funds try to avoid the political debate about their practices. Until now legal technicalities and credit enforcement principles have prevailed over the alleviation of human suffering and global inequality, but since the financial bubble burst there is a growing opinion that unregulated speculation is not only unfair but also bad for business in general. Vulture funds' tactics are clearly disruptive to debt swap processes and prevent countries from recovery.

Benefiting from tax and jurisdiction loopholes, vulture funds create obscure societies or task forces to lobby for their interests in tribunals, legislative bodies and newspapers. It is necessary to expose the millionaires behind the vulture funds and make them responsible for every vulture fund action. The Argentine naval vessel that has been seized in Ghana by NML, a subsidiary of Elliott Associates, belongs to Paul Singer.

Paul Singer could be branded as the inventor of vulture funds; in 1996 he won a case against the Peruvian government for a 400 percent profit. After this success, Singer sued the Republic of Congo for $400 million for a debt it acquired for $10 million and ended up with $127 million. Needless to say, this is money that should be going to build roads, schools and other poverty reduction programs. Worst, these nations are often on the receiving end of debt alleviation and international funding -- which then goes to line the pockets of said vulture funds.

In this game political connections play an important role. Though Paul Singer has been the biggest donor to the Republican campaigns for many years, he leaves nothing to chance: when the polls reflected a political sea change during George W. Bush's presidency, he appointed Democrats to lead a task force created to lobby against Argentina.

The American Task Force Argentina (ATFA) has the mission to disqualify, intimidate and discredit my country's government, which has declared that it will not yield to vulture funds. To convey their message they conveniently forget to inform that the lobby is financed by a vulture fund. In the past, ATFA lobbyists walked the halls of Congress pretending to represent teachers that had invested in Argentine bonds. When the lie became unsustainable, they turned face: they now claim to lobby on behalf of American taxpayers. The crude truth is that NML is based in the Cayman Islands just to avoid paying taxes in the U.S.

After the 2001 default, in the midst of a crisis that threatened the very continuity of the Argentine nation, in 2005 and 2010 Argentina designed and carried out a complete swap of its debt which was accepted by more than 92 percent of Argentina's creditors.

Our message is clear: we will pay the overwhelming majority of debt holders, who have agreed to a debt swap that has contributed to Argentina's recovery, that also pays a fair share of interest on those investments. It is worth emphasizing that interests of restructured bonds were tied to the Argentine GDP performance, which after an average growth of 8 percent per year since 2003, resulted in a significant gain for bondholders who joined the swap.

However, we will not reward loan sharks who bought defaulted bonds for next to nothing and have refused a deal that would have represented a clear profit, asking much more, even several times the amount they spent.

If Argentina beats Paul Singer and others, the consequence may well be a world where vulture funds' actions against developing countries are history. A place free of these scavengers would benefit not only my country, but also other poor nations in Africa and Latin America. We encourage all good-spirited nations and organizations to help us get rid of them.