You realize, of course, that this is happening as a direct result of Presidente Nestor Kirchner acting on my advice ten years ago. ;-)
"A Strategy for Argentine Economic Recovery"
I wrote in 2004:
Shave and a Haircut... Two Bits
With regard to private creditors and the proposed 75% reduction on the principal owed, Argentina might take particular pleasure in throwing Margaret Thatcher's famous pronouncement on neoliberalism back in the face of international finance: 'There is no alternative.' However, a 75% haircut across the board (returning only two bits on the dollar) may not be just. This money was borrowed from different sources at different times under very different conditions, thus some creditors (presumably earlier ones were mostly traditional sources that charged less interest) had much less expectation of risk than others who sailed into the gathering storm with eyes wide open. Most egregious of the latter are the 'vulture funds' that buy up debts owed by companies or countries in financial difficulty for a deep discount, and then try to get full payment. In one case in the 1990s, a New York fund paid $11 million for Peruvian debt with a face value of nearly $21 million, and was eventually awarded more than $55 million by a US court, the figure including overdue interest payments (Walker 2002). Obviously, such vulture funds are in a high-risk business--they can turn a handsome profit, or get left holding the bag--and a realistic outlook is that they can expect some of each. As a matter of economic justice, the vulture funds should get not just a haircut but a close shave as well, while the more traditional funds should receive better treatment. Such an approach would also be in Argentina's long-term interest, as the more mainstream investors are the people it will want to do business with again in the future.
As the BBC article reports, Argentina settled 92% of its debt at a two-thirds write-off, more generous than the 75% offered in 2004. But the vulture funds holding the remaining 8% of the debt were unreasonable, they demanded 100% repayment. The article shows Chief of the Cabinet of Ministers Jorge Capitanich holding a chart documenting hedge fund NML demanding 832 units for an initial investment of 48.7 units, a return of 1608%. The caption reads: "Jorge Capitanich has defended his country's stance against what he calls the 'vulture funds'."
Given the history of US court rulings against foreign debtors, the US Supreme Court ruling for Argentina to repay NML in full comes as no surprise.
In the US, 150 years ago, we had another name for the likes of these vulture funds: "carpetbaggers." These were unscrupulous Northern "businessmen" who plundered the South in the aftermath of the American Civil War. No one should mistake this for capitalism; it is predation, pure and simple. Quite the opposite of productive investment that builds industry and creates jobs, "vulture capitalism" is destructive investment that crushes economies and spreads destitution. It is an abuse that gives true capitalism a bad name, it is as larcenous as the Russian oligarchs, and a stand must be made against it.
Let Argentina be the first. "¡Es mejor morir de pie que vivir de rodillas!" Presidente Cristina Fernandez de Kirchner should ignore the US Supreme Court, as some US presidents have: "The Court has made its decision, now let it enforce it." Argentina can take its lumps in the bond markets in the short term, but this will pass if Argentina continues to perform with responsible lenders. Earlier this year, Forbes reported, "Argentina’s bond market returned 19% for investors last year and that the country has not missed a debt repayment in the last eight years." At that continued rate of return, I doubt that the majority of financiers will weep for the vultures. Global finance will get the right message: good faith lenders get good value, whereas sometimes the prey turns on the predators. That's just tough.
To reiterate, Argentina successfully restructured 92% of its debt. I say tell the other 8%, "¡Vete al diablo!"
¡Viva Argentina! ¡Viva Cristina! ¡Viva Argentina!
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