Argentina?US venture capitalist attack dogs

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On 30 July Argentina was forced into technical default on its renegotiated international debts (FRFI 240). A US court blocked Argentine funds of $539m held at the Bank of New York Mellon for interest payments; Citibank was stopped from paying creditors through its Argentine office. The US court is backing US hedge funds NML Capital and Aurelius Capital Management, which aim to extort 100% face value from secondhand state bonds bought at knock down prices. Argentina cannot service its restructured debt until it settles its $1.3bn dispute with the companies, which threatens Argentina’s economy.

These hedge funds are a strike force for all US banks that can’t tolerate any escape from their nets of debt. Argentina is now locked out of the international capital markets. Argentina’s economy minister Axel Kicillof explained these vultures’ five-point plan: ‘an attack on the currency to force devaluation, personal attacks on the president, stopping the payment of upcoming debt obligations, blocking financing and waiting until [a new president is in place in] 2016.’ The economy is already expected to shrink by 0.5% to 2% with inflation running at 37% this year.

The debt problems go back to Argentina’s 1976-1983 US-backed military dictatorship, which oversaw a 465% explosion in state debt. Argentina defaulted in 2002, and lenders agreed to reduce their claims in 2005 and 2010. Restructuring debts became central to Argentinian political life.

If the vultures’ demands are met before the end of 2014, all the other creditors who had accepted reduced terms must get the same treatment. That bill could reach $15bn. Argentina’s foreign currency reserves are $28bn. Payment would send Argentina into recession or force the country into bankruptcy.

NML Capital, part of billionaire Paul Singer’s $17bn Elliot Management Corporation, bought $48m worth of the debt. Now he wants to wring $1.3bn out of Argentina with it. He spent $20m in 1995 on defaulted debt from Peru, suing for $58m. He acquired some of Congo-Brazzaville’s debt for $30m, and was ‘awarded’ over $100m interest in 2002 and 2003.

Argentina’s response

Argentina had deposited around $1bn with bond trustees – including the Bank of New York Mellon and Citibank Argentina – to pay its creditors. Citibank acts on the bonds under Argentine not US law and appealed against the block on making payments, arguing that it couldn’t comply with the US court rulings and Argentine law. Citibank faces civil and criminal sanctions, including the possible nationalisation of Citibank Argentina, if it fails to make interest payments to holders of $8.4bn. Argentina must pay $200m to bondholders on 30 September to prevent the default spreading to other bonds, raising the risk of other investors calling for immediate payment on all their bonds.

On 11 September Argentina’s Congress removed Bank of New York Mellon as its agent and proposed Nación Fideicomisos, a unit of state-owned Banco Nación, as a replacement, so the government could make interest payments on an estimated $29bn in foreign-held bonds either in Argentina or elsewhere out of US jurisdiction.

On 19 September, the Federal Appeals Court US dismissed an appeal by Citibank and Argentina to let the country make payments, sending the appellants back to New York District Court. Meanwhile, the peso fell against the dollar.

To allow the venture capitalists free reign, the US government has refused to allow the case to be heard before the International Court of Justice of the United Nations. The lesson is clear, the imposition of debt remains a fundamental trap by which imperialism extorts surplus value from other states, without which it cannot live and so cannot ever forgive.

Alvaro Michaels

Fight Racism! Fight Imperialism! 241 October/November 2014