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Supreme Court Considers Taking Hedge Fund/Argentina Case with Global Poverty Impacts
by Jennifer Tong Friday, Aug. 02, 2013 at 3:50 PM
The US Supreme Court is considering whether or not to accept an international debt case that will impact global poverty and poor country access to credit.
The US Supreme Court is considering whether or not to accept an international debt case that will impact global poverty and poor country access to credit. The case of Argentina vs. NML Capital is currently awaiting an appeal ruling in front of the US 2nd Circuit Court. In June, Argentina preemptively filed an appeal to the US Supreme Court asking to overturn an earlier US 2nd Circuit Court ruling that ordered Argentina to pay holdout creditors. France filed an amicus brief to the US Supreme Court in support of Argentina’s request. The International Monetary Fund’s Christine Lagarde planned a similar US Supreme Court filing because of the case’s significant implications on poverty and country debt restructurings. Although Lagarde has maintained her concern about the hedge fund behavior, the IMF did not file with the US Supreme Court based on advice from the US Treasury last week.
“It’s clear that the IMF and Treasury want to see the hedge funds lose. They know this case will impact the international financial system,” stated Eric LeCompte, Jubilee USA Network’s Executive Director. “However it’s unfortunate that Treasury advised the IMF not to file at this time. Treasury chose an incredibly untimely moment to send a message to Argentina regarding issues unrelated to the case.”
NML Capital, a subsidiary of Elliott Management, purchased Argentine debt cheaply when the nation defaulted in the early 2000s. Since then, ninety-two percent of debt holders restructured. Holdout creditors, led by NML Capital, rejected restructuring deals and continue to sue Argentina for the full amount.
Hedge funds, like NML Capital, that purchase deeply discounted debt of poor or financially-distressed countries and then sue to make high profits are known as “vulture funds.” Often, these funds try to collect off of funds meant to benefit the poorest in developing countries.
“The religious community views this kind of hedge fund behavior as unethical and immoral,” noted LeCompte.
The US government filed an amicus brief during the 2nd Circuit Court proceedings, noting a ruling against Argentina could make it much harder for countries in financial recovery or stress to access credit swaps. The IMF and World Bank have expressed concern. German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany.
At the end of 2012, the US 2nd Circuit Court ordered Argentina to pay holdout creditors $1.3 billion upon its interpretation of a pari passu, or parity clause. Argentina appealed and the US Court suspended the ruling to hear new oral arguments in February 2013. After arguments, the court ordered Argentina to outline an alternate payment plan to holdout creditors. Holdout creditors rejected the plan that was essentially the same deal that ninety-two percent of creditors previously took.
Jennifer Tong is the Communications Director for Jubilee USA Network. Jubilee USA Network is an alliance of more than 75 US organizations, 250 faith communities and 50 Jubilee global partners. Jubilee's mission is to build an economy that serves, protects and promotes participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. http://www.jubileeusa.org