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Financial Vultures against Argentina

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Financial vultures are a particular category of debt holders in countries on the periphery of global capitalism. Firstly, they are minority debt holders who usually only hold a small percentage of a country’s sovereign debt. Secondly, they are mostly secondary debt holders, which means that they purchase securities from the original creditors. Thirdly, they have unofficial support in Western courts. And fourthly, it is usually hedge funds that act as vultures. Other types of institutions refrain from such obvious financial pillaging, afraid of damaging their reputation.

The initial founder of vulture funds specialising in sovereign debts is believed to be Paul Singer, an American billionaire from New York. In 1977, he created the investment fund Elliott Associates, which managed to rob several poor countries. At the present time, there are at least 40 lawsuits in the courts filed by vulture funds against countries on the periphery of global capitalism. They have already managed to squeeze a lot of countries dry and have made a tidy sum in the process. According to a report by the IMF and World Bank, at least 11 developing countries have become victims of financial vultures who deal with sovereign debts.

Vultures in Latin America

It is believed that the development of financial pillaging techniques involving sovereign default began in Latin America. In the 1990s, financial vultures targeted Brazil and Peru. The pillage of Brazil was organised by the well-known vulture speculator Kenneth Dart. In 1992, Dart began buying up Brazil’s external debt for 25-40 percent of its nominal value. After buying up approximately 4 percent of the government’s USD 35 billion debt for USD 375 million, he became the largest private creditor in Brazil.

To begin with, the country’s government did not understand who it was dealing with and saw the financier almost as a kind of benefactor. After a year, however, Dart exposed his bared teeth when he began talks with investors about restructuring the external debt. All of the investors approved the restructuring, except for Dart. Kenneth Dart turned out to be the person who managed to blackmail an entire government – you see, the restructuring could not go ahead without his agreement. Citicorp, Citibank, Banco di Brasil and other investors tried to persuade him, but to no avail. William Rhodes, senior vice chairman of Citicorp, met secretly with Dart at a private airfield in New York to convince him to leave Brazil alone. And still it came to nothing. In the end, the Brazilian government was forced to make a secret deal with Dart and offer him unusually favourable terms.

Dart could already sense that he had backed the country into a corner, however, and demanded even more. The upshot was that Brazil went for broke and restructured its external debt independently of Dart. In principle, he still made quite a lot of money during the course of the restructuring, since he received significantly more than he had spent buying up the securities on the secondary market. But Dart still filed a lawsuit demanding that the Brazilian government pay USD 1.4 billion in compensation. Dart was in litigation with Brazil for more than two years and, in 1996, he was awarded the compensation, albeit significantly less than he had asked for. There’s a rumour that Dart now has his sights set on Ecuador. 

At approximately the same time as Brazil was being hunted by Dart, the aforementioned Paul Singer was taking action against Peru through his investment fund Elliott Associates. In 1996, he purchased Peru’s debt securities with an original face value of USD 20 million for USD 11 million. Then, he threatened to bankrupt the country if Lima did not pay back the money with interest. Backed into a corner, the Peruvian government paid Singer USD 58 million in 2000, more than five times more than the speculator bought the securities for in the first place. 

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