IN DEPTH: Argentina's Vulture Funds
Senators across the political divide voted by a 54 to 16 margin in favor of the deal after a marathon debate that lasted more than 12 hours.
Vulture funds are large firms, such as hedge funds, that buy a sovereign nation's debt at deeply discounted rates before demanding full repayment with interest from said nation.
Argentina's 15-year battle with vulture funds stems from its 2002 US$100 billion default, which was then restructured. Ninety-three percent of those who owned Argentina's debt agreed to a write off of 70 percent of the total debt, but a few did not.
This hold-out bloc makes up 7 percent of debt holders, including ML Capital, Aurelius Capital Management and two other hedge fund creditors. Elliot Management, led by Paul E. Singer, represents the vulture fund holdouts.
Singer is a billionaire who has built a fortune by buying up defaulted and deeply discounted sovereign debt and suing the issuing nations.
Argentina's restructuring deal stipulates that it must pay all its creditors the same amount. This means that if the Senate approves a deal to pay back the seven percent of creditors the full US$1.3 billion they claim is owed, they must pay that same amount to the rest of the creditors who wrote off their debt.
This would total US$15 billion, which accounts for half of total national reserves.
On the broadest level, the case has raised concerns that creditors in future defaults might be encouraged to take similarly uncompromising positions, undermining the ability to rescue financially stressed governments.
The vote allows Macri to issue US$12 billion in bonds and use part of that to pay US$4.65 billion to the vulture funds. Vulture fund holders sued Argentina for not paying out on bonds they bought after the country defaulted on its debt 15 years ago.
The lower house of Congress already approved the deal earlier this month.
Macri needed to close the dispute to tap global credit markets and lure back investors, and had warned Argentina faced a return to hyperinflation or aggressive spending cuts if the chamber had knocked down the proposal.
But the case ultimately sets a dangerous precedent that could empower predatory lenders by showing that it can be to their advantage to hold out and reject debt restructuring. Such a precedent will impact some of the poorest and most vulnerable countries in the world, a U.N. debt expert recently told teleSUR.
Argentina’s 15-year battle with vulture funds stems from the fact that a handful of holdout creditors rejected the debt restructuring that followed Argentina’s US$100 billion debt default in 2002.
Under former President Cristina Fernandez de Kirchner, the country refused to pay the vulture funds, and saw some success in U.S. appeals courts.
Argentina will now have to go into more debt to pay off the vulture funds, with Macri sending out a clear message to Washington that Argentina is ready to bring an end to the dispute and truly cement geopolitical ties with the global north.