On June 16, the U.S. Supreme Court ruled against Argentina in what is being called “the trial of the century” for the international debt crisis. Now the world waits to see if and how Argentina will comply with the ruling and pay approximately $1.3 billion to holders of their sovereign debt bonds who have refused to accept a partial payment. If settlement talks fail, an interest payment of $539 million is due to bondholders by July 30.
For 13 years Argentina has been asking the bondholders to restructure the debt and accept a partial payment; most agreed. The Supreme Court ruled that the bondholders who refused to restructure the debt, mostly hedge funds commonly called “vulture funds” can demand full payment (the $1.3 billion). Vulture funds bought Argentina’s debt at bargain rates after Argentina’s default in 2001, with the sole intent to sue Argentina for an amount larger than the purchase price. It is capitalism at its rawest.
If Argentina were to pay the bondholders who are holding out, then they would be legally required to pay all bondholders in full, due to something called a RUFU clause (rights under further offers). Some estimate that the total could be anywhere between 100 and 150 billion. National Public Radio quoted Diego Ferro, Co-Chief Investment Officer of Greylock Capital Management, which owns some of the bonds, as saying such payments by Argentina would be “beyond absurd.”
The vulture funds which make up the plaintiff in this case are led by NML Capital, an investment fund founded by billionaire Paul Singer. NML Capital is positioned to make a 1,600% profit, according to estimates by the government of Argentina.
“A profit of 1,600% in dollars over just a few years. I don’t think even organized crime gets that rate of return in such a short time.”
– President of Argentina Cristina Fernández, in a televised address to the nation, June 16, 2014
Argentina needs Jubilee. The theme of Jubilee is woven throughout Scripture. In the Book of Leviticus, a jubilee year is declared every 50 years: a year when people’s debts are canceled and they return to land they lost to creditors. In Luke 4:16-20, Jesus reveals the Kingdom of God as a form of Jubilee for all nations in his quoting of Isaiah 61:1-2:
He came to Nazareth, where he had grown up, and went according to his custom into the synagogue on the Sabbath day. He stood up to read and was handed a scroll of the prophet Isaiah. He unrolled the scroll and found the passage where it was written:
“The Spirit of the Lord is upon me,
because he has anointed me
to bring glad tidings to the poor.
He has sent me to proclaim liberty to captives
and recovery of sight to the blind,
to let the oppressed go free,
and to proclaim a year acceptable to the Lord.”
The people with the most to lose in this case are the poor. The government of Argentina is legally bound to repay these debts and produce a certain amount of economic growth before spending on human needs.
“Using law to dispossess the poor for the pleasure of the powerful offends not only the sense of justice embodied in United States policy, but the even more ancient principles of biblical justice revealed in the Scriptures of our faiths.”
This case and what happens on July 30 will shape the future of debt relief restructuring. The ruling against Argentina has the potential to open the floodgates for other vulture funds to sue defaulting countries.
Argentina needs responsible lending and borrowing practices in its banks and with international financial institutions, to prevent new cycles of debt. Before this can happen, Argentina must have debt relief. Set the captives free.
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