After 15 years of court battles, injunctions, smear campaigns, lobbying, and other interventions, the vulture funds have finally won a tentative agreement with the new Argentine government. Vulture funds — the name preceded this particular dispute — are so called because they buy up defaulted debt for a very small fraction of its face value, then sue (and use other tactics) to collect an exorbitant return. In the case of Argentina, the chief vulture, American billionaire and major Republican campaign donor Paul Singer, will get an estimated 370 percent return; another vulture fund in the settlement did even better, with a return of 950 percent.
The agreement is tentative because President Mauricio Macri of Argentina still has to get the nation’s Congress, in which he does not have a majority, to change some laws in order to finalize the deal. And he will also have to reach agreement with some remaining “holdout” creditors. And now the vulture funds are appealing the judge’s order that would allowed Argentina to issue new debt, presumably in an effort to extract even more concessions. But assuming it all works out, though, there are some important lessons to be learned from this long war over sovereign debt.
Argentina arguably had no alternative but to default in 2002, but the government also did the right thing by standing up to the IMF and its international creditors until it reached a deal (in 2003 and 2005) that would allow the economy to recover. International lenders — in this case a creditors’ cartel headed by the IMF — often succeed in getting a settlement that keeps the country trapped in recession, depression, or very low growth with an unsustainable debt burden; as well as numerous conditions (cuts to social spending, public pensions, public employment) that harm the majority of the debtor country’s citizens. Some of the worst recent examples of these abuses can be seen in countries like Greece and Jamaica, and will likely include Puerto Rico if there is a debt restructuring there.