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At the World Cup of debt, the world lost

For Argentina, so far so good at the World Cup in Brazil.

At the Supreme Court in Washington, however, Argentina suffered a catastrophic defeat that no soccer metaphor can accurately capture.

On Monday, the Supreme Court announced it would not hear Argentina’s appeal of a lower court ruling in favor of a group of hedge funds suing the country for more than $1 billion.

The dispute has its origins in Argentina’s 2001 debt default. When the country defaulted, amidst economic and political turmoil, nearly 93 per cent of its creditors accepted a deal and took less money than they were owed. But a small group held out. The hold outs included hedge funds that have been nicknamed “vulture funds.” The nickname derives from the funds’ strategy of buying up the debt of economically distressed countries for pennies on the dollar and then suing, targeting debt relief money for collection. That money, of course, is often earmarked for social services like AIDS prevention and school construction.

The court’s decision is a huge blow for Argentina, but it’s also a huge blow to human rights. Not just in Argentina, but in the rest of the world. Here’s why.

Poor countries spend five times as much money paying off old debt than they receive in official aid. Debt is a huge problem, and debt relief is an essential tool for countries to meet human rights obligations, and in the fight against poverty. Debt relief monies have been used to build schools, cancel fees at rural health clinics and provide access to clean water.

These predatory actors attempt to seize that money by suing countries that are receiving relief through established international debt relief processes. One hedge fund sued the African country of Zambia for an amount equivalent to Zambia’s annual education budget. These hedge funds have sued war-torn Liberia. They sued the Democratic Republic of the Congo, at the time the world’s poorest country. The Supreme Court has handed these “vultures” a precedent they can use to litigate poor countries into submission all over the globe.

The UN Special Rapporteur on foreign debt and human rights has highlighted several times the harmful effects of this predatory activity on human rights. “The Guiding Principles on Foreign Debt and Human Rights,” approved by the Human Rights Council in 2012, call on States to ban the practice of creditors selling sovereign debt holdings on the secondary market to creditors that have previously refused to participate in agreed debt restructuring.

In the United States, the Court’s decision also threatens a rare and beautiful example of bipartisan cooperation for the common good. Democrats and Republicans don’t agree on much these days, but for fifteen years, they’ve agreed that heavily indebted countries should have their debt burdens reduced. All of that is in danger now. After all, why would anyone try to relieve the debts of a developing country if the windfall is just going to be taken by a private investment fund?

The problem is rooted in the lack of a system for resolving debt burdens. In America, and in most countries in the world, individuals and companies can file for bankruptcy. For a country struggling to pay for social services for desperately poor people, no such process exists. It’s the Wild West, and these hedge funds are exploiting the chaos for profit.

It is tempting to think this ruling is, at the end of the day, Argentina’s problem, and that no other country will be affected. But you can get an idea of the global reach of this case just by looking at the number of teams in this World Cup in addition to Argentina that have some connection to the case or to these predatory hedge funds. France, Mexico, Brazil and the United States filed briefs on behalf of Argentina. Germany’s courts ruled in favor of Argentina in related suits. Belgium and England passed laws restricting “vulture funds.” Greece is still undergoing draconian spending cuts to pay debt, part of which was undertaken to buy out “vulture funds” during its recent debt restructuring. Honduras, Cameroon and Cote d’Ivoire were sued by “vulture funds.” Ghana’s courts were recently the venue of another lawsuit by “vulture funds” trying to seize an Argentinean ship that had arrived there. In Italy reside many of the restructured bondholders who were regularly receiving payments from Argentina and stand to suffer direct financial harm by the decision that the US Supreme Court leaves standing. Other institutions of global reach that have openly opposed the actions of these hedge funds (but lack soccer teams) include the International Monetary Fund, World Bank and United Nations.

The case is over, but the struggle to protect vulnerable communities from predatory behavior is not. The time has come to harness international consensus to build an economic system that puts human rights at the center. In such an economic system, predatory entities such as the hedge funds suing Argentina should be shown the red card, once and for all.

Andrew Hanauer is the Campaigns Director at Jubilee USA Network.


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October 2018
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