Concerns Continue Over Global Impacts of Debt Dispute
by Sophia Har
An Argentina bond contract clause expires on December 31st raising the possibility that hold-out hedge funds and Argentina could settle a long running debt dispute. After defaulting in 2001, Argentina restructured its debt with 92% of its bondholders and put in place the Rights Upon Future Offers or RUFO clause. The RUFO clause gives restructured bondholders the right to a higher settlement if Argentina settles at a higher level with another Argentine bondholder. When the clause expires midnight on Wednesday, Argentina and hold-out funds could reach a settlement that would not leave Argentina open to RUFO clause litigation.
"However this dispute is resolved, we're still concerned about the global implications of this case," said Eric LeCompte, Executive Director of the religious development group Jubilee USA. In the Spring, Jubilee USA filed a US Supreme Court Amicus Brief to inform the high court of the case's impacts on developing economies. "Even if Argentina settles with the hold-outs, this extreme behavior is legitimized."
Jubilee USA's Supreme Court brief explained the case precedent could make it more difficult for poor countries to restructure their debts and equip predatory funds with a tool to collect aid monies. The United States government, G20 and International Monetary Fund expressed similar concerns during the case. The heavily indebted Caribbean island of Grenada currently faces a similar lawsuit in New York courts. A Zambian parliamentarian announced this week that the country's growing debt leaves it vulnerable to "vulture funds." One of these funds sued Zambia in 2005 and was awarded $15 million from monies originally allocated for spending on social needs.
"Very few countries have the resources to resist these predatory funds." said LeCompte, who serves on finance-focused United Nations Expert Groups. "We're worried about how some of the poorest countries in the world are affected."
Read a timeline and history of the case.
Read more about Zambia's history with predatory hedge funds.
Read Jubilee USA's Supreme Court Brief on the global implications of the case.
Jubilee USA Network is an alliance of more than 75 US organizations and 400 faith communities working with 50 Jubilee global partners. Jubilee's mission is to build an economy that serves, protects and promotes the participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org
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