It is no surprise that right-wing Republican and hedge fund billionaire Paul Singer should be trying to wring hundreds of millions of dollars out of Argentina for a debt that Buenos Aires doesn’t really owe him. He screwed tens of millions of dollars out of poverty-stricken Peru and the Republic of Congo using the same financial sleight of hand. What may surprise people, however, is that key leaders in the administration of former President Bill Clinton are helping him do it.
Singer, who owns Elliot Management, a $17 billion hedge fund, is the leading “vulture investor”—a financial speculator who buys up the bonds of debt strapped nations for pennies on the dollar and then demands payment in full. When Argentina defaulted on its foreign debt in 2001, Singer moved in and bought up $48 million in bonds. He is now demanding that those bonds be paid at full-face value—$1.5 billion—plus interest and fees. It is a move that could derail Argentina’s long climb back into solvency, as well as undermine debt settlements worldwide.
A recent decision by federal District Judge Thomas Griesa in Manhattan may not only force Argentina to pay the vultures, it could unravel a 2006 debt deal between Buenos Aires and other creditors. Under the highly controversial principle of “pari passu” (“equal ranking among creditors”), if the vultures are compensated, so must all the other creditors, even those who settled back in 2006. That bill could reach $15 billion. Given that Argentina has only about $28 billion in foreign reserves, the tab could send Buenos Aires into a recession or force the country into bankruptcy.
The “sleight of hand” involves the fact that the countries the vultures prey on are not really in debt to creditors such as Singer and Eric Hermann of FH International Asset Management LLC. The hedge funds look for distressed countries, then buy their debt at bargain basement prices and sit on it. In the meantime, other creditors cut a deal to take a reduced payment on their bonds, which in turn helps improve the debtor’s economy and allows it to emerge from default.
That’s when the vultures sue, threatening to shut down outside aid programs, seize assets and freeze debtor nations out of international finance if they don’t pay up. Recent examples involving Singer include the Republic of Congo being forced to pay him $90 million on a $10 million investment. Singer’s investment of $48 million in Argentina’s debt would net him a 1,608 percent profit if Buenos Aires pays in full. Peru was similarly plundered.
It is more than dollars and cents at stake in all this. As journalist Greg Palast points out, “In Congo-Brazzaville [the capital of the Republic of Congo] last year, one-fourth of all deaths of children under five were caused by malnutrition.” That $90 million might have made a difference.
Singer’s rap sheet is consistent with hard-nosed vulture tactics. He is a leading Republican fundraiser, and a member—along with former Vice President Dick Cheney and Iraq War designer Richard Perle—of the right-wing Jewish Institute for National Security Affairs. He helped bankroll Swift Boat Veterans for Truth and is a bitter critic of “unpayable” social welfare programs, including Social Security, Medicare and Medicaid.
But the people who head up the main lobbying organization behind Singer’s current campaign, the American Task Force Argentina (ATFA), sit on the high councils of the Democratic Party and would likely be part of any Hillary Clinton administration.
The task force is essentially a front for several vulture funds, conservative and libertarian business groups, and agricultural organizations, like the U.S. Cattlemen’s Association, which would like to damage Argentina’s cattle export business. And its executive director is Robert Raben, former counsel for liberal Congressman Barney Frank, Democratic counsel for the House Subcommittee on the Constitution and assistant attorney general in the Clinton administration.
ATFA’s two co-chairs are Clinton’s former undersecretary of commerce, Robert Shapiro, and Clinton appointee to the United Nations Nancy Soderberg. Shapiro was an adviser to Bill Clinton’s 1992 presidential campaign and a senior adviser to Al Gore’s 2000 run for the White House. Soderberg, who served as a senior foreign policy adviser to Sen. Edward Kennedy, was also a member of Clinton’s National Security Council and an alternative representative to the U.N. with the title of ambassador. She is currently a Democratic Party activist in Florida and a member of the Council on Foreign Relations.
Raben, Soderberg and Shapiro have written numerous opinion pieces on Argentina using their Clinton administration credentials and, depending on the publication, have not always disclosed their lobbying ties. The three snookered the progressive Huffington Post into running opinion pieces until journalists Christina Wilkie and Ryan Grim uncovered their ties to ATFA. HuffPo subsequently removed the articles from its website.
Because of the huge debt burdens borne by nations from Latin America to Europe, the Griesa decision has opened up a Pandora’s box of trouble. A number of financial institutions and countries—including the International Monetary Fund and organizations representing 133 nations—have condemned the vultures or filed amici curiae briefs on behalf of Argentina, fearing that the decision could chill future debt negotiations and threaten economies trying to work themselves out of the red.
Given the ongoing hangover from the 2007-08 international meltdown, there is a lot of vulture food out there.
The key role being played by important Democratic Party activists in this cruel business—for there is no other word to describe taking money from countries struggling to emerge from debt and recession—may seem contradictory. And yet it was the Clinton administration that deregulated national and international finance and fought so hard for policies that ended up impoverishing some of the countries the vultures are now preying on.
In the 1990s, the Clinton administration pushed Argentina to privatize its state-owned industries, tie its currency to the dollar and institute the “Washington Consensus” of combining tax cuts with austerity. The result was economic disaster. From 1998 to 2002 Argentina’s economy shrank 20 percent and half the population fell below the poverty line.
Buenos Aires defaulted on its $100 billion debt in order to staunch the hemorrhage and pull the country out of an economic death spiral. In 2006, it negotiated a deal with 92.4 percent of its debt holders to pay 30 and 50 cents on the dollar. It was that deal that drew the vultures, which swooped in, scooped up some of the debt and then refused to accept the settlement.
The 2001 default blocked Argentina from tapping into international finance to tide it over until the economy recovered, but policies to end austerity and increase government spending eventually did the job. The economy grew at an average rate of 6 percent from 2002 to 2012 and Argentina paid off the IMF in 2006 and the Paris Club countries (representing the world’s 20 largest economies) in 2014.
But the vultures now threaten to undo much of this.
The Obama administration has come down on the side of Argentina because it is worried that financial institutions will shift their business to London if “pari passu” is allowed to stand. Hillary Clinton, however, has been quiet on the subject of international debt and Argentina. Given that her husband’s administration helped push Argentina off the cliff, that is hardly a surprise.
What is disquieting is that Clinton and people such as Raben, Shapiro and Soderberg have an economic philosophy that many times marches in step with that of Wall Street.
According to The New York Times, the financial sector was the second largest contributor to Hillary Clinton’s 2008 run for the White House. She is also close to the center-right Third Way think tank that advocates cutting Social Security and tends to be allergic to financial regulations. It is hard to imagine a Hillary Clinton administration stacked with Wall Street insiders and hedge fund lobbyists coming down on the vultures.
Clinton’s most recent comment on the debt crisis was to complain that she and Bill were “dead broke” when they left the White House in 2001, rhetorically putting herself in the same boat as tens of millions of indebted people in the U.S. and around the world. “Dead broke” in Chappaqua, N.Y., is not quite the same as “dead broke” in Brazzaville, or in the growing number of homeless encampments around the U.S.
Argentina is currently negotiating a compromise with the vultures, who have Buenos Aires over a barrel. The country desperately needs outside financing to exploit its huge Vaca Muerta gas reserves and to underwrite agricultural exports. “These hedge funds are equipped with an instrument [the New York court decision] that forces struggling countries into submission,” says Eric LeCompte, executive director of the anti-poverty religious organization Jubilee USA Network.
Countries are wising up to the hedge funds. Many of them now require that a debt agreement include a collective action clause (CAC), in which a majority or two-thirds vote by creditors is binding on all and would block a handful of vultures from tying up agreements. Because they signal economic fragility however, the CACs will string out negotiations and may result in higher interest rates.
In the meantime, the vultures have backed Buenos Aires against the wall. At a minimum, Democratic candidates for the presidency should make it clear that they stand with Argentine President Cristina Fernandez de Kirchner. One way would be to endorse campaigns by organizations such as Oxfam and Jubilee to forgive foreign debt, and to make it clear they will also press for financial regulations to block vulture speculation.
In the world, vultures are estimable creatures. There is a “yuck” factor, but at least they wait until their prey are dead before making a meal of them, and they do clean up after themselves. The vultures of Wall Street prey on the living and leave behind an unspeakable mess.
[Read more of independent journalist Conn Hallinan’s work at his blog, Dispatches from the Edge.]