‘Few outsiders will have much sympathy for Argentina’s predicament,’ writes The Economist, commenting on the vulture funds’ legal victory this week.

Excuse me. Quite a few of us ‘outsiders’ think it’s outrageous that the people of any country should be hit by extortionate pay-outs to speculators who bought risky debt at rock-bottom prices with the aim of making shiploads of money.

These ‘vulture’ hedge funds could now force Argentina into a technical default next week, triggering economic crisis.

While 93 per cent of Argentina’s creditors agreed to debt restructuring (and still made a fair whack) after the country’s financial collapse of 2001, a small minority of vulture funds, including Paul Singer’s NML Capital, chose to refuse the deal. These ‘holdouts’ demanded the full 100 cent face value on dollar bonds they bought for just 12 cents. 

Now the US Supreme Court has declined to hear an appeal by Argentina against a New York court ruling that favoured NML Capital, and has said that Argentina needs to immediately pay the ‘holdouts’ the US$1.3 billion they are supposedly owed.

Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign, said: ‘The Supreme Court’s decision places profits for financial speculators ahead of justice and risks forcing Argentina into a second debt crisis. The vulture funds never lent Argentina any money, they just speculated on its debt when the country was on its knees and they’re now seeking profits of over 1,000 per cent.’

‘The decision confirms that the system for dealing with sovereign debts is fatally flawed – a system where irresponsible lenders are now actively discouraged from taking losses when a debt burden becomes unsustainable. If Argentina now chooses to default rather than cave in to extortion, as any democratic nation is fully justified in doing, people of conscience around the world will support them.’

Argentina’s next payment on its restructured bonds is due on 30 June, meaning it has until Monday to decide whether to make payments to the vulture funds at the same time. or halt payments on all its debts. This is what is required by US law under the arcane legal argument of ‘pari passu’ which requires ‘equal treatment’ of all bond-holders.

Martin Wolf, writing in the Financial Times makes a good point: ‘I am no lawyer, but to me the idea of equal treatment means treating like cases in the same way. Yet creditors who have accepted exchanges and holdouts [vulture fund speculators] are not like cases. To force debtors to treat them equally seems wrong. Moreover, the argument that holdouts are helping Argentines by punishing government corruption is absurd. It is up to Argentines to choose the government they desire. Worse, if Argentina is forced to pay holdouts in full, the price will be borne by Argentines. This is extortion backed by the US judiciary.’

The Argentine government, meanwhile, is counting on a period of grace of 30 days from 30 June, according to the Buenos Aires daily Pagina 12. Playing for time, and reason, the country’s economy minister Axel Kicillof addressed the United Nations this week, asking for ‘fair and equal’ conditions in negotiations with vulture funds in front of a UN panel.

Argentina’s options – paying the holdouts, reaching a deal with them, transferring restructured debt into domestic law and outright default – look costly, humiliating, difficult or damaging, comments Wolf.

Worse are the longer-term implications for all debt restructurings and the international finance system. The court decision could impact on all heavily indebted countries, such as Greece, Ireland and Jamaica – which is one of the reasons the International Monetary Fund is so concerned.

Many, including the Jubilee Debt Campaign, are calling for an urgent and transparent workout mechanism for international debt, taking power, in such cases, away from national courts such as those in the US.

The United Nations trade agency UNCTAD issued a statement saying that the US court ruling on Argentina’s debt erodes sovereign immunity and is not even in compliance with the US’s own Foreign Sovereign Immunities Act.

In Britain, meanwhile, more than 100 MPs have signed a motion supporting action to prevent vulture funds profiteering from Argentina and forcing the country into default. The Early Day Motion, signed by 106 MPs, ‘notes that vulture funds are trying to force Argentina to default on its debt through a legal case in New York’ and ‘urges the Government … to bring forward legislative proposals to prevent vulture funds ignoring international agreed debt restructuring for Argentina and Greece in UK courts’.

Fortunately not everybody sees the world through the narrow, pro-vulture capitalist lens of The Economist on this issue.