Argentina Ends Debt Battle with Hedge Funds

Argentina Ends Debt Battle with Hedge Funds

Last Wednesday, the United States Court of Appeals approved a plan that would allow Argentina to raise billions of dollars to pay off its international debt.

In 2001, Argentina’s economy collapsed and defaulted on debts it owed to various hedge funds. Ninety-three percent of the hedge funds agreed to accept reduced payments of 25 cents per dollar of what they had loaned. The other seven percent, “holdout” hedge funds, pursued full payment by suing Argentina through New York courts. The economy collapsed in another default in 2014. Even now, Argentina struggles to raise the funds to pay back hedge funds and reenter the international economic community.

The man Argentines hate is Judge Thomas Griesa, the face of "vulture scams," investments in defaulted countries that investors will  cash in on later.
The man Argentines hate is Judge Thomas Griesa, the face of “vulture scams,” investments in defaulted countries that investors will cash in on later.
On February 29th, Argentina agreed to pay $4.65 billion to Elliott Management, twenty-five percent less than what Elliott and other hedge funds were demanding, but much more than what the debt was worth fifteen years ago. Part of Argentina’s deal also involved repealing laws that prevented the government from paying the holdouts.

In March, the United States government entered the situation, trying to lend support to Argentina in order to help it to repay its debts. The deal signed this past Wednesday creates a way for Argentina to raise the money needed to pay back the group of New York hedge funds through bond sales. Officials from Argentina will fly to New York in order to discuss terms with possible investors in these bonds.

As of now, Mauricio Macri, Argentina’s newly elected president, has taken a relatively cautious approach to cut down the budget deficit. He cut energy subsidies but hesitates to further lower spending in fear of angering the Argentinian people. Macri balances the hedge fund issue with other economic hardships his country faces.

In 2014, one of these funds seized an Argentinian ship in Ghana claiming it was part of the country’s debt. While it is legal for a loaner to demand to receive back what it had lent out, Argentinians argue that an American company should not be able to change the economic circumstances of an entire nation.