Political satirist John Oliver recently tried to explain Argentina’s complicated technical default, which occurred on July 30 after the country was unable to come to an agreement with hold-out creditors, locally referred to as ‘Vulture Funds.’
In the videos he highlights a surge in anti-American sentiment in Argentina caused by the case. This is despite the fact that although the legal jurisdiction of the agreement between Argentina and bondholders is New York, the hold-out hedge funds are private entities.
Ninety-three percent of bondholders agreed to accept 30 cents on the dollar for their investment in restructuring agreements created in 2005 and 2010 but the hold-out hedge fund, Elliot Management Corporation among others, refused to accept the agreement, sued for repayment and won.
The roots of the situation go back to 2001 when Argentina last defaulted, causing the country to fall into chaos. To recover, the country took on more debt, which Argentina now refuses to pay in full. Economic Minister Axel Kicillof pointed the finger at the RUFO (Rights Upon Future Offers) clause, which would require the country to pay even the creditors who accepted the previously negotiated lower return, in full. The RUFO clause expires on December 31, 2014. With this in mind, Argentina decided to default and wait until next year to return to the negotiation table.
In the videos, some Legos were brought out to demonstrate the fiasco.
Oliver even reminds us how Ellliot Management Corporation seized an Argentine warship in Ghana in 2012 in an effort to be repaid.
In a rather sympathetic position toward Argentina in the situation, Oliver muses on the ability of a 300-employee private corporation to drive a G-20 country into default: “It’s not technically against the law, but it feels like it should be…”
Meanwhile — although the dollar is stronger against the peso since the default — so far life has continued pretty much as normal in Argentina.
To see John Oliver’s take on Argentina’s default, click here.