“Vulture Funds” Have Tried to Seize Money Held by the Argentine Central Bank at the NY Fed and at the BIS

If the Argentine government decides not to pay the money it owes you, you will not be able to persuade its domestic courts to dissolve it, and to reimburse you with bankruptcy proceeds. You cannot hope to be reimbursed with government buildings, public roads, army equipment, police stations, and so forth. You may sue the Argentine government before the courts of your own country or a third country, but you will not be able to have the judgment enforced against a foreign sovereign. As an American judge reminded plaintiffs in the Argentine case, “You have rights but may not have remedies.” Hence the hurdle faced by holdouts on Argentine sovereign debt.

The vulture funds and a few other holders of defaulted Argentine debt have been fighting hard. Their strategy was to buy the bonds cheap and redeem them at a higher price. They have obtained hundreds of judgments against the Argentine government. Two vulture funds are sitting on $3-billion worth of favorable rulings. Since the Argentine government will not reimburse them, they have tried to seize money held by the Argentine central bank at the Federal Reserve Bank of New York, at the Bank of International Settlements (BIS), which is the central bankers’ bank, and in private banks outside Argentina. The lawyers of one hedge fund apparently served a subpoena to the BIS’s general manager just as he was about to speak at a public event. “His Excellency” was probably not happy! But all these efforts have failed. The creditors have had only symbolic successes, such as seizing $90 million from a New York trustee who was holding shares of a privatized Argentine bank, or seizing a few million dollars that the Argentine science ministry had deposited in an American bank account in order to buy telescopes. However, this activism probably means that the Argentine government cannot return to international financial markets until it reaches an agreement with its disgruntled creditors, as proceeds from the sale of Argentine bonds issued in an international financial center would likely be seized.

—Pierre Lemieux, The Public Debt Problem: A Comprehensive Guide (New York: Palgrave Macmillan, 2013), 2-3.