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Stopping the Circling Vultures: Restructuring a Solution to Sovereign Debt Profiteering

Posted by on Saturday, January 30, 2016 in Blog, Notes, Vol. 49 No. 1, Volume 49.

Elisa Beneze is a third-year student at Vanderbilt University Law School. Her Note uses the sovereign debt crisis in Argentina to explore the larger problem of hedge funds that engage in sovereign debt profiteering.

When a sovereign state becomes unable to repay its debts and enters into default, an ideal outcome involves a quick and mutually agreeable resolution with creditors, allowing the country to reenter the international markets and continue its recovery with limited impediments. However, the situation in Argentina, unfolding since 2001, has provided a stark example of why change is needed at the domestic and international level to address the growing problem of vulture funds’ presence in the sovereign debt markets. These aggressive hedge funds have demonstrated an uncanny ability to hijack the sovereign debt restructuring process. Vulture funds purchase discounted debt on the secondary market and pursue private litigation against sovereign states in an attempt to recover large profits off the sovereign default. The vulture funds’ actions pose significant threats to the sovereign debt restructuring process. These threats are poised to continue if steps are not taken to limit the funds’ power.

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