Argentina is facing the prospect of a fresh debt crisis after the U.S. Supreme Court Tuesday refused to turn down a lower court verdict that it pay off about $1.3 billion it owed to international hedge funds.
Some hedge funds, which Argentina refers to as ‘vulture funds’, bought up debt worth $1.3 billion in 2002. The South American country has long been arguing that it cannot pay off the hedge funds as it violates the debt restructuring deal it signed with other creditors.
Argentina successfully persuaded some of its bondholders to accept nearly 70 percent reduction in the value of their investment. More than 92 percent of creditors agreed to the offer, but a number of hedge funds refused and they soon sued the government in the U.S. courts.
The South American country says the funds bought most of the debt at a deep discount and paying off such a huge sum will push its economy back into a turmoil.
Early in the twentieth century, it was one of the richest countries in the world and the third largest in the Southern hemisphere. But in 2002, it defaulted on bond repayment and slipped into an economic crisis.
Today, the growing debt, rising inflation and a weak currency have continued to prevent it from putting the economy back on track.
A month ago, more than a hundred British legislators signed a statement that supported Argentina’s decision not to pay back the money to the so-called “vulture funds.”
“The vulture funds bought up billions of dollars worth of Argentina’s debt in the early 2000s when the country’s economy was on its knees and its people were suffering horrendous poverty. Defaulting on its debts was the only option,” said their statement, according to the Buenos Aires Herald.