In Debt Duel, It Was Argentina V. Paul Singer

Jul 31, 2014
Originally published on July 31, 2014 6:07 pm
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Transcript

AUDIE CORNISH, HOST:

When Argentina defaulted on its sovereign debt yesterday, it was the latest turn in a battle that's been going on for the last 10 years. Some U.S. hedge funds have been demanding that Argentina repay, in full, bonds they purchased years ago. The fight's been led by billionaire Paul Singer. He's the founder of Wall Street hedge fund Elliott Management. We reach Forbes writer Agustino Fontevecchia to learn more about the strategy of Singer and other hedge funds.

AGUSTINO FONTEVECCHIA: They look at companies that are not doing well, and they look at countries that are not doing well. And in some cases, like the Argentina one we're talking about, the country essentially went into bankruptcy early in the 2000s, so that's called default. And what Singer did is that he went in and he scooped up a bunch of the debt when it was really cheap because, as we know, when someone's in bankruptcy, you can buy the assets at fire sale prices. And then what he did is that he litigated. He took them to court in order to try to extract full payment.

CORNISH: So this time he sues Argentina, and he wins the battle in court. But Argentina still doesn't pay up and defaults. So now what does he do?

FONTEVECCHIA: All right. Well, the thing is, in other cases I think he hasn't dealt with a country that is a G20 nation. So it's relatively large economically even though, you know, next to the U.S., it's very tiny. When it comes to countries, there aren't strict rules as to what happens when they go bankrupt. At the end of the day, if they decide to break with the rule of law which they agreed to, the country can just kind of say, like, OK, I'm just going to give my back to the rest of the world. And for Argentina, the problem is that now while most countries can finance themselves by appealing to global markets in terms of debt by issuing bonds, Argentina hasn't been able to do that. They've suffered the lack of dollars for imports and other things like that and that's fed inflation. And it's harmed the welfare of the people in the nation. Now hypothetically, Argentina could just never pay. The problem is Argentina will be eternally out of the global markets. And that's not something they want.

CORNISH: Now funds like Elliott Management, they're often described as vulture investors - a name that I understand Paul Singer's not fond of. But they do understand the risk here. Has he overplayed his hand?

FONTEVECCHIA: You know, that's an argument that can be made. When you talk about a vulture fund, it's definitely not a nice way to say it, but it does kind of go to the point. Now it would be bad to blame them as an absolute horrible, you know, ethical person because that's not what they are. They are just very smart at looking at the market, at finding opportunities and at working their legal strategy. So why are they called vultures? It's because they are going after nations that are bankrupt, generally because of incompetent leadership that took on too much debt. And they're essentially extracting payment that, hypothetically, could be money that the country really needs to grow its economy. Now at the same time, the vulture funds, including Singer's, they do provide a certain positive thing that is they act as sheriffs to a certain extent. They police people. They force some of these nations to make sure that they're not, you know, just taking out all the debt they want and then defaulting and then not caring. By knowing that there are people like Singer out there, countries have to be more careful.

CORNISH: Can you tell us a little bit more about Singer himself? I understand that there is also kind of political ideology at play.

FONTEVECCHIA: Yeah, most definitely. So Singer is well-known to be a Republican backer. He has very strong opinions. He doesn't like the Federal Reserve. He's more of a person that likes less taxes and less government intervention. So when you oppose that to some countries like Argentina, which kind of espoused the opposite ideals - Argentina's more of a, you know, government-run economy to certain extent. There's a lot of intervention. So, you know, a little bit of this could have to do with Singer trying to say look, we want to show that contracts have to be enforced and the sanctity of contracts and of property. But at the end of the day, Singer wants to get paid. At the same time, Argentina's a country with a history of sort of rebelliousness, of sort of default, of thinking they can take on the world. And, you know, I personally am from Argentina. And all Argentines - we don't agree with the things that we've done, but I think we all agree that there is a very strong ego or personality in sort of our national feeling of ourselves, which makes this sort of a perfect enemy for Singer. But both sides kind of hate each other, if you will.

CORNISH: Agustino Fontevecchia is a writer with Forbes. He joined us to talk about the role of Paul Singer and his hedge fund in Argentina's debt default. Thanks much for talking with us.

FONTEVECCHIA: Thank you so much for having me. Transcript provided by NPR, Copyright NPR.