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Στράτος Δ. Καμενής: Vulture Funds and the Sovereign Debt Market: Lessons from Argentina and Greece

Vulture funds and rogue creditors put in question the sustainability of the sovereign debt market by creating confusion and uncertainty in the global financial system. On the one hand, they take advantage of indebted countries’ economic hardship to profit at the expense of bondholders who participate in debt restructurings. On the other hand, vulture funds’ predatory behavior and litigation tactics keep the market alive by discouraging moral hazard and forcing sovereign states to be more responsible in managing public finances. However, the absence of clear rules on sovereign lending and debt restructuring has created the need for a more regulated sovereign debt market. Many experts question the ability of courts to make decisions about which defaults are allowable and which creditors should be fully reimbursed. Throughout the last three decades, the Baker Plan, the Brady Plan and the IMF’s Sovereign Debt Restructuring Mechanism sought to address the tension between capacity and willingness to pay without succeeding in defining the framework within which public and private entities should operate. This research paper seeks to address the following questions: how much power do rogue creditors have? And what are the obstacles that vulture funds face in collecting sovereign assets? Finally, is the establishment of international debt restructuring rules the solution to the lack of regulation? The paper examines the legal tactics and strategies that vulture funds pursued against Argentina and Greece before and after their debt restructurings and analyzes the far-reaching consequences of the two countries’ financial policy on the viability of the sovereign debt market.

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