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	Expected Hedge Fund vs. Argentina Ruling will impact Global Poverty by Jubilee USA Network, agencies Argentina   June 22, 2014   The Debt Vultures Fell Swoop, Mark Weisbrot. (NYT)   Last week, the United States Supreme Court decided not to review a ruling in the Second Circuit Court of Appeals whose effect is that Argentina must pay “holdout” creditors who refused to participate in debt restructuring agreements that Argentina reached with the majority of bondholders following the 2001 default on its sovereign debt. Argentina’s lawyers warned that the court’s decision created “a serious and imminent risk” that the country would again be forced to default. But the ruling also has profound and disturbing implications for the functioning of the international financial system, and even the United States would most likely be adversely affected.   Parties as diverse as the International Monetary Fund and leading religious organizations wanted the Supreme Court to overturn the decision, and briefs supporting this position were filed by the governments of France, Brazil and Mexico, as well as by the Nobel Prize-winning economist Joseph E. Stiglitz. The I.M.F. — which has had mostly sour relations with Argentina since its involvement in that country’s 1998-2002 recession — was also planning to file a brief on Argentina’s side to the Supreme Court, but was blocked by the American government from doing so. This action may have influenced the court’s decision not to hear the case.   Argentina defaulted on its international debt at the end of 2001, following a deep recession. After years of negotiations, the government reached a restructuring agreement with its private creditors, in which the bondholders accepted a loss of about two-thirds of the value of their bonds. In 2005, 76 percent of the creditors had signed on; by the end of 2010, more than 90 percent had. Argentina has made all of its payments on the new, restructured bonds, on time.   The complication was over a group of “holdout” bondholders who did not agree to the restructuring. The plaintiffs in the New York case are widely known as “vulture funds,” because they bought the bonds after the default at a fraction of their value, hoping to use court rulings like this one to force payment at the bonds’ original face value.   The appellate court ruled that if Argentina was paying the holders of restructured bonds, it must also pay the holdout or vulture fund creditors in full — and its decision implies that the punishment for an attempted default could be never-ending. This raises the question of how many decades a people should be forced to suffer for the mistakes or transgressions of earlier leaders — whether elected or, as is often the case, unelected. (Much of the Argentine debt, in fact, was incurred by a dictatorship.)   Another key implication of the ruling is that governments that are bankrupt would now find it difficult or impossible to negotiate a settlement with their creditors. Who will take a haircut on their bonds if they can refuse the terms and sue for the full value?   In the United States, and most other countries, there are bankruptcy laws designed to allow for companies and individuals facing unpayable debt to make a new start. There is no such legal mechanism for countries, so these restructuring agreements are an important way of resolving problems of unpayable sovereign debt.   The court’s decision would make it difficult to issue the new bonds needed for restructuring, as well as further debt in the future. Just one holdout bondholder or vulture fund creditor could torpedo the process.   In addition, Argentina’s default and devaluation in 2001-2 is widely regarded as a success. The country’s economy shrank for just three months after the default, and then began a rapid-growth recovery. By the end of 2011, Argentina had achieved a record rate of employment, reduced poverty by nearly 70 percent and allowed for a tripling of social spending in real terms.   A decade after the devaluation, the Argentine economy has run into trouble — partly because the vulture funds have prevented it from borrowing on international markets — but there is no doubt that Argentines are vastly better off for the path that was taken. For comparison, look at Greece: After six years of austerity-driven recession, which included a 40 percent cut in health care spending, the unemployment rate stands at 26.8 percent (and more than double that rate for youth) and the net public debt has grown to 169 percent of the country’s gross domestic product.   Most experts agree that the appellate court ruling would have a destabilizing effect on international financial markets. There is economic justice to consider, too. Argentine bondholders were paid high interest rates on their bonds because there was risk. Capitalism is not supposed to be a “heads I win, tails you lose” bet — but the Second Circuit Court’s decision would make it that way for sovereign debt bondholders.   Argentina may find a way around the court’s decision, by issuing new bonds and making payments that are outside of the court’s jurisdiction. But this ruling in favor of the vulture funds will do continuing damage to ordinary people around the world that will show up in future debt crises.   * Mark Weisbrot is the co-director of the Center for Economic and Policy Research. http://www.cepr.net/   http://www.jubileeusa.org/press/press-item/article/supreme-court-refuses-argentina-debt-case-and-validates-hedge-fund-predatory-behavior.html http://www.jubileeusa.org/home.html http://jubileedebt.org.uk/press-release/risk-new-argentinian-debt-default-vulture-fund-verdict http://jubileedebt.org.uk/ http://www.eurodad.org/sites/debt http://www.eurodad.org/ http://www.whiteband.org/issues/debt   http://www.one.org/international/issues/debt-cancellation/ http://www.oxfam.org/en/campaigns/health-education/debt-and-aid http://www.ohchr.org/EN/Issues/Development/IEDebt/Pages/HRightsAndForeignDebt.aspx http://www.ohchr.org/EN/Issues/Development/IEDebt/Pages/IEDebtIndex.aspx   August 23, 2013   Hedge Funds Win 2nd Circuit Court Ruling in NML Capital vs. Argentina; Global Poor Lose. Ruling Delayed as U.S. Supreme Court considers Taking Appeal.   In the landmark case of NML Capital, LTD v. The Republic of Argentina, the New York based U.S. Circuit Court upheld a previous ruling ordering Argentina to pay $1.33 billion to hold out hedge funds. Argentine bonds soared and antipoverty advocates held their breath as the 2nd Circuit Court delayed the ruling until the U.S. Supreme Court decides if they will take appeals on the case.   “Our eyes are on the U.S. Supreme Court. We pray the court will not forget the world’s poor as they consider taking the case,” asserted Eric LeCompte, Executive Director of the religious antipoverty campaign known as Jubilee USA.   In June, Argentina preemptively filed an appeal to the U.S. Supreme Court asking to overturn an earlier U.S. 2nd Circuit Court ruling that ordered Argentina to pay holdout creditors. Now that the 2nd Circuit Court has upheld the ruling, the fate of the case lies in the hands of the U.S. Supreme Court. In July, France filed an amicus brief to the U.S. Supreme Court in support of Argentina’s request. The International Monetary Fund’s Christine Lagarde planned a similar U.S. Supreme Court filing because of the case’s significant implications on poverty and country debt restructurings. Although Lagarde has maintained her concern about the hedge fund behavior, the IMF did not file with the U.S. Supreme Court based on advice from the U.S. Treasury. The U.S. Treasury will likely file in support of Argentina if the U.S. Supreme Court accepts the case. The U.S. has filed in support of Argentina at various stages of the case before lower courts because of the appeal’s impact on global debt restructuring, poor country access to credit and state sovereignty rights.   “The Jubilee Network is saddened by the 2nd Circuit’s decision as it hurts poor people around the globe,” shared LeCompte. “It’s up to the U.S. Supreme Court now to overturn the 2nd Circuit ruling in order to prevent these hedge funds from targeting poor countries and struggling economies.”   NML Capital, a subsidiary of Elliott Management, purchased Argentine debt cheaply when the nation defaulted in the early 2000s. Since then, ninety-two percent of debt holders restructured. Holdout creditors, led by NML Capital, rejected restructuring deals and continue to sue Argentina for the full amount. Hedge funds, like NML Capital, that purchase deeply discounted debt of poor or financially-distressed countries and then sue to make high profits are known as “vulture funds.” Often, these funds try to collect off of funds meant to benefit the poorest in developing countries.   In addition to the U.S. raising concerns, the IMF and World Bank have continually expressed concern over this hedge fund behavior. German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany.   At the end of 2012, the U.S. 2nd Circuit Court ordered Argentina to pay holdout creditors $1.3 billion upon its interpretation of a pari passu, or parity clause. Argentina appealed and the U.S. Court suspended the ruling to hear new oral arguments in February 2013. After arguments, the court ordered Argentina to outline an alternate payment plan to holdout creditors. Holdout creditors rejected the plan that was essentially the same deal that ninety-two percent of creditors previously took. The 2nd Circuit upheld its ruling and interpretation of pari passu or the parity clause in today''s ruling.   “Unfortunately, the decision of the 2nd Circuit is too narrow and short-sighted. Their interpretation of the parity clause is deeply flawed,” noted LeCompte.   July 2013   Any day, the US 2nd Circuit Court will rule between Argentina and hedge funds; the ruling will impact global poverty and poor country access to credit. Argentina preemptively filed an appeal with the US Supreme Court.   “The ruling will go well beyond Argentina - it will have serious repercussions on poverty around the globe. If these hedge funds win it will harm legitimate investors and poor people,” stated Eric LeCompte, Jubilee USA Network’s Executive Director.   In the early 2000s Argentina defaulted on nearly $81 billion in debt. NML Capital, a subsidiary of billionaire Paul Singer’s Elliott Management, purchased some of Argentina’s distressed credit. After the nation defaulted, ninety-two percent of the creditors restructured. Holdout creditors, led by NML Capital, rejected the proposal and sued Argentina for the full amount in NY courts where the original loans were contracted. NML Capital is known as a “vulture fund.” Vulture funds are hedge funds that buy the debt of poor or financially-distressed countries for pennies on the dollar and then sue to make high profits.   These funds often target monies allocated to benefit vulnerable populations in a poor country.   In addition to the concerns expressed by the IMF and World Bank, the US government filed an amicus or friend-of-the-court brief, during the 2nd Circuit Court proceedings, noting a ruling against Argentina could make it much harder for countries in financial recovery or stress to access credit swaps. Recently, German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany.   In June 2012, Elliott Management supported legislation in the NY State Senate and Assembly that would have allowed hedge funds to continue to litigate a country even after a court had ruled. Jubilee USA and partners prevented the legislation from being voted on.   In late 2012, NML Capital persuaded a lower Ghanaian court to order the seizure of one of Argentina’s ships, the Libertad. Ghana seized the ship temporarily but later released it after the United Nations Tribunal on the Laws of the Sea noted that the seizure was illegal. Recently, Ghana’s Supreme Court condemned seizure of the Argentine ship.   At the end of 2012, Argentina was ordered to pay holdout creditors $1.3 billion due to the US District Court"s interpretation of a pari passu, or parity clause. Argentina appealed and the 2nd Circuit Court suspended this ruling to hear new oral arguments in February. After arguments, Argentina was ordered to outline an alternate payment plan to holdout creditors. Holdout creditors rejected the proposal that was essentially the same deal that 92 percent of creditors previously took. In June, Argentina filed an appeal to the US Supreme Court, known as a writ of certiorari, asking the court to overturn the US Circuit Court ruling ordering Argentina to pay holdout creditors.   “Jubillee would like to see this kind of hedge fund behavior end,” said LeCompte. “It’s one thing to make a fair profit; it’s another thing to make an extraordinary profit off the backs of the poor.”   *Jubilee USA Network is an alliance of more than 80 religious denominations and faith communities, human rights, environmental, labor, and community groups working for the definitive cancellation of crushing debts to fight poverty and injustice in Asia, Africa, and Latin America. Visit the related web page
	OECD warns global corporations nearly stateless entities, avoiding taxes in rich and poor countries by Financial Transparency Coalition & agencies   19 July, 2013   The world is on the brink of "global tax chaos" says a report released by the OECD Friday, which warns that global corporations have become nearly stateless entities, avoiding taxation in rich and poor countries alike.   As the OECD states:   Inaction in this area would likely result in some governments losing corporate tax revenue, the emergence of competing sets of international standards and the replacement of the current consensus-based framework by unilateral measures which could lead to global tax chaos.   The OECD, who was asked by the G20 to take on the project of analyzing the current tax climate, says the "current weaknesses in the rules and the interaction of different tax rules leads to double non-taxation or less than single taxation."   The report, Action Plan on Base Erosion and Profit Shifting, also notes that the "rise of the digital economy" has confused the issue of tax jurisdiction—as to where corporations should be taxed for virtual profiteering.   However, although the report makes several suggestions for reform including the construction of an international and "multilateral" framework for corporate taxation that ensures "taxable profits cannot be artificially shifted through the transfer of intangibles (eg patents or copyrights), risks or capital, away from countries where the value is created," global tax watchdogs say the OECD"s suggestions are still far from adequate.   "The OECD has done little to dispel its reputation as the "rich mens club" by effectively ruling out the active participation of developing countries in shaping the tax reform agenda," said the Financial Transparency Coalition (FTC), an umbrella group including charities such as Christian Aid, Global Witness, Global Financial Integrity, Tax Justice Network and Transparency International.   The group maintains that developing countries’ "communication channels" with the OECD"s processes are restricted in comparison to more wealthy nations and therefore any reform processes going forward may not benefit poorer nations as greatly as richer ones.   "Restricting developing country participation...should not be confused for equal participation in the OECD’s decision-making process," the FTC stated. "The UN Tax Committee in particular needs to be strengthened to participate more fully as representative of a broader group of countries."   Likewise, as the OECD"s recommendations work to "patch holes" within current international tax code, the Tax Justice Network said the plan is not legally binding, fails to provide a more drastic tax-code overhaul and will be "fraught with political obstacles."   Professor Sol Picciotto, Senior Adviser to the Tax Justice Network, said:   The OECD has missed this big opportunity to crack open the door to the big reform that the world’s citizens need. It is still open to countries to adopt their own versions of worldwide taxation of multinationals, and for other organizations such as the United Nations to take a lead in developing an effective worldwide system.   “In poor nations we are largely failing to capture tax revenue from major international corporations which should be harnessed to ensure better social and economic opportunities for citizens,” said Alvin Mosioma, director of Tax Justice Network Africa.   “This is why the current OECD reform process needs to include at its heart serious representation from developing nations rather than keeping them to the margins. That developing countries are kept out of this key process runs the real risk of further entrenching global inequality.”   July 19, 2013   OECD report confirms the international tax system is failing rich and poor nations. (Financial Transparency Coalition)   Today the OECD identified 15 policy action points and created a two-year timeline that it hopes will restore trust and fairness in what it concedes has become a flawed and discredited international tax system. The report, Action Plan on Base Erosion and Profit Shifting, recognises what the Financial Transparency Coalition (FTC) has known for years: That the integrity of the current global tax system has been undermined by multinational companies and their tax planners exploiting the boundaries of acceptable tax planning.   The OECD today clearly stated that multinational companies’ artificial shifting of revenues and profits to low or no tax jurisdictions harms governments, businesses and citizens throughout the world. The FTC heartily welcomes the OECD’s specific acknowledgment that “in developing countries the lack of tax revenue leads to critical under-funding of public investment that could help promote economic growth”.   “For too long poor nations have had their tax revenue undermined by multi-national corporations that have artificially siphoned away profits that could be harnessed to improve health, education and economic opportunity for billions of people”, said Porter McConnell, Manager of the Financial Transparency Coalition.   Developing Countries Marginalized   But it is simply unacceptable that developing countries, who have suffered proportionately more tax abuse than any other actor, are marginalised in this new OECD policy reform process.   Alvin Mosioma, director of Tax Justice Network Africa and Africa regional advocate for the Financial Transparency Coalition, said: “Comprehensive reform of the international tax system is urgently required because it is outdated, not fit for purpose, and it fails rich and poor nations alike. So it is welcome that today, the OECD has initiated a much needed reform agenda.”   But the OECD has done little to dispel its reputation as the “rich men’s club” by effectively ruling out the active participation of developing countries in shaping the tax reform agenda. Developing countries’ communication channels with the OECD process are restricted to the UN, the Task Force on Tax and Development, and the OECD Global Relations Programme, which the OECD says will provide “useful insights” and a “useful platform” for “the particular concerns of developing countries”.   Restricting developing country participation to these separate venues should not be confused for equal participation in the OECD’s decision-making process. The UN Tax Committee in particular needs to be strengthened to participate more fully as representative of a broader group of countries. It should operate on a par with the OECD and G20, to counter not just the influence of rich nations but lobbyists representing powerful corporations.   “In poor nations we are largely failing to capture tax revenue from major international corporations which should be harnessed to ensure better social and economic opportunities for citizens”, said Mosioma.   “This is why the current OECD reform process needs to include at its heart serious representation from developing nations rather than keeping them to the margins. That developing countries are kept out of this key process runs the real risk of further entrenching global inequality.”   Loopholes and Technicalities   The OECD has correctly identified the myriad loopholes and technicalities that allow multinationals to avoid taxation in developing countries and rich nations alike.   Indeed, the international system is so full of loopholes that the problem of base erosion and profit shifting has become systemic. Multinationals’ separate entity arrangements allow global companies to use their subsidiaries to seamlessly book their profits through secrecy jurisdictions, instead of being taxed where revenues and economic activity accrue.   This is why it is disappointing that the OECD has ruled out exploring alternatives to the current arm’s length principle of international taxation.   That said, we are encouraged by the OECD’s suggestion that “special measures, either within or beyond the arm’s length principle, may be required with respect to intangible assets, risk and over-capitalisation to address flaws.”   http://www.financialtransparency.org/2013/07/19/oecd-beps-report-confirms-the-international-tax-system-is-failing-rich-and-poor-nations/ http://taxjustice.blogspot.ch/2013/07/oecd-launches-its-action-plan-on.html http://www.oecd.org/newsroom/closing-tax-gaps-oecd-launches-action-plan-on-base-erosion-and-profit-shifting.htm http://www.guardian.co.uk/world/2013/jul/19/g20-report-warns-global-tax-chaos http://www.icij.org/offshore
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