Ignacio A. Boulin Victoria and Enrique Cadenas, the co-directors of the Center for Law and Development at Universidad Austral in Buenos Aires, Argentina, contribute the following guest post:
It looks like a boxing fight. On the one side, the so-called “Vulture Funds” (mainly the US hedge fund NML Capital, CEO’d by the famous—or infamous—Paul Singer) threaten to inflict serious damage over a whole country’s economy. On the other, Argentina’s government, headed by President Cristina Fernandez de Kirchner, whose administration—like that of her predecessor and husband, Nestor Kirchner—has been dogged by serious allegations of corruption, and whose vice president is currently being prosecuted for corrupt practices. Both parties have made remarkable efforts to win the media battle through propaganda and lobbying, with President Kirchner accusing the Vulture Funds of being “economic terrorists,” and the Vulture Funds denouncing Argentina as “a model of unsoundness” that “refus[es] to pay its debts.” Whatever the international perception, the conflict with the Vulture Funds seems to be helping President Kirchner, whose standing in national polls has been rising during the standoff.
But—though this may sound perverse to many Argentine citizens—from an unconventional perspective it’s possible that the attack of the Vulture Funds may produce, at the end of the day, good consequences for Argentina. The reason has to do with how the Vulture Funds’ attack may expose pervasive high-level corruption, and deprive some corrupt leaders of the proceeds of that corruption.
Consider this example, which may be a bellwether: Recently, the Vulture Funds requested an American Judge from Nevada to uncover information about private companies, owned by an alleged associate of (and alleged figurehead for) former President Nestor Kirchner. This request aimed at seizing private assets related to corrupt acts, to cover national debts. This is not unprecedented: a previous case, concerning Congo’s former President Denis Sassou-Nguesso, also involved Vulture Fund-led corruption investigations into private assets. But Argentina’s case may become much larger. By pursuing this line of attack, Vulture Funds may – perhaps unintentionally – be contributing to the international credit ecosystem by doing what vultures do: scavenging and hence “cleaning up” corruption from the ecosystems. How? By creating personal (and not only institutional) incentives for the proper use of taxpayer’s money. Think about it in the following way:
- First important fact: political elites in weak rule of law countries often do not face significant legal risks associated with corruption-related crimes either in their domestic systems or in the international realm.
- Second important fact: State assets are usually protected from seizure by sovereign immunity.
- Third important fact: personal assets should not be confused with state assets.
Put all those facts together, and it seems that Vulture Funds may be digging in the right pockets: not the state’s protected assets, but the personal assets of corrupt leaders, acquired (unlawfully) from national resources supplied by international lenders. In pursuing this strategy, the Vulture Funds, unsavory though they may seem, also demonstrate what is missing from the system at other times: personal incentives, and personal responsibility, for the well-connected political elite who squander their country’s wealth. After all, even though international credit organizations (ICOs) have indicated that corruption is a priority, the international legal framework needs to be strengthened if corrupt leaders are to be prosecuted at the international level for unlawfully diverting to personal use funds that were borrowed in the name of the people of their nations. ICOs seem to have a captive market so, unlike the Vulture Funds, they do not have a pressing need to go after corrupt leaders; they know that sooner or later, debts will be paid by future governments (that is, by the taxpayers). Thus, from the perspective of the citizens, it may be better for the country to be relentlessly pursued by Vulture Funds than the more merciful ICOs.
We recognize that even suggesting that the attack of the Vulture Funds may be good for Argentina may seem paradoxical, even perverse. But that very perversity illustrates the larger problem that must be addressed: the absence of personal responsibility for national leaders who misappropriate national funds, and leave future taxpayers with the bill.