vulture funds launch the offensive in London

The controversial transfer of Argentine gold

At the end of June, the Argentine central bank (BCRA) made a decision that would prove to have serious consequences. In a series of ultra-secure flights operated by British Airways, she transferred almost all of its gold reserves to the City of London. This transfer concerned approximately 62,2 tonnes d’orrepresenting a colossal value of $5.23 billion.

This movement was not trivial. Faced with foreign exchange reserves become negativeestimated at -$2 billion according to Fitch Ratings, Argentina was desperate to maintain its financial stability. The gold, deposited in an account of the Bank for International Settlements (BIS), was to serve as collateral to obtain dollar loansa lifeline for a country on the brink of economic collapse.

However, what was intended to be a financial survival maneuver quickly turned into vulnerability. By taking the gold out of the national territory, Argentina exposed him to legal risks that it may not have anticipated.

The threat of vulture funds

As soon as the Argentine gold arrived in London, it aroused the desire of very specific creditors: the “vulture funds”, investment funds that deliberately purchase the debt of entities (usually countries or companies) in difficulty financial at a very low price. Among them, two actors stand out: Bainbridge et Burford Capital. These funds specializing in disputes with States in difficulty are in conflict with Argentina for almost a decade.

Bainbridge is engaged in a Argentine debt disputewhile Burford Capital challenges the conditions of nationalization of the YPF oil group in 2012, which he considers unfavorable to minority shareholders. Their strategy is simple: they seek to to recognize that the Argentine Treasury and the BCRA act in concertdespite their theoretical status as distinct entities.

If this legal maneuver succeeds, it would open the way to a possible seizure of BCRA assetsincluding gold freshly transferred to London. With this in mind, the funds asked a New York judge to order Argentina to officially reveal the location and exact amount of its gold reserves. A favorable decision could trigger an asset seizure procedure, endangering the country’s last substantial reserves.

Argentina’s economic vulnerability

This legal battle comes in a already disastrous economic context for Argentina. Since the election of Javier Milei as president, the Argentine peso has lost two-thirds of its value against the dollar in less than 12 months, plunging the country into an inflationary spiral.

Paradoxically, thesoaring gold price, 40% over 12 months and 27% this yearsomewhat benefited Argentina, enhancing its reserves. However, this increase is not enough to compensate for the colossal economic challenges facing the country, notably a $44 billion debt to the International Monetary Fund.

The BCRA finds itself in an untenable position, forced to take on more debt to maintain a semblance of financial stability, which only increases its long-term vulnerability.

Legal and financial issues

The outcome of the ongoing proceedings in New York could have devastating consequences for Argentina’s financial sovereignty. If Judge Loretta Preska agrees with the vulture funds, this would set a dangerous precedent, calling into question the immunity that central bank assets generally enjoy.

This situation is reminiscent of the case of Venezuelawhich in June 2023 lost its appeal to recover $1.95 billion in gold kept in the vaults of the Bank of England. The United Kingdom froze these funds in 2019 to protest the contested re-election of Nicolas Maduroillustrating how a state’s assets can be used as political and financial leverage on the international stage.

The Venezuelan precedent highlights the complexity and risks inherent in storing gold abroad for countries in economic difficulty. It highlights the fine line between financial strategy and geopolitical vulnerability, a balance that Argentina must now negotiate with great caution.