Pressure grows to clip vulture funds' wings
By Eli Clifton
WASHINGTON - Fifty advocacy organizations are calling on the United States
Congress to put a stop to investment funds which purchase heavily indebted
countries' debt and jeopardize the impact of bilateral and multilateral debt
cancelation to more than 30 countries.
The groups - which include the The National Association for the Advancement of
Colored People (NAACP), the Jubilee USA Network, TransAfrica Forum, the
American Jewish World Service, the United Methodist Church and Africa Action -
are seeking to stop what they have dubbed "very unscrupulous loan transfers
from underprivileged countries to rich, exploitive funds" or "vulture" funds.
These funds purchase heavily indebted countries' debt at pennies
to the dollar then "aggressively pursue their claims through the seizure of
assets, litigation and political pressure, seeking repayments that are far in
excess of the amount that they paid for the debt", the groups say.
The strategies used by vulture funds act in direct contradiction to
international efforts to cancel debt for the world's poorest countries - a
movement that has already canceled over US$90 billion in debt.
"Since 1996 donor countries - including the US - have committed $90 billion in
bilateral and multilateral debt relief to over 30 countries. Vulture funds
profit from this debt relief," Michael Stulman, associate director of policy
and communications at Africa Action, told Inter Press Service (IPS).
Such funds have used US courts as a venue for suing poor countries for the
debts they incurred in the past.
In one case cited in a letter co-signed by the members of the coalition, FG
Hemisphere Fund successfully sued the Democratic Republic of the Congo (DRC)
for $105 million for a $30 million loan incurred in 1980 by the infamously
corrupt Mobutu Sese Seko government. A judge in Washington ordered the DRC to
pay up to $80,000 a week as a result of the lawsuit.
"The DRC is being forced to siphon these desperately needed resources from
initiatives like health care, education, combating HIV/AIDS and access to clean
water to its impoverished citizens to pay off wealthy corporations such as FG
Hemisphere," said Melinda St Louis, deputy director of the Jubilee USA Network.
Jubilee is an alliance of 80 religious denominations and faith communities,
development agencies and human-rights groups working for debt relief.
"This runs totally counter to the progress made by the US and the international
community on debt cancelation through the World Bank's Highly Indebted Poor
Country [HIPC] effort," St Louis said.
In another judgment, Zambia was forced to pay Donegal International $15 million
on a debt that Donegal acquired for $3 million. The judgment represented 60% of
the debt relief Zambia received in 2007.
"When vulture funds sue for such exorbitant amounts, it's clearly taking away
money that should be invested in health, education, infrastructure and other
social problems and goes to line the pockets of already wealthy investors,"
said Stulman.
In a statement on its website, Donegal International warns that legislation to
block the ability of funds to sue indebted countries would do severe damage to
the secondary debt markets as well as force lenders to raise their interest
rates on unsecured loans.
"If a country were to change its laws to prevent an investor from purchasing
the debt and either converting it or recovering on it, the floor price will go
away and defaulted claims on severely indebted lower income countries would go
to zero. Importantly, lenders will become more reluctant to lend to
impoverished countries on an unsecured basis or will require extraordinarily
high interest on their loans," the firm said.
The civil society groups urge Congress to pass House Resolution (HR) 2932 -
introduced on June 18 by Democratic Maxine Waters and Republican Spencer Bachus
- which would limit the ability of vulture funds to use US courts to garner
exorbitant profits.
"We cannot allow vulture funds to erode the progress that has enabled many of
the world's most impoverished nations to reduce poverty," Waters told IPS in an
e-mail message.
"Over the past year, we have seen how the actions of a small number of
unscrupulous and exploitative investors can hurt innocent people and cause
economic chaos. We cannot allow the world's poorest countries to be exploited
by these bad actors," she said.
Of the International Monetary Fund's list of 41 countries eligible for debt
relief, at least 20 have been threatened or subjected to legal action by
commercial funds that make their profits from recovering loans given to HIPC.
The resolution would serve both to limit the profits funds could make from
trading in HIPC debt and to require increased transparency from funds filing
lawsuits in US courts.
Funds would be required to disclose how much they paid for the debt on the
secondary market.
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