The Heavily Indebted Poor Countries initiative vs. vulture funds
The Guardian today has a wonderful article dissecting the – typically ass-ish – behaviour of vulture funds towards the world’s poorest countries.
Vulture funds buy up sovereign debt issued by poor countries at a fraction of its face value, then sue the countries in courts – usually in London, New York or Paris – for their full face value plus interest.
Donegal International, an offshore vulture fund, burst into the spotlight this year when it won an award for $15m from impoverished Zambia in the UK High Court. Donegal paid $3m for some old Zambian debt, then sued for $55m, although the London judge reduced the award to $15m.
But that was the tip of the iceberg. A paper prepared for the IMF/World Bank meetings this week shows there are now $1.8bn of lawsuits against poor countries where people typically live on less than $1 a day. Eight cases were launched in the past year – five against Nicaragua, two against Cameroon and one against Ethiopia. But the report warns the figures are far from complete and the real totals could be higher still.
It shows that of the 24 countries that have received debt cancellation under the Heavily Indebted Poor Countries initiative, 11 have been targeted for legal action by private creditors. And they have already seen awards in courts of just under $1bn – money that could have been spent on schools and hospitals.
Always an interesting debate – I am a smash-the-IMF-er type, generally (by way of full disclosure). The arguments for personal (even sovereign) responsibility don’t hold for me. Distressed debt, wether it belongs to shitty countries or shitty incomes/mortgages from sub-prime suckers, should be – somehow – protected. Not exploited.
Exploitation of distressed debt perpetuates, as the poverty trap never could, poverty. In our communities, in our so-called ‘global village’, etc., the principle of ‘catch-up’ will never work in practice while funds circle the globe poleaxing poor countries at every turn.
An enjoyable article to read. Also, the wikipedia entry for vulture funds contains a bundle of worthwhile references.
This is not to suggest there is ‘a’ solution – it is attitudinal. For example:
Gordon Brown has criticised vulture funds and called for international action to ensure that they cannot thrive. He wants the World Bank to help poor countries eliminate their commercial debts and creditors to establish a legal fund to help countries defend themselves. “We are determined to limit the damage done by such funds,” he says.
Can he honestly do this, without altering his own government’s alterna-function as international arms broker? I don’t think so. Well may we say, in our paternalism, that these countries could spend this money on health and education. They may just as easily spend it on the lifestyle of Charles Taylor – in which case our government would be just as happy to arrange trade shows.