Jubilee Debt Campaign UK: Vulture Funds Undermining Debt Relief Gains

The IMF and World Bank have published their latest Status of Implementation report on the HIPC and MDRI debt cancellation processes. Read it on the IMF/World Bank website.

In the wake of the report, Jubilee Debt Campaign released a media statement calling for urgent action to stop vulture funds from operating, and pressure on all commercial creditors to take part in the international debt cancellation process.

A new report from the World Bank and International Monetary Fund has revealed that vulture funds and other commercial creditors are still chasing a staggering $1.8 billion from some of the world’s poorest countries -- AFTER they have had debts canceled by rich country governments.

• 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.
• More than half of these private creditors have already won lawsuits, with a total of $991 million awarded so far.
• Eight new legal actions have been reported in the last year, five against Nicaragua, two against Cameroon, and one against Ethiopia.

Read it after the jump.

JUBILEE DEBT CAMPAIGN MEDIA RELEASE
9 October 2007

Vulture funds chasing millions from poor countries
Countries targeted for $1.8 billion, debt cancellation benefits under threat

A new report from the World Bank and International Monetary Fund has revealed that vulture funds and other commercial creditors are chasing a staggering $1.8 billion from some of the world's poorest countries, after they have had debts canceled by rich country governments. Jubilee Debt Campaign is calling for urgent action to stop vulture funds from operating, and pressure on all commercial creditors to take part in the international debt cancellation process.

Some of the facts revealed in the HIPC Status of Implementation report [2]:

• 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.
• More than half of these private creditors have already won lawsuits, with a total of $991 million awarded so far.
• Eight new legal actions have been reported in the last year, five against Nicaragua, two against Cameroon, and one against Ethiopia.

Trisha Rogers, Director of Jubilee Debt Campaign said:

These figures show that there are systemic problems with the international debt relief process. Vulture funds are continuing to exploit loopholes to chase millions of dollars from desperately poor countries. Funds freed up by debt cancellation are intended for health, education and other social spending, they are not rich pickings for speculators and private banks. It?s time for concerted action from the UK government, the IMF, and the World Bank to tighten up the system and make sure the benefits of debt cancellation go to the people who need them?

Vulture funds have been in the spotlight since February this year, when Jubilee Debt Campaign and Oxfam revealed that Donegal International, an offshore investment fund based in the British Virgin Islands, was suing the Zambian government for $55 million for a debt it had bought for $3 million [3]. Concern has been expressed by the UK government, the G8, the IMF, the World Bank and the Paris Club about the activities of vulture funds, but so far no concrete proposals for how to tackle them have been produced.

Trisha Rogers continued:
In addition to the countries listed in this report, countries like Cote D'Ivoire and Liberia, which are preparing to enter the debt cancellation process, have large commercial debt burdens. This leaves them very vulnerable to litigation, in particular from vulture funds who want to buy up their debts in order to sue. We are calling for national and international regulation to stop vulture funds from operating. In the meantime, the international community must provide poor countries with speedy access to affordable legal advice and support, so they can defend themselves against the vultures.

NOTES FOR EDITORS
1. Vulture funds are private companies that buy up the debts of companies, or in this case, poor countries, at a steep discount, and then try to make a profit by claiming the original amount and more, often through the courts. For more information about vulture funds and poor country debt, see http://www.jubileedebtcampaign.org.uk/?lid=2974.

2. The IMF paper, Initiative for Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation, is available at: http://www.imf.org/external/pp/longres.aspx?id=4208.

Released ahead of the annual meetings of the World Bank and International Monetary Fund from 19-21 October 2007, it compiles information on litigation claims currently before the courts in relation to the debts of countries that have been through the HIPC initiative. The report recognizes that the list it has compiled is incomplete, and so it does not even reflect the full extent of vulture fund and other commercial creditor activity.

3. The Donegal vs. Zambia case took place in the British High Court in early 2007, with Donegal eventually awarded $15.5 million. Vulture fund activity prevents countries that have received debt relief from using it for its intended purposes, such as spending on health and education, and development of infrastructure. For example, in 2003, Zambia spent twice as much on debt repayments than on health care. Now after debt cancellation, they have abolished user fees at rural clinics to give citizens free basic medical services and committed to providing anti-retroviral (ARVs) drugs for 100,000 citizens. But vulture fund activity threatens to siphon off this extra spending.

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