- Development & Aid
- Economy & Trade
- Human Rights
- Global Governance
- Civil Society
Thursday, May 26, 2022
WASHINGTON, Aug 19 2009 (IPS) - Fifty advocacy organisations are calling on the U.S. Congress to put a stop to investment funds which purchase heavily indebted countries’ debt and jeopardise the impact of bilateral and multilateral debt cancellation to over 30 countries.
The groups – which include the NAACP, the Jubilee USA Network, TransAfrica Forum, the American Jewish World Service, the United Methodist Church and Africa Action –are seeking a stop to what they have dubbed “Very Unscrupulous Loan Transfers from Underprivileged countries to Rich, Exploitive Funds”.
These so-called VULTURE funds purchase heavily indebted countries debt at pennies to the dollar and then “aggressively pursu(e) 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 which has already cancelled over 90 billion dollars in debt.
“Since 1996 donor countries – including the U.S. – have committed 90 billion dollars 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 IPS.
Such funds have used U.S. courts as a venue for suing poor countries for the debts they incurred in the past.
“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 U.S. and the international community on debt cancellation, 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 dollars on a debt that Donegal acquired for three million dollars. The judgment represented 60 percent 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 Jun. 18 by Democratic Rep. Maxine Waters and Republican Rep. Spencer Bachus – which would limit the ability of VULTURE funds to use U.S. 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 email 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 (IMF) list of 41 countries eligible for debt relief, at least 20 have been threatened or subjected to legal action by commercial funds who make their profits from recovering loans given to HIPC.
The resolution would serve to both limit the profits which funds could make from trading in HIPC debt as well as require increased transparency from funds filing lawsuits in U.S. courts.
Funds would be required to disclose how much they paid for the debt on the secondary market.
IPS is an international communication institution with a global news agency at its core,
raising the voices of the South
and civil society on issues of development, globalisation, human rights and the environment
Copyright © 2022 IPS-Inter Press Service. All rights reserved. - Terms & Conditions
You have the Power to Make a Difference
Would you consider a $20.00 contribution today that will help to keep the IPS news wire active? Your contribution will make a huge difference.