Vultures of third world debt

A coalition of 50 advocacy groups are calling on the U.S. Congress to stop the practices of Vulture Funds. The funds buy countries debt at pennies on the dollar but charge them huge interest on the purchases. Once the payments are late, the funds sue the governments for what they feel is owed to them.

From Afrik.com, writer Muritala Bakare gives us a further description of the vulture funds practice.

According to the group of fifty advocacy institutions which discovered the “unscrupulous loan transfer” called VULTURE funds, Highly Indebted Countries’ debt are purchased at pennies to dollar and the financial firms "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 group say.

For instance, FG Hemisphere Fund based in the United States was successful in its court case against the Democratic Republic of Congo for US$105million for a US$30million loan borrowed in 1980 by the government of Mobutu Sese Seko. The DRC was ordered to pay nearly US$80,000 a week by a US judge.

"The DRC is being forced to siphon these desperately needed resources from initiatives like healthcare, 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.

"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 added.

Renowned experts have been campaigning hard against financial aid to Africa and have argued it does more harm than good. Dembisa Moyo in her controvercial book: Dead Aid, warned that aid damages and impoverishes Africa’s economies.

Michael Stulman, associate director of policy and communications at Africa Action said: "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.”

Aid groups seek to thwart vulture funds that prey on the poor

from ekklesia

Aid to developing countries has increased dramatically over the last few years – but it is less well known that developing countries often haemorrhage as much money as they receive in aid, or more, says a leading UK churches' development agency - highlighting the problem of so-called 'vulture funds'.

Christian Aid is focusing on ways of plugging these financial leaks, because it says that doing so would give countries much more money to spend on reducing poverty, and also give them more independence in how they spend it.

One way countries lose money is through debt claims from private finance companies – the vulture funds that have recently been much discussed in the news. Vulture funds truly deserve their name, says the agency; they swoop in on the worlds' poorest countries in order to make a cynical buck out of their debts.

These companies buy countries’ debt for much less than its value, at a point when the country is in the economic doldrums and the original creditor just wants to escape the situation.

They then try, in various ways, to reclaim much more money when the country is in better shape – sometimes by suing the country. They might do this even when the country is one of the poorest in the world, and even when the international community has said that its debts should be cancelled.

The recent furore over Zambia is a classic case, claims Christian Aid. A vulture fund registered in the British Virgin Islands – Donegal International – bought a portion of Zambia’s debt extremely cheaply several years ago, and then recently claimed more than 15-times the price it paid to ‘cover’ repayments, interest and costs.

A judgement in London on 15 February 2007 rejected Donegal’s full claim, but awarded part of the money nonetheless.

This is despite the fact that Zambia has qualified for full international debt relief, and the sum being discussed for Zambia to repay could well be half the amount Zambia is due to receive from debt cancellation this year. That means fewer new nurses and teachers, in a country where one in six adults is living with HIV.

Christian Aid believes this is outrageous and immoral. Donegal International should renounce any claim to Zambia's money and Gordon Brown should use his international influence to press for a new, fair and transparent system of international debt arbitration that prevents this kind of thing happening ever again.

Jubilee Debt Campaign, which brings together development and church groups, is now organising a campaign calling on the UK Chancellor to stop the vultures preying on the vulnerable once and for all.