Moving Ideas: Vultures: The Corruption Behind Debt Relief
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FOR IMMEDIATE RELEASE
APRIL 3, 2007
9:11 AM
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CONTACT: Moving Ideas
Phone: 202-465-3777
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Vultures: The Corruption Behind Debt Relief
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Background
Initial reactions to the term debt relief are generally
positive. Helping poor countries = good, right? However debt relief is
more complicated than just helping poor countries. In simple terms,
debt relief is supposed to be the partial or total forgiveness of debt,
in this case in developing Countries.
Debt relief however
doesn’t seem to be working the way it should. Instead the existence of
‘vulture funds’ has corrupted the practice. Just as the name implies,
these organizations are like vultures that wait around for their
victims to be weak before picking their remains. These financial
organizations are companies that make a profit by buying a debt from a
poor country at a cheap price, and then suing the country for the full
amount the debt was worth at a later time.
Current Situation
A
recent example of the corruptness of vulture funds is the situation
with Donegal International Limited and Zambia. In the 1970’s, Zambia
borrowed $15 million from Romania. In 1999 this amount had gone up to
$30 million because of interest. Donegal International bought up
Zambia’s debt to Romania for a reduced price of $3.3 million. They then
sued Zambia for $55 million when they were near eligibility for debt
cancellation.
Why Zambia shouldn’t pay
1)
They are poor: the money could be put to better use, like going towards
basic human needs like health and education that Zambia is in dire need
of. The average income per person in Zambia is 60p (less
than US$1) a day, and the $15 million could go a long way to help
these people.
2) They were eligible for debt relief:
Because they were eligible for debt cancellation the debt bought by
Donegal International was only worth $3 million instead of the $55
million they sued Zambia for.
3) It negates the efforts of
creditors: Many rich countries and creditors have cancelled debt with
the understanding that Zambia needs the money more than they do in
their attempts to combat poverty. However they still have a
responsibility to negotiate comparable levels of debt relief, which
they can no longer do if forced to pay $15 million as decided by
the courts (instead of the full $55) to Donegal
International.
Damage Control
The most active organizations in addressing the debt relief issue are the Jubilee campaign and the HIPC by the World Bank and the IMF.
The
Jubilee 2000 was an international coalition movement that over 40
countries were a part of. This movement for the cancellation of debt in
third world countries split into the Jubilee USA and Jubilee debt
campaign in 2001. Both campaigns are dedicated to the cancellation of
debt in countries that need the money to address more important human
needs. The Jubilee USA is a collection of religious and community groups dedicated to debt relief with a specific platform.
The
HIPC or the Heavily Indebted Poor Countries initiative was set up by
the World Bank and the IMF in 1996 in efforts to reduce the debt of
poor countries. Conditions for the HIPC are it must be a poor country
with an annual income of around $825 per person and a debt of more than
one and a half times their annual export earnings, and they must have a
good track record with the IMF. There are currently 11 countries
at the pre-decision point, 9 countries at decision point and 20
countries at completion point of the HIPC initiative. Pre-decision
point means those countries that have been assessed and meet the
economic indebtedness criteria and have the choice to take part in the
initiative. Decision point means the countries have a track record of
macroeconomic stability and have followed the interim poverty reducing
strategy. The amount of debt needed to get to HIPC levels is calculated
and conditional debt relief is provided. The completion point means the
countries have maintained macroeconomic stability using the supported
program and have carried out structural and social reforms, and
implemented poverty reducing strategies. These countries received
relief irrevocably.
Success stories of the HIPC initiative
include the almost 90 percent reduction in debt stocks of the 29 HIPC’s
that have reached decision point. The average projected debt service
obligations of post-decision point HIPC’s have already been cut in half
and are expected to decline even further as they qualify for debt
relief. The HIPC initiative has also contributed to the increased
poverty reduction expenditure for post-decision point countries.
Arguments against debt relief
Tax
payers’ money is going towards the so-called debt relief initiative in
the United States, however this money ends up going to the courts
addressing vulture fund cases, and to the vulture funds themselves.
President Bush has the ability to put an end to this by deeming it
illegal for vulture funds to collect money through courts.
Proponents
against the HIPC initiative argue that even after debtor countries
spend years meeting the harsh conditions set by rich countries in order
to qualify for debt relief, many creditors do not follow through. The
program is criticized as having excessively strict conditions that
result in inadequate relief and the money is not invested in projects
beneficial in the long run. Opponents also argue that debt relief
is like a blank check to governments, and because of corruptness there
is no way to ensure that this money will be utilized in the proper
manner. There is no way to ensure that these countries will not simply
continue to borrow money and incur more debts once they know their
debts can be cancelled. Debt cancellation encourages countries to
overspend and get help from foreign aid later on. The structural
adjustment conditions attached to debt relief attempts have been argued
to increase the gap between the rich and the poor and increase the
economic dependence on richer countries. The conditions of the HIPC
initiative also call for countries to focus more on the structural
adjustments called for instead of using money and time on programs to
reduce poverty.
External Links for more information:
World Bank
Information on the HIPC Initiative
Democracy Now
Article on Vulture Funds in Zambia
Jubilee debt campaign
The Jubilee debt campaign
Jubilee USA
The Jubilee USA debt campaign
Oxfam
Read about the development organizations attempts to help fight against vulture funds in Zambia
Congress
To
write President Bush to ask him to end Vulture Funds’ scavenging of
countries in need of debt relief, visit Congress.org.
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