Will Vultures Be Allowed to Undermine the G-8 Summit?
In January, I saw first-hand the impact that decisions from a G-8 summit meeting can have on people's lives. I visited a rural health clinic in Siavonga, Zambia which had recently abolished "user fees" for access to health care. For residents, it was a life-saving decision: now, many more patients had access to HIV/AIDS drugs that could literally save their lives.
What did a G-8 summit have to do with this? The promise made by world leaders at their summit in Gleneagles, Scotland in July 2005 to provide expanded debt cancellation made the removal of user fees in that health clinic possible. Zambia decided to use some of the funds it saved from debt cancellation to abolish user fees at rural health clinics.
But as G-8 leaders prepare to meet next week in Heiligendamm, Germany, their commitments and promises are at risk. Why? Because the actions of so-called 'vulture funds,' which are swooping in to snatch the proceeds of debt cancellation from countries like Zambia.
Here's how they work: 'Vulture funds' seek to make a profit by buying up 'bad' debt at a cheap price, then try to recover the full amount or more, often by suing through the courts. In the 1990s, vulture funds targeted middle income countries like Peru. But recently, now that African nations have received debt cancellation, suddenly they have more access to cash - and thus look more attractive to opportunistic vulture funds.
The latest example of this outrageous practice came in late April. A UK court ruled that Zambia must pay Donegal International, a vulture fund based in the British Virgin Islands but whose sole director is an American, $15 million for a debt Donegal originally acquired for just over $3 million. This year, Zambia expected to save about $40 million from debt relief - savings which enables the government to keep health care free in rural areas. Now instead of using $15 million to expand access to health care for its impoverished citizens, this money will instead go to line the pockets of a wealthy American investor.
Zambia is not, unfortunately, an isolated case. There are 14 African nations which have been sued by vulture funds, commercial creditors, and others creditors not party to the G-8 debt deal since 1999. Right now, vultures are threatening Zambia, Republic of Congo, and Liberia.
The vultures are undermining the promise the G-8 made two years ago in Gleneagles. To preserve their own initiative and credibility, leaders must take action now. In recent weeks, the Bush administration, UK Prime Minister Gordon Brown, and German officials have all expressed concern about vulture activity. Even the Paris Club joined in last week and "agreed to intensify their work on this issue with a view to identify concrete measures to tackle this problem."
These statements of concern are welcome, but concrete action is needed now so that what happened to Zambia will not happen to other African nations. There are three specific steps that the G-8 can and should agree to this week.
First, they should urge the World Bank to more aggressively buy back outstanding commercial debts in eligible countries. This would get debts at risk of being bought up by vultures out of the public domain - so they cannot strike again. Second, they should support the development of strong codes of conduct for commercial creditors and a strong charter for responsible lending. Third, they can increase technical and legal assistance to countries with debts at risk. These steps would surely stop some of the lawsuits.
Ultimately, however, what is needed is changes in law in the US, UK, and France, where most vulture cases are heard, to outlaw vulture fund profiteering.
The G-8 should quickly deal with this problem and then return to the much bigger challenge ahead - the urgent need for bold new commitments to end excruciating global poverty. Commitments made 2 years ago are not nearly enough - a bold new deal is needed to meet the Millennium Development Goals.
The crisis of debt is far from over. Poor countries - even after the 2005 debt deal - are still sending $100 million / day to the rich world. Unjust, illegitimate debts that benefited no one are still on the books. And the G-8 have yet to live up to their promise to stop harmful conditionality and allow countries to choose their own development path - undermining the benefits of debt cancellation much like the vultures do. The G-8 must have the foresight to put forward a bold new deal to truly end the crisis of debt.
It's a tall order. But we have seen the impacts decisions from the G-8 can have before. Let us hope they set their sights high this week - by ensuring previous commitments are not undermined by vultures -- and by setting bold new visions that put us on track to truly cancel debt and end global poverty. Neil Watkins is National Coordinator at the Jubilee USA Network.