WASHINGTON - 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
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.
one case cited in a letter cosigned by the members of the coalition, FG
Hemisphere Fund successfully sued the Democratic Republic of the Congo
(DRC) for 105 million dollars for a 30-million-dollar loan incurred in
1980 by the infamously corrupt Mobutu Sese Seko government. A judge in
Washington ordered the DRC to pay up to 80,000 dollars a week as a
result of the lawsuit.
"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
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.
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
"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
"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.
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.
Funds would be required to disclose how much they paid for the debt on the secondary market.