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The unknown vulture

23 January 2008

A recent seminar organised by the Commonwealth Secretariat in Ghana’s capital, Accra, offered advice on debt negotiation to African HIPC countries

Before attending a recent seminar on ‘Debt Negotiation and Renegotiation’, Arthur Isaac Benjamin understood vultures as scavenging birds that mostly feed on the carcasses of dead animals.

At the seminar, however, which was held in the Ghanaian capital, Accra, on 3-6 December 2007, a different type of vulture was discussed, in the form of a hedge fund.

“It was the first time I learned what vulture funds were, how they operate and how they relate to my work,” said Mr Benjamin, who is an Assistant Economics Officer in the Aid and Debt Management Division of Ghana’s Ministry of Finance.

Vulture funds, according to the International Monetary Fund (IMF), are arbitrage-seeking investors who specialise in obtaining debt in the secondary market at prices far below face value. Their goal is to recover the debt, through negotiation or even litigation, at a value greater than the purchase price. Many poor countries, especially in Africa, are considered easy prey for these hedge funds which are estimated to hold more than $1 billion in claims against the developing world, states the IMF.

Mr Benjamin “found the issue of vulture funds very relevant to Ghana. We need to be careful about the kind of loans we take on, since some of them might very well have some serious legal implications for the country.”

Like Mr Benjamin, Fafa Kpodo, who also works for the Ghanaian Government, never realised that debt agreement could have so many legal obligations, both for the beneficiary and the creditor.

“I learned [at the seminar] that there are many strategies for borrowing, but these have challenges and you realise that there are many laws and regulations that need to be taken into consideration,” she said.

Forty participants attended the Commonwealth Secretariat’s Heavily Indebted Poor Countries (HIPC) Clinic seminar in Accra. The Clinic, established by the Secretariat in September 2006, provides legal advice to HIPC states, regarding loan agreements signed by their respective governments.

Ghana’s Minister of Finance, Kwadwo Baah Wiredu, who is also the Chairperson of the Commonwealth Ministerial Debt Sustainability Forum this year, opened the seminar. He spoke about enhancing the Commonwealth’s HIPC Initiative, which was originally set up by the Secretariat as a means of calling on all creditors to write off debts of HIPC countries on a voluntary basis.

Countries which participated in the seminar include Cameroon, Ghana, Malawi, Mozambique, Sierra Leone, Uganda, United Republic of Tanzania, and Zambia. Delegates who attended were representatives from the Ministries of Justice, the Offices of Attorneys-General and the Ministries of Finance in these countries.