Sally Keeble MP (pictured) Copyright: Steven Woodward/Jubilee Debt Campaign
UK bill to clip the wings of vulture funds
14 May 2009
Proposed law seeks to ban creditors from making money at the expense of developing countries
Sally Keeble MP has sought leave of the UK Parliament to introduce a bill that stops creditors from unnecessarily profiting out of the debt suffered by developing countries.
This bill aims to fight the activities of vulture fund creditors who through litigation try to make huge profits out of the purchase of discounted debt from poor countries. It also proposes setting a cap on the amount of money that can be claimed by these creditors, whether the proceedings take place in the UK or not.
What are vulture funds?
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 US$1 billion in claims against the developing world, states the IMF.
Other aspects of the Developing Country Debt (Restriction of Recovery) Bill include a requirement for creditors to seek the consent of the UK courts before commencing the recovery proceedings. There also needs to be greater disclosure of participants in the lawsuits as well as the beneficiaries, it states.
Bills such as this are welcomed by major debt campaigners, such as Jubilee Debt, as well as the Commonwealth Secretariat.
“The introduction of this bill is extremely timely as the current economic crisis threatens to bring about more and more lawsuits against heavily indebted countries,” said Devi Sookun, an Adviser from the Secretariat’s Legal Debt Clinic. “Vulture fund creditors buy the debt of poor countries at low prices and demand repayment in court for the face value of the debt which is nearly ten times the purchase price. This practice must be stopped and this bill is a positive step in that direction.”
What is HIPC?
HIPC stands for Heavily Indebted Poor Countries. It refers to countries with high amounts of debt and poverty.
The Commonwealth Secretariat addresses the problem of so-called vulture fund creditors by organising a series of training seminars which help officials from ministries of finance to negotiate the best possible loan agreements with both local and foreign creditors, thereby avoiding the trappings of vulture fund creditors. The next such seminar is expected to take place in June 2009 in Tanzania.
These seminars fall within the Heavily Indebted Poor Countries (HIPC) Initiative, which aims to help countries manage how to repay their existing debt or take on new debt through a mixture of sound policies, generous debt relief, and new inflows of aid.
Through this training project the Secretariat gives legal advice to Commonwealth countries facing active debt litigation, or likely to face litigation from commercial creditors, as well as providing support for these countries to strengthen their legal expertise and negotiating abilities regarding loan agreements. To date, 22 countries have benefited from the HIPC Initiative and have received debt relief.
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