The impact of vulture funds on Less Developed Countries

Various less developed countries (including Rwanda) have benefited from the Heavily Indebted Poor Countries (HIPC) initiative, and up to 17 more are eligible to do so. Countries completing HIPC secure cancellation of most debts to the World Bank, IMF, African Development Fund and the richest country governments. This cancellation is of huge benefit, and is proven to increase investment in essential services, particularly education and agriculture sectors.

Various less developed countries (including Rwanda) have benefited from the Heavily Indebted Poor Countries (HIPC) initiative, and up to 17 more are eligible to do so. Countries completing HIPC secure cancellation of most debts to the World Bank, IMF, African Development Fund and the richest country governments.

This cancellation is of huge benefit, and is proven to increase investment in essential services, particularly education and agriculture sectors.

Despite delays and problems associated with debt relief, it has freed up resources previously tied up in debt repayments and enabled the countries to invest more in tackling poverty. One of the major problems is that the scheme is voluntary, so a number of creditors have refused to participate. One such group is Vulture Funds. These are companies that buy up poor country debt at a steep discount, in order to sue them for full repayment with costs, thus making massive profits. Some target failing companies but in this case, we are talking about those that target poor countries. It is very difficult to get information about these lawsuits, but from what is known, at least 12 HIPCs have now been subject to or threatened with lawsuits by both vulture funds and original creditors.

These companies tend to be quite secretive, and many of them are based in tax havens. Some are owned by large (often US-based) financial institutions such as hedge funds. In other cases, there is no information on who owns them. Often, companies are set up simply to pursue one debt, then shut down again.

Donegal International Limited, for instance, the company that sued Zambia, is registered in the British Virgin Islands.

Its only business is to pursue the Zambian debt. The court in London failed to discover who are the ultimate owners of Donegal, and of other sister companies such as Walker International, which sued the Republic of Congo.

Several outstanding cases have been identified by a report published by Debt Relief International. The annual IMF/World Bank report on HIPC and MDRI, published in September 2008, also lists these countries as well as Ethiopia, Sudan and Uganda, as having cases still to be settled.

In April 1998, Uganda was the first country to benefit from interim debt service relief under the HIPC Initiative from a debt of $1.6 billion.

However, Uganda is currently being sued by the Iraq Fund for International Development. The debt was originally held for $6 million. The amount being sought is $6.4 million.

Ethiopia qualified for some relief on its debt payments in November 2001 and had some of its debts cancelled outright when they finished the process in April 2004.

Ethiopia is currently involved in two lawsuits with Kintex, based in Bulgaria, and Yugoimport based in Serbia. Both lawsuits are being held in Russia. The cost of lawsuits relative to annual expenditure on other services is a cause for concern.

Sudan is currently facing legal action from a company  known as Namco Anstalt which is linked to the Euro management and Trust Company Establishment based in Lichtenstein. The case is being held in Sudan. The debt was bought for $4.6 million and the amount being sought is $5 million.

The appalling and immoral behavior by vulture funds has been condemned by the World Bank and IMF, U.S. Congress, U.S.-based and international advocacy organizations, and UK ministers and members of Parliament. The increasing criticism from such a diverse grouping of people builds momentum to the call that corporate abuse against the most impoverished people must end.

While there are no laws that currently limit the profit a company can collect from poor countries, drastic measures should be sought to deal with this issue.

There is a need for further investigation of options to end the vulture culture. Continued investigation of their actions by governments, parliamentary bodies, media and civil society could help to provide some answers.

This would cast much needed light into this dark corner of international finance. Workshops like the previous African Legal Support Facility (ASLF) held in Kigali should be also encouraged to enlighten our lawyers with negotiating skills to deal this such vices.

The author is a lawyer
justhappy2006@yahoo.com

 

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