Development Groups Call for Immediate Action on “Vulture Funds”
The following press release was issued jointly by Africa Action, American Friends Service Committee, Center of Concern, Essential Action, 50 Years Is Enough Network, Global AIDS Alliance, Institute for Policy Studies, Jubilee USA Network, Nicaragua Network, and Oxfam America.
Washington, DC, May 22, 2007—As the House Subcommittee on Africa and Global Health today holds a hearing entitled "Vulture Funds and the Threat to Debt Relief in Africa: A Call to Action at the G8 and Beyond," a coalition of religious, Africa advocacy, and development groups issued an urgent call to action to G8 leaders ahead of the upcoming summit in Germany.
"Vulture funds" are companies that seek to profit by buying heavily discounted debt belonging to companies or countries in serious financial trouble, then try to recover the original amount and more, often by suing for several times the original investment. Lawsuits against developing-country governments by these funds have increased in the past few years following recent debt cancellation agreements made by the G8, the IMF, and World Bank.
"The Congress of the United States and the President of the United States took a huge step forward about 10 years ago when they stated that it was a moral imperative to cancel the debts of impoverished nations. Political leaders stated emphatically that it was wrong to ask impoverished citizens to repay the debts of their leaders," said Emira Woods, Co-Director of Foreign Policy in Focus at the Institute for Policy Studies. "Yet today, in Zambia and several other countries, a new set of rich actors is undermining that moral promise. These 'vulture funds' are violating Congress' promise of debt cancellation as they enrich themselves."
In late April, a UK court ruled that Zambia must pay Donegal International—a vulture fund officially located in the British Virgin Islands but mostly owned by Debt Advisory International (a private U.S. company)—$15 million for debt acquired for just over $3 million from the Romanian government. Donegal is a secretive firm based in Washington, DC, and led by American investor Michael Sheehan. This year Zambia expects to save $40 million as a direct result of the 2005 debt cancellation agreement. Paying Donegal $15 million would mean that monies that could be going to fund much-needed schools and hospitals would again be going to rich creditors.
"I saw the devastation caused by HIV/AIDS in Zambia when I worked there for four years as a public health advisor in the 1990s," said Paul Zeitz, Executive Director of the Global AIDS Alliance. "What Michael Sheehan and his company are doing is absolutely despicable. The $15 million that he is extracting from Zambia would be better spent on AIDS programs there. One million Zambians are living with HIV and the epidemic has resulted in over one million orphans. Yet, for lack of funds, Zambia's health system cannot deliver adequate services, especially in rural areas. The G8 leaders must take a strong stand against what vultures like Sheehan are doing."
The hearing will begin at 2 p.m. and will feature testimony from Danny Glover, Chairman of the board of TransAfrica Forum, as well as civil-society and journalist experts on the topic. The hearing comes just two weeks ahead of the G8 summit, to be held in Germany from June 6-8.
"It was at the G8 summit two years ago that President Bush and other world leaders pledged to cancel debt of some of the world's most impoverished nations, but today vulture funds are undermining that promise," said Neil Watkins, National Coordinator of Jubilee USA Network. "We are calling on the G8 to take immediate, concrete steps to stop the profiteering by these vulture funds."
The group issued a specific call to action to the G8:
1. The G8 should urge the World Bank to use its IDA Debt Reduction Facility to more aggressively buy back outstanding commercial debts in all eligible countries to get at-risk debts out of the public domain. The World Bank should expand the IDA Debt Reduction Facility so that it is available to Heavily Indebted Poor Countries (HIPCs) before they reach decision point and allow repeat operations for all eligible countries. Opening the facility before decision point would be particularly helpful to Liberia, which faces more than $1 billion in hedge fund debt claims. Furthermore, the debt eligible for IDA Debt Reduction Facility operations should also include debts owed to "semi-commercial" enterprises of non-OECD countries.
2. The G8 should support the development of codes of conduct for commercial creditors and a charter for responsible lending that includes binding requirements that creditors not sell or re-assign sovereign debts owed by nations eligible for debt cancellation without the explicit approval of the debtor.
3. Increased technical and legal assistance should be provided to all HIPCs with debts at risk. This support should be extended to prevent lawsuits from being brought against governments and to help once there is a suit.
4. G8 leaders must work for changes in national laws, especially in those countries where courts have been sympathetic to making vulture fund profiteering illegal, e.g., US, UK, and France.