Vulture Funds Curbing African Development
Corruption
by <
http://foreignpolicyblogs.com/author/ddonovan/> Daniel Donovan | on
March 18th, 2013 |
<
http://foreignpolicyblogs.com/2013/03/15/vulture-funds-curbing-african-deve
lopment/#comments> 0 comments
<
http://foreignpolicyblogs.com/2013/03/15/vulture-funds-curbing-african-deve
lopment/vultures-jpg/>
Vulture funds are preying on impoverished countries, hindering development
In late 2012, vulture funds came to light with the bold
<
http://www.guardian.co.uk/world/2012/oct/10/argentinian-naval-ship-ghanaian
-port> seizure of an Argentine naval vessel, the ARA Libertad, in the Ghana
port city of Tema. After two-and-a-half months under the control of the
U.S.-based vulture fund NML capital - run by billionaire Paul Singer - the
International Tribunal for the Law of the Sea in Hamburg ruled that the
<
http://www.independent.co.uk/news/world/americas/argentina-welcomes-home-sh
ip-held-in-ghana-by-us-vulture-fund-8445151.html> seizure was illegal and
ordered the immediate release of the ship. While NML's $1 USD billion suit
against Argentina that prompted the confiscation of the vessel sheds some
light on vulture funds, the
<
http://www.jubileeusa.org/vulturefunds/vulture-fund-country-studies.html>
devastating effect they have on African nations undermines debt relief from
the world financial institutes to the poorest countries on earth.
In 1996, a <
http://www.imf.org/external/np/exr/facts/hipc.htm> joint
initiative was launched by the International Monetary Fund (IMF) and the
World Bank to provide debt relief to Heavily Indebted Poor Countries (HIPC).
The goal of this project was to help the poorest nations manage their debt
burden. In 1999 the initiative was improved to provide faster, deeper and
broader debt relief. It was expanded again in 2005 to coordinate with the
Millenium Development Goals (MDG), supplying 100 percent debt relief on
eligible loans from the IMF, World Bank and African Development Fund (AfDF).
This program was designed to help HIPCs with debt relief in order to
redirect funds that were previously appropriated to make payments to
creditors
<
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:2
1254881%7EmenuPK:64166739%7EpagePK:64166689%7EpiPK:64166646%7EtheSitePK:4690
43,00.html> to now be utilized in funding the state's poverty reduction
strategy, as well as fund development projects. Both which are important to
evolving their destitute economies.
However, true to their name, vulture funds swooped in on the opportunity and
feasted on the leftovers.
As a result of defaulted debts, a
<
http://http:/www.afdb.org/en/topics-and-sectors/initiatives-partnerships/af
rican-legal-support-facility/vulture-funds-in-the-sovereign-debt-context/>
secondary sovereign debt market came into existence to help alleviate the
growing risk associated with lending to sovereign states. Vulture funds prey
on sovereign debt on the secondary market, paying pennies on the dollar to
own the debt of a sovereign nation. Then, undermining the progress achieved
under the HIPC Initiative, they refuse to enter into any negotiations for
debt reduction, or any bilateral agreement negotiation with the debtor
nation. Instead, the fund turns around and sues the state for the full value
of the loan, plus interest, arrears and legal fees, attempting to recover
3-20 times the purchase price of the debt. These litigations are usually
held in U.S. or European courts.
So what's wrong with collecting the full amount owed by a debtor country?
Vulture funds undermine the exact principles that the world financial
organizations and the international forum itself determined would be
beneficial to the countries on the brink of potential economic collapse. By
establishing the ground rules for debt relief, they created an
infrastructure in which developing nations can play catchup with the rest of
the world. But what good are debt reductions for development projects if a
creditor will turn around and call the full value due for the sake of
profit?
The greater concern is how often this devious tactic has paid dividends in
the last 20 years. Twenty-five successful suits have been won by vultures,
yielding nearly $1 USD billion. In addition, there are still numerous
outstanding lawsuits between vulture funds and HIPCs.
Although two of the pioneer cases were against Argentina and Peru, most of
them have targeted African nations, especially in more recent years. This
trend is not likely to change as over
<
http://fiftrustee.worldbank.org/webroot/data/DRTF_GOV_2.pdf> 80 percent of
all HIPCs are located in Africa.
Some people have argued in the past that
<
http://www.guardian.co.uk/commentisfree/2012/jul/19/congo-victory-vulture-f
und-hollow> vulture funds divert attention away from corrupt governments and
the campaign against them will not help the common people in impoverished
nations. While corruption in impoverished nations remains a harsh reality,
not all of the nations targeted by vulture funds are considered corrupt. In
fact Zambia - a country that fell victim to a $USD 15.4 million dollar
vulture lawsuit in 2007 - has been gaining significant progress in both
<
https://www.cia.gov/library/publications/the-world-factbook/geos/za.html>
economic advances and <
http://www.transparency.org/cpi2012/results>
transparency. Furthermore, the
<
http://www.guardian.co.uk/global-development/2011/nov/15/vulture-funds-key-
players> big players in vultures are billionaire investors attempting to
capitalize from the circumstances and add to their enormous wealth. It is
hard to justify that the funds would be better suited in the pockets of rich
westerners, despite the potential for corruption.
Finally, the funds themselves are not free from shady dealings or
corruption. Most of the funds are very secretive regarding their ownership.
Generally they are established in offshore tax safe havens such as the
British Virgin Islands or Cayman Islands. Additionally, many of them are
formed simply for the extent of one particular lawsuit and then dismantled.
In one particular case a big player in the vulture fund game - Michael
Sheehan - obtained the debt illegally from the Bosnian government and the
former Bosnian Prime Minister is facing corruption charges based on the
details of the transaction. With all the advantages in such a case, the
financial organizations are still forced to resort to shady and underhanded
tactics to obtain high returns.
Ultimately vulture funds undermine internationally developed programs for
the sake of pure profit at the expense of the weakest economies on earth.
While certain countries which have played host to vulture lawsuits in the
past have
<
http://www.guardian.co.uk/business/2012/jul/18/privy-council-vulture-fund-d
rc> begun to enact legislation weakening the suits, there is no inernational
unification on curbing vulture funds. However, if they continue to thrive,
then money intended for trade or other creditors can be snatched from the
hands of the country that owes the immediate debt. This only hurts HIPCs,
which in turn, hurts Africa as a whole. Crippling development among the
weakest countries only creates a larger rift between rich and poor, which
will utlimately damage progress on the planet.
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Received on Mon Mar 18 2013 - 19:12:13 EDT
