The GFC and Vulture Funds
Behind the current global financial crisis is the issue of debt. High powered economists are talking about how to manage the effects of unpayable debt in Europe and the USA. At the same time players in the finance industry are winning and losing in what has become a gambling den underpinned by greed. Ordinary Australians are worried about how to survive their retirement with dwindling savings. But spare a thought for those in extreme and intractable poverty in highly indebted poor countries who are targeted by “Vulture Funds”.
“Vulture funds” is the name given to private investment firms that prey on the world’s distressed debtors, including the poorest countries. Like vultures, they look out for debts that a country is struggling to repay. Then they purchase the debt on the secondary market for a cheap price, and sue the country to recover the full value of the debt, plus interest, penalties and legal fees. Some of us may even be benefitting from this practice unknowingly through our investment funds. Not only that, our Australian legal system was recently used in the process.
In November last year, a New York investment firm came to the NSW Supreme Court to pursue a debt claim against the Democratic Republic of Congo (DRC), a heavily indebted poor country (HIPC). DRC has been involved in a conflict since 1997 that has claimed almost 3.5 million lives. It has very little infrastructure and almost 80 per cent of its 66 million people are living below the poverty line. After finally completing the long and tough process required to receive debt relief, DRC’s debt was due to be cut by over $7,000 million. But just as it reached completion point, the Vulture Fund swooped.
Having bought one of the DRC’s debts at a deep discount, it would not participate in the debt relief scheme, and began pursuing repayment of the full $100 million principal - $80 million more than the country would have been expected to pay under the HIPC process. The investment fund then searched the world for foreign assets belonging to the DRC. It found that the government owned shares in an Australian mining company operating in Congo, and filed a case in the NSW Supreme Court to seize control of them. In November 2010 it was successful in forcing the DRC government to sell the shares and hand over the $30 million (plus $2 million in legal costs and court-imposed fines).
This is the sort of financial profiteering that is driving the growing gap between rich and poor as well as environmental destruction. It is what has led to calls by the Vatican for the reform of the global financial system.
Read: Vatican document calls for global authority to regulate markets article
It is what is driving the “Occupy Wall St” mobilisation.
The good news is that the practice of Vulture Funds using Australian courts can be stopped. The UK successfully introduced the Debt Relief (Developing Countries) Act in 2010 to prohibit sovereign debt vultures from using its courts to force full repayment of loans from HIPCs. Australia can do the same.
For more information contact:
Anne Lanyon
Co-ordinator
Columban Mission Institute
Centre for Peace Ecology and Justice
Email: annelanyon.cmi@columban.org.au
Phone: 02 9352 8021
For more information about Jubliee Australia please visit: www.jubileeaustralia.org
Anne Lanyon is the Deputy Director of the Columban Mission Institute and Coordinator of the Centre for Peace, Ecology and Justice.
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