A low-income country, struggling with poverty and crushing debt, can no longer make its monthly loan payments. When the country admits it can’t pay the debt back to its creditors (usually another country or bank), some of those creditors, in a last ditch effort to get some money for the debt, sell it on the secondary market, often for pennies on the dollar. But who would buy the debt of a country who has already admitted it can't pay, and why? Private creditors, which are often referred to as "Vulture Funds" buy poor countries’ debt with the intent of suing the struggling country for full repayment plus interest. These Vulture funds are often anonymous companies set up to protect the larger hedge fund they are connected to from outrage at their exploitation of poor countries.
A Promising New Start
Now let's say that thanks to the efforts of people of faith and conscience around the world, rich countries as well as the World Bank and International Monetary Fund have agreed to cancel the debt of this poor country (as they have done with many impoverished countries around the world as part of the Heavily Indebted Poor Country Initiative, HIPC). This Debt cancellation could give the country a promising new start, and the chance to reinvest in its own infrastructure, healthcare, and education. But Vulture Funds won’t sign onto this deal for poor countries. Instead of participating in debt cancellation along with the World Bank, IMF, and rich countries, Vulture Funds are out only to make a profit. They hold out during debt cancellation efforts, sitting on their share of the debt until they see an opportune moment to swoop in and profit.
Swoop, the Vulture Attacks!
When the poor country receives newly freed-up resources from debt cancellation, the Vulture Fund swoops in to seize the money. It hires an elite law firm to sue the country in French, British, or U.S. courts, because these countries have systems that usually help the creditor, not the debtor. They sue for much more than they bought the debt for, often suing for the original worth of the debt plus sky-high interest and legal fees.
Vulture Funds usually win these lawsuits because there is nothing illegal about their activity in U.S., French, and British law. Still, they are undermining the chance at a new start for millions in the impoverished country, and are getting rich off money intended to help the world’s poorest people.
A 2007 report on Vulture Funds by the IMF showed that 11 out of 24 poor countries said they were involved in legal cases with Vulture Funds and other creditors not participating in debt relief worth a total of $1.8 billion.
Stopping Vulture Culture
Vulture Funds go after impoverished countries who receive debt cancellation because they can make an extraordinarily large amount of money–often tens of millions of dollars.
Bills like the Stop VULTURE Funds Act, H.R. 2932, introduced by Representatives Maxine Waters (D-CA) and Spencer Bachus (R-AL) would stop Vulture Funds from profiteering off of poor country debt. Under that particular bill, Vulture Funds would have no longer been allowed to get more than the amount they bought the debt for, and it caps annual interest at 6%.
In Zambia, money intended to help children go to school was taken by a Vulture Fund. If legislation had been in place, the Vulture Fund wouldn’t have been able to sue for huge amounts of money like it did—it couldn’t charge double or triple digit interest rates and go after the original amount of the debt.
Legislation is needed to take away the ability and incentive of Vulture Funds to make exorbitant amounts of money off of the most impoverished. Requiring private creditors to disclose much more information about their own business practices before they can sue a poor country in U.S. courts (including how much they paid for the debt in the first place) would help curb Vulture Fund abuse. Requiring more transparency would shine a light on their underhanded dealings, stopping Vulture activity by simply showing the true, exploitative nature of the problem to the public.
Jubilee USA supports the introduction of legislation that shows that US citizens won’t tolerate the misuse of their tax dollars and court systems to harm poor countries.