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Response on the Jubilee Debt "Stop vulture funds" Campaign
October 2008
We share your concerns about the activities of so-called ‘vulture funds‘. The Government is committed to helping to stop these funds profiting from poor countries. We are addressing this problem in two ways – by preventing debts being sold to vulture funds in the first place and by limiting the damage done by cases already underway.
To reduce the risk of debts falling into the hands of vulture funds, we have been working with the World Bank to help poor countries buy back their commercial debts at a substantial discount through the Debt Reduction Facility (DRF). Under these deals, countries buy back their debts at a huge discount. The World Bank and donors such as the UK provide funding for these operations. The debts are then cancelled, and cannot be taken through a court. Last year the UK provided around £1.8m to assist with a DRF operation for Nicaragua. Nicaragua’s debt buy-back accounted for over two thirds of all reported court judgements against Heavily Indebted Poor Countries (HIPC) having completed the HIPC Initiative. This operation eliminated $1.3 billion of commercial claims against Nicaragua, ensuring that they cannot be sold on to vulture funds. 99% of the creditors, including all commercial financial institutions holding court judgments against the country, participated.
More than $9 billion of debts have already been cancelled in this way, and we have succeeded in further improving the effectiveness of the facility. Following calls from the UK, assistance from the DRF is now available earlier to HIPCs to reduce the risk of debts falling into the hands of vulture funds. We have therefore committed more funds, up to £10 million, for future DRF country operations.
In addition, the members of the Paris Club (an informal group of bilateral government creditors) and EU member states have publicly stated their commitment not to sell their claims on HIPCs to creditors unwilling to implement the HIPC initiative. G7 Finance Ministers have welcomed the Paris Club’s steps.
We are working to give heavily indebted poor countries the legal expertise necessary to defend themselves. We are pleased that the Board of the African Development Bank agreed in April, with sustained UK support, to establish an independent Legal Support Facility. We will provide £5 million to this facility which we believe will play an important role in reducing the harmful impacts of vulture fund activity. The strong defence that the Government of Zambia mounted recently, for example, reduced its liability by around $40 million.
The Commonwealth Secretariat has also taken action in this regard. It recently established the HIPC Clinic to provide legal advice to HIPCs that are facing or are likely to face debt litigation.
We were also pleased to learn about another positive development: in a recent World Bank and International Monetary Fund survey, HIPCs reported that no new case of litigation has been filed in the past year.