Financial Sector Lobbies Against Vultures Law
The responses to the Debt Relief (Developing Countries) consultation included high levels of support to legislation from charities and development agencies who highlighted the immorality and counter productivity of vulture funds in the fight against poverty in some of the poorest countries in the world. Legislation was also supported by the Advocates for International Development lawyers' network. However it met opposition from those with a vested interest in the current lack of accountability in the financial sector.
The majority of criticism to the bill came from financial institutions. These were the Emerging Markets Trading Association (formerly the LDC Debt Traders Association) whose chairs include representatives from RBS, Barclays, Deutsche Bank, Goldman Sachs and Morgan Chase, as well as LIBA (London Investment Banking Association), Standard Bank Plc (Africa’s largest bank), IIF (Institute of International Finance) an umbrella group which includes most of the world’s largest commercial and investment banks, and the Centennial Group which advises the IMF, World Bank and private corporations on emerging countries and the investment community.
The only opposition from the non-financial sector came from Dechert, the law company that represented the vulture fund in the recent case against Liberia, a letter from two conservative MEPs and another from a group of NGOs who promote private sector initiatives and 'market solutions'.
What the financial institutions say and why they are wrong
Arguments against the bill can be grouped under four main headings
1) Debt relief will make it more difficult for developing countries to get credit in the future.
Actually it is instead the current situation, where vulture funds operate with impunity, that disrupts poor countries’ access to private capital. Many of the ongoing cases involve vulture funds pursuing companies that are doing business in the developing countries against which they have a claim, for example recent action brought against Chinese investments in the Democratic Republic of Congo.
It is this type of activity that creates uncertainty and instability in trading and investment relations with poor countries, and which could discourage commercial lenders from investing.
Finally, this sort of argument was made regarding the original debt cancellation schemes, like the Heavily Indebted Poor Countries initiative, in the 1990s. It was argued that commercial lenders would stop investing in developing countries if those countries were receiving relief on their debts. But this has not happened and post-HIPC countries have not struggled to attract commercial investment because of debt relief.
2) Debt relief would perpetuate corruption
A number of poor countries have – or have had – problems with corruption. However, this does not undermine the effects of debt cancellation: on the contrary, repeated studies have shown that money from debt cancellation does go where it is needed. One study of 10 African countries found a 40% increase in education spending and a 70% increase in health spending after just four years of debt relief. A study by IMF economists in 2006 confirmed again that cutting poor countries’ debt payments has a "significant" impact in terms of increasing social spending.
Governance is improving in many countries, and these efforts must be supported. But continued demand for debt payment weakens government structures and can worsen corruption. Indeed, much debt was run up supporting corrupt leaders and projects in the 1970s and 1980s. On the contrary, debt cancellation has tended to increase the involvement of ordinary people in the economic affairs of their country. Even in the worst scenario, it hardly improves corruption or helps the people of a country for vital government funds to be taken by very rich and secretive international investors.
3) Secondary debt markets are needed for the stability of the financial sector
These concerns were specifically considered in developing the proposed legislation. The legislation only impacts on a tiny proportion of developing country debt - historical debts 'owed' by HIPCs. This would have almost no impact on the secondary debt market. Indeed, Jubilee Debt Campaign believes the legislation does not go far enough, and should actually apply to a much wider group of debts and countries. As things stand though, the legislation does not prevent legitimate lenders from buying and selling debt, or even suing for repayment of defaulted debts owed by developing countries - whether or not they are the primary or secondary lender. In a small minority of cases, it merely restricts the amount that can be awarded to prevent some creditors 'free-riding' on the debt cancellation provided by other creditors (like the British government).
4) Legislation on vulture funds contravenes the Human Rights Act
Article 1 of the European Convention on Human Rights states that:
‘No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law’
Although ‘public interest’ is not an easily defined term, the human rights issues caused by third world debt make it clear that in this case the depravation of property is in accordance with general interest. Liberia, the last country to be successfully sued by a vulture fund in the UK, is one of the poorest countries in the world with over 80% of its population surviving on less that $1 a day, one in six depending on international food assistance and a life expectancy of 44. By increasing the debt burden of poor countries, vulture funds help to worsen such human rights catastrophes and, by preventing the positive impacts aid relief could otherwise have brought not only further worsen the situation but also waste taxpayers’ money aimed at assisting the fight on poverty. Moreover, the proposed legislation does not deprive the investor of the property right, it merely reduces the claim that can be made on the basis of that property.
Given the nature of the issue, we consider the appeal to human rights to be cynical to say the least. To pit the 'human rights' of a vulture fund against the human rights of a population to food, health care and education is nothing short of repugnant.