Responding to your MP

If you have written to your MP – thank you! Over 180 MPs have so far signed Early Day Motion 618 to tackle vulture funds and many have also written to the Government to express their concerns.

On 21 July the Government responded by opening a consultation on changing the law in line with our campaign demands. This is a huge breakthrough but it’s now really important to keep up the pressure so that the Government makes the right decision to change the law. On the 26th of Feburary Andrew Gwyne's Bill, Debt Relief (Developing Countries) will be going for it's second reading. It is vital that at least 100 MPs vote in favour of this in order for this historic bill to pass.

RESPONDING TO YOUR MP
If you’ve received a reply from your MP, they (or the Government response they might enclose) may have raised some points you want to follow up on. This page contains some suggested reactions to the main arguments we’ve seen so far. There is also a printable version here.

Your MP says:
A law against vulture funds could have “unintended consequences” restricting poor countries' access to capital markets. Restricting the buying and selling of debt would “send the wrong legal signals” to the secondary debt market, which could in turn reduce access to credit for poor countries.

Our response:
These concerns were specifically considered in developing the proposed legislation, which has been written to ensure they do not apply.

The proposed legislation does not restrict the secondary debt market (where a debt is ‘sold on’ to a second party) or prevent legitimate lenders from buying and selling debt, or suing for repayment of defaulted debts owed by developing countries - whether or not they are the primary or secondary lender. It merely restricts the amount that can be awarded in such a case to the amount the lender paid for the debt plus a nominal rate of interest, and asks for certain basic information to be disclosed.

A legitimate lender therefore has nothing to fear. Only a vulture fund, seeking to profiteer from the pursuit of debt, and operating under a veil of secrecy, will be undermined by this legislation.

Your MP says:
By legislating against vulture funds, all commercial creditors will be discouraged from lending to poor countries, because if the debts are defaulted upon they will be restricted in pursuing the repayment of those debts or selling them on.

Our response:
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 the action involving a mineral trading company operating 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 in such an environment. Especially in the context of the global financial crisis, which has already led to a lack of credit available globally, it is imperative to create as predictable and conducive an environment for trade and investment as possible. Tackling vulture funds is an important part of this effort.

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.

Your MP says:
Such legislation could not operate 'retrospectively' and would therefore not cover those debts which have already been purchased by vulture funds.

Our response:
The legislation being proposed contains a provision that, even where an award has been made elsewhere, only the restricted recovery laid out in the bill can be awarded in any case taking place in the UK. This will be important for many of the ongoing cases where vulture funds have already won the case against the poor country, and are now pursuing repayment in alternative jurisdictions, including the UK. The Government makes a proposal for enforcement on awards that have already been made in its consultation document, showing that such a provision is workable.

Your MP says:
The Government has already taken action to stop the vultures – this law is unnecessary.

Our response:
It’s true that the Government has taken some measures, and this has been very welcome. This has included working with the World Bank to help poor countries buy back their commercial debts at a deep discount through the Debt Reduction Facility (DRF). The aim of this is to reduce the risk of poor countries’ debts being sold on to vulture funds.

The most recent successful deal was secured with the commercial lenders of Liberia, in mid-April 2009, where the vast majority of the creditors agreed to take 3 cents on the dollar, translating as a $38 million buy-back of $1.2 billion in debts. This $38 million was financed by the DRF, with contributions from the International Development Association, the United States, Norway, the United Kingdom, and Germany.

It must be noted, however, that a very small proportion of Liberia’s commercial lenders did not take part in the deal, and therefore presumably will still seek repayment in full, possibly through the courts. The Government has admitted that the remaining vultures who held out still have claims amounting to 85% of what the DRF deal paid out. It is also questionable whether paying off commercial lenders is really the best use of overseas aid money, as opposed to compelling these lenders to participate in debt relief initiatives in the first place.

The UK has also backed plans at the African Development Bank to establish an independent legal support facility to advise countries on how best to tackle vulture fund activity. This was finally announced in May (see here for more details).

While these activities are commendable, preventative action is needed in order to stop the activities of vulture funds in the first place. The Government is now considering changing the law - a very welcome step that we hope they will introduce in a strengthened form.