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Vulture Funds : Special Report |
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Written by Staff Writer
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Feb 25, 2007 at 08:12 AM |
Like vultures they swoop down onto weak prey and feed. Vulture funds have been receiving surprisingly little press attention despite the number of cases currently going through the US courts. Two weeks ago, on Friday February 16, 2007, a court in London ruled that an investment fund could claim upto $20 million on a debt which it bought for under $4 million.
Vulture funds, simliarly to the creatures they are named after, circle a debtor as they become increasingly weakened by debt then swoop in and buy their debt at a vastly reduced rate- then sue for the full amount plus interest. The history of vulture funds begins in 1996 when Paul Singer, a reclusive billionaire, paid $11 million for discounted Peruvian debt then threatened to bankrupt the country, unless paid $58 million. A Peru desperate to keep its reputation clean paid the $58 million. Now they're suing Congo Brazzaville for $400m for a debt they bought for $10m. |  |
The Zambian case currently going through the British courts flies in the face of Gordon Browns comments, five years ago, that vulture funds are immoral
"We particularly condemn the perversity where Vulture Funds purchase debt at a reduced price and make a profit from suing the debtor country to recover the full amount owed - a morally outrageous outcome" he told the UN.
In 1979 the Romanian government lent Zambia money to buy Romanian tractors. Zambia was unable to keep up the payments and in 1999 Romania and Zambia negotiated to liquidate the debt for $3m. Zambia is an unusual case in that due to debt repayments, the country is actually in a worse state now than it was 25 years ago.
Before the deal could be finalised one of Debt Advisory International's vulture funds stepped in and bought the debt from Romania for less than $4m. They are now suing the Zambian government for the original debt plus interest which they calculate at over $40m and they are expected to win about $20 million.
In his judgement, Mr. Justice Andrew Smith said: “I have been driven to conclude that they [Sheehan and associate] were at times being deliberately evasive and even dishonest… [Sheehan] was not merely careless but cavalier in presenting his evidence.”
While considering the question of assigning costs, he pointed out in court that some delays had been caused to the trial because “put at its kindest,” some of Donegal’s witnesses were, “less than candid.”
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Countries can choose to default on their loans, but they risk destroying their credit rating. Argentina went into the biggest sovereign default in history in 2001, later paying off about 34 cents for each dollar they owed in 2005, and refusing to pay off the other $20 billion worth of bonds that didnt accept the deal.
Brad Setser, a former IMF official, now head of global research at Roubini Global Economics, says: “The lesson of Argentina’s ongoing refusal to pay those bondholders who did not participate in the 2005 exchange for countries like Ecuador is that if you don’t intend to access international capital markets, there is not a great cost to ignoring hold-out investors.”
Oxfam are calling on Gordon Brown and George Bush to force vulture funds to drop their claims against heaviliy indebbted countries.
Sources:
http://www.guardian.co.uk/frontpage/story/0,,2014588,00.html
http://www.oxfam.org/en/news/2007/pr070215_vulture_fund
http://news.bbc.co.uk/1/hi/programmes/newsnight/6362783.stm
http://www.gregpalast.com/
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Last Updated ( Apr 08, 2007 at 07:51 PM )
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