Debt relief for human rights
A UN expert has called upon the international community to follow the example of the UK and enact legislation to prevent 'vulture fund' activity within its jurisdiction as a clear indication of its commitment to find a durable solution to the debt problem.
The passage of the landmark Debt Relief (Developing Countries) Act in the United Kingdom on 8 April 2010, which bans profiteering by ‘vulture funds’, may discourage litigation against highly indebted countries and overturn ongoing lawsuits in the country.
Financial loans to nascent democracies in the 70s and 80s have left scores of developing nations, mainly from sub-Saharan Africa with a growing foreign debt they have been unable to settle for decades.
In 1995, low and middle income countries had a collective external debt of US 1,952 billion dollars; by 2006, it had risen to US 2,983 billion dollars. When reaching such unsustainable levels, debt burden on developing countries contributes to poverty thus impeding the full realization of human rights.
The World Bank estimates that over the past decade 12 of the world’s Heavily Indebted Poor Countries (HIPCs) have been served with 54 lawsuits by commercial creditors wanting to recover their funds.
These creditors had bought up part of poor nations’ foreign debt at a discounted price, just before countries could benefit from debt cancellation initiatives, and later sought to recover the full value of the debt, as well as interest and late payment penalties.
“While debts held by these private investment firms represent a small fraction of poor countries’ debt, awards in ‘vulture fund’ litigation represent a substantial burden on the budgets of these countries,” explained Mr. Cephas Lumina, the UN expert on foreign debt and human rights.
The private financial institutions responsible for these hostile takeover and recovery methods became known as ‘vulture funds’ because they profit from the vulnerability of HIPCs and the absence of legislation against such practices. Countries are often left no choice but to repay the debt thus diverting the financial resources that could have been saved by debt cancellation and which could have been injected into national budgets.
“From a human rights perspective, the settlement of excessive vulture fund claims by poor countries with unsustainable debt levels has a direct negative effect on the capacity of governments of these countries to fulfil their human rights obligations, especially economic, social and cultural rights, such as the rights to health, water and sanitation, food, housing and education,” stressed the Lumina.
As a recent example, a British court ordered Liberia, the world’s fourteenth poorest nation according to the UN Human Development Index and a country still recovering from 14 years of civil war, to pay US 20 million dollars to two ‘vulture funds’ for a debt dating from 1978. Because of the new Debt Relief Act, Lumina expects the verdict to be unenforceable in full.
17 May 2010