We Must Stop the "Vulture Funds" That Feed on the World's Poor

Would you ever march up to a destitute African who is shivering with AIDS and demand he "pay back" tens of thousands of pounds he didn't borrow -- with interest? I only ask because this is in effect happening, here, in British and American courts, time after time. Some of the richest people in the world are making profit margins of 500 percent by shaking money out of the poorest people in the world -- for debt they did not incur.

Here's how it works. In the mid-1990s, a Republican businessman called Paul Singer invented a new type of hedge fund, quickly dubbed a "vulture fund." They buy debts racked up years ago by the poorest countries on earth, almost always when they were run by kleptocratic dictators, before most of the current population was born. They buy it for small sums -- as little as 10 percent of its paper value -- from the original holder and then take the poor country to court in Britain or the US to demand 100 percent of the debt is repaid immediately, plus interest built up over years, and court costs.

If they can't pay, the vulture fund goes after anybody who is paying the poor country money, trying to force them to give it to them instead. In one instance, a fund tried to get a court order freezing Belgian aid payments to the Congo, saying it should go into their bank account.

Let's look at an example. In 1979 -- the year I was born -- the dictator of Zambia, Kenneth Kaunda, took out a loan for $15 million from the dictator of Romania to buy some tractors. Most didn't work. But after twenty years of non-repayment, the new democratically elected government of Zambia said it had no way to pay the loan, and negotiations began to cancel it. But a multi-millionaire called Michael Francis Sheehan, whose company Donegal International is based in a British tax haven, had spotted a chance. He bought the debt from Romania for $3 million, and took Zambia to court in Britain for the full amount -- which had now piled up to $55 million.

The Zambian government explained that they don't have the money. A fifth of their people are HIV positive, and there are only 600 doctors covering more than 12 million people. Most people are dead before their 38th birthday. The Zambian President's advisor, Martin Kalunga-Banda explained -- and aid groups verified -- that if the government had to pay out for the dead dictator's bills, "Medicines that would have been available to in excess of 100,000 people in the country will not be available.... [and] in excess of 300,000 children will be prevented from going to school." The people who will go sick or uneducated were not alive when the loan was taken out.

The British judge who heard the case was clearly appalled, but he said the law gave him no choice but to require Zambia to pay $15 million, a third of what had been demanded. Virtually all the debt relief the country had received that year -- as a result of Jubilee 2000 and Make Poverty History -- was wiped out.

What happens to the money once it is redirected from Africa's schools and hospitals? Sheehan -- who likes to be known as "Goldfinger" -- is fond of vintage Cadillacs, and lives in a mansion in Virginia. Singer used the cash he took to become the biggest donor in New York to George W. Bush's 2000 Presidential campaign, and then went on to bankroll Rudy Giuliani's bid in 2008.

Through the nineties and Noughties, there was an extraordinary campaign by ordinary Westerners demanding that Africa's debt be dropped. It had a huge effect: $88 billion was canceled. Malawi -- to name just one -- went from having to pay $95 million a year to $5 million. But these vulture funds are unpicking this progress with their long beaks, by grabbing the final threads of debt, and demanding they are all paid at once. For example, vulture funds have been demanding $130 million from Liberia -- a fifth of its entire GDP.

I have been to two of the countries most aggressively targeted by the vulture funds -- Peru, and the Democratic Republic of Congo. I lived for a week in a gargantuan rubbish dump in Peru thirty-five miles north of Lima. It is home to more than five thousand children who have never stepped beyond its black writhe of flies and throat-choking stench. I found Adelina, a little eight-year old smudge, living there in a nest she had built from trash. She spends all day searching for something -- anything -- that she can sell. I asked her how often she eats, and she became bashful, and said: "I don't like to eat every much anyway." The vulture funds managed to get $58 million out of Peru, on a debt they paid $11 million for.

An hour's drive from Kinshasa, the capital of Congo, I found an orphanage filled with emaciated children. Hundreds sat in dank rooms, rocking silently back and forward. The orphanage had a staff of one: an elderly French woman. Since six million people have died in the war in Congo, these are the lucky ones: at least they have a roof. The vulture funds demanded $100 million from this country. When the government couldn't -- on a week's notice -- produce an inventory of everything they owned for an American court, they began to rack up fines of $80,000 a week.

Most people, when they hear about this, ask -- why is this lawful? Of course it's important for countries to repay their debts when possible so they can continue to borrow for investment where necessary -- but not if the debts were taken out by thieving dictators generations ago, and not at a loan shark profit rate of 500 percent.

As long ago as 2002, Gordon Brown said these funds were "morally outrageous," but only now are there tentative moves on both sides of the Atlantic against them. In the US, the Democratic Representative Maxine Waters has introduced a draft bill called the Stop Vultures Act. It would ban vulture funds from seeking "usurious" payments -- defined as anything more than the purchase price of the debt plus 6 percent a year interest. In Britain, the Labour MP Sally Keeble introduced a Ten Minute Rule Bill with similar proposals.

This pressed Brown to finally move. He says the British government will give a "debt relief discount" of 90 percent for any country in the Highly Indebted Poor Country (HIPC) programme. This would kill the vulture fund business model. It's good -- but it doesn't go far enough. They are lots of poor countries that don't fall into the specific HIPC category, and they will still be carrion under these proposals. It's not yet clear whether Waters can get her Act through both houses of Congress, since the vulture funds spread campaign donations around.

The energy that drove Jubilee2000 needs to be summoned again to pressure both governments hard. Any measures in Britain will have to be introduced very soon because David Cameron's Conservative Party is defending the vulture funds. Nick Dearden, the director of the Jubilee Debt Campaign: "At first, we had some Conservative MPs who supported us, but they were quickly silenced by Central Office. They have been saying action against vulture funds isn't worth taking." Ah, the sweet scent of compassionate conservatism.

Is this who we want to be? Do we want to be a society that allows billionaires to sue the starving, the sick, and the stunted for pennies borrowed by somebody else, long ago? If not, we have to shut these funds -- now.

To join the campaign to stop vulture funds, click here.

Johann Hari is a writer for the Independent. To read more of his articles, click here . You can email him at johann -at- johannhari.com

To read Johann's latest article for Slate - about the "gendercide" that has killed more women than all the wars of the twentieth century - click here.

 

 

Follow Johann Hari on Twitter: www.twitter.com/johannhari101

Comments

[ThatsWhatSheSaid]

It's ironic that these companies can sue to get money from countries who obviously can't afford to pay them back and make a profit off of it, because the same companies are able to file for bankruptcy and avoid paying their debts. The same type of "bankruptcy" logic should apply to those countries so that they don't have to pay back their debts in full, or at least are allowed to work out a repayment plan.

[fightorleave2]

Once again, Mr. Hariri, writes something of significant value. Unfortunately, he is a lonely voice in the wilderness.

[Jannsmoor]

For the 1000th time, proof that greed leads some people to commit any act. Even unconscionable acts that push millions into lives of desperate poverty. Remind me again why Alan Greenspan thought unregulated free market capitalists on Wall Street would regulate themselves?

[Jannsmoor]

I have to say I am stunned at the number of people who are living their dream, a world where children are impoverished to pay the debts of a corrupt government official.

I wonder what their world view would be if it was their children living in dump heaps to pay for someone else's corruption. Tell me they would still fight to defend that system. Because I would rather believe they are simply cruel humans than that their principles end where their children's destruction begins.

[Jannsmoor]

I am reminded of Sioux culture where social standing was measured by how much you gave to your society. Sitting Bull probably made more money than any other Sioux of his time yet he gave it all away. That was a leader.

I am puzzled how we proclaim ourselves to be a Christian society, but put up with greedy parasites like these guys. Can someone please point me to where in Christ's teachings this behavior is legitimized?

[John63116]

Perhaps unfortunate, but the debt was incurred by the leadership of the countries cited. Just as I must pay back my share of the $11,850,53­4,276,736.­58 debt that my esteemed national leaders have placed on my back, so too, the citizens of all other countries owe their share of debt. If you don't want people owing you money don't lend it to them.

[Jannsmoor]

Spoken like a true compassionate conservative. Why should you care that millions of children are denied a future. What's really important here is they pay for a debt they didn't incur. By the way, wasn't it compassionate conservatives like yourself that got us into the insane and unnecessary $3 trillion war called Iraq?

How badly did it hurt to use the word unfortunate, even though you carefully qualified it by saying "perhaps unfortunate?" We know how you feel about money, it clearly is the most important consideration to you. What other directions are on your moral compass? Any?

[PigLipstick]

Shut down the IMF, the WTO, and the EU; all problems solved ! Send the gangsters of the globalist banking cartel packing. A 1% fee on all world wide security investment activity would more than fund programs required to raise the standard of living in all third world countries. A 1 % fee on all securities transactions in the US would pay for healthcare for all US Citizens and go a long way toward repairing our depleated infrastructure. After all, how many billionaire oligarchs do we need ?

[lcdbsez]

Taking advantage of the weak is as old as the human race -- what's most dispicable about modern exploitation as described in this piece, is that it has been, effectively, legitamized and institutionalized.

It will take a widespread uprising of revultion by all segments of society to stop this cancer which is working its insidious way thru the global economic framework.

It's the greed, stupid. Let's stop worshipping it so much, and use the common sense we were given to moderate it.

[Winning09]

Great piece!

[CAPTAINSKIPPY]

Can't quite tell if this is capitalism or criminality - but hasn't slavery been outlawed?

[jsehgal]

The vulture funds have been going on for the last 20 years. And there are only three feeble voices in the UK and one in the USA against it. Wow! So many people! I hope that the former colonies tally up the damage the white races have caused, add 500 percent interest and chase them around.

[GrahamInCanada]

For a more comprehensive discussion of sovereign debt and vulture funds and legal cases and morals, and if you want to read a little from a context that proposes the Donegal suit against Zambia was proper and moral, this (rather wordy) link is what you want.

The discussion in the comments here are also worth the read, it is a learned debate between the two perspectives:

http://www.felixsalmon.com/000667.html

[Zdroberts]

Watch Greg Palast's Reports on Vulture Funds...

http://www.youtube.com/watch?v=Qbxj8azQb80

[winningticket]

Thank you Mr. Hari, you are one of the good ones. Keep the good work. Love your work.

[acoffm2]

Reading this made me feel sick to my stomach. Thank you for reporting this story, people need to stop these absolutely horrific practices.

[BartRoberts]

This story makes me think we should replace the American eagle with a vulture.

Capitalism unrestrained by ethics or morality is a truly hideous beast.