The Vulture Culture

We all live in age of financial instability, and during recent times it has been all too easy for societies to look inwards and try to cope with and resolve concerns on a national level. Being happily insulated from such fears and insecurities as unemployment, it might be easy to turn a blind eye to such. However, I am not untouched by the plight of those who have suffered from the vicissitudes and excesses of capitalism in recent times in Britain. I do feel, though, that to a greater extent than is perhaps normal, certain international issues are being brushed under the carpet somewhat.

In my current post, I'm involved in a case relating to a 'vulture fund' – naturally I cannot discuss any further specific detail, but I feel that it is certainly worth bringing the wider scope of such funds to greater attention, and especially to consider their impacts upon the developing world.

So, what exactly is a vulture fund? In simple terms, vulture funds are created by corporations (typically hedge funds or private equity houses), in order to purchase debts - generally from other companies who are unable/willing to pursue their creditor. These debts are purchased at a low price. The next step is for the new holders of the debt (the vultures) to sue for repayment in court. Having obtained a court order, the fund can pursue the creditor for the debt and interest on top, often amounting to several times the original debt.

Now, some of you might have reverted into Gordon Gekko mode for a moment ('Greed is good. Greed clarifies.'), and indeed, on the face of it, why shouldn't people have to repay their debts?

The problem comes when these vulture funds gain judgement in courts over sovereign debt, that is to say, judgement against nations themselves. In Africa, numerous countries (principally the Democratic Republic of Congo, Congo Brazzaville and Liberia) have fallen prey to vulture funds and owe dizzying sums of money, far above the sums originally owed.

The real issue is the origin of these debts. Take, for example, the case of Zambia (http://news.bbc.co.uk/1/hi/6365433.stm), where the government there was loaned money by the Romanian state under Ceaucescu in 1979. The money was lent in order to allow the Zambians to purchase tractors and other agricultural equipment from the Romanians, but the Zambians struggled to keep up with the repayments. Despite protracted negotiations, and due to burgeoning hardships in Romania, the Romanian government felt there was no option but to sell the debt to Donegal International, a firm that is heavily involved in the titular vulture culture.

We can see that the Romanian state took a massive loss from this, and following a court ruling the Zambians were held to owe roughly double the original debt to Donegal. Ultimately, both Zambia and Romania suffered financially from the arrangement, with Donegal International, a US based firm, left to reap the rewards. A similar, more recent case involves the DRC (http://www.guardian.co.uk/world/2009/aug/09/congo) where a debt accrued by the vicious dictator Mobutu Sese Seko is being pursued by FG Hemisphere, another vulture fund capital. As ever, it is the ordinary citizenry of this war-torn land who are left to pay the price of a debt they never requested

This debt hits the third world hard. Often the original debts that have accrued arose from dealings of corrupt dictators, due to disappearing or embezzled funds. African nations generally don't have the best credit ratings, and thus have to pay high levels of interest in any event. I'm all for dropping the debt, but the key matter is to remove the underlying issues that will simply lead to further debt accumulation. These funds reap huge profit but leave those who have to pay up facing sums of money out of all proportion from what they originally owed.

I don't propose to have a solution to African corruption, nor do I have access to Standard & Poors computer system to give countries like Zambia a AAA credit rating. But I feel that the issue of vulture funds is something we can act upon. There are moves either side of the Atlantic to introduce legislation banning these funds, both within Westminster and Washington. We must encourage such moves. These funds are immoral, and hold back developing nations, miring them in proscriptive debt they cannot escape all in pursuit of profit for shareholders. Something has to give. I hope that before too long courts the world over will be prevented from giving judgement against the citizens of sovereign states, and that we can start to give a bit more hope to the many, rather than cynically enriching the few.

If you'd like to read more, have a look here http://www.jubileedebtcampaign.org.uk/