Campaigners have called on the United States to outlaw “Third World Debt profiteering” after the practice was banned in Britain on Thursday. The British Debt Relief bill is the world’s first law that restricts so-called Vulture Funds, which buy up poor country’s debt at a cheap price and then take the country to court to recover the full amount.
Nick Dearden, director of the Jubilee Debt Campaign, a Britain-based group that campaigns for the complete cancellation of poor country debts, says over half of “vulture” cases are tried in the United States and Britain.
“If both Britain and the United States manage to pass legislation on this it will make a huge difference to the ability of vulture funds to extract profits from the poorest countries in the world so that’s what we hope will happen next,” he said.
“Vulture funds” buy the debts of poor countries at a knock-down price. Often the country has defaulted on that loan and, after the debt has been written off by Western governments, the “vulture” sues for the full debt along with interest and additional costs.
If the country refuses to pay, the “vultures” threaten to sue anyone who deals with the country.
Dearden says it’s the world’s poorest that are hit the hardest.
“They end up making extortionate profits off the backs of countries as poor as Liberia, Zambia, Cameroon, Nicaragua and so on,” he said.
The law passed in Britain this week applies to the debt of the 40 countries in the World Bank and International Monetary Fund’s Heavily Indebted Poor Countries initiative.
“Vultures” suing these countries will now have to accept a steep discount on the amount that they can claim – up to 90 percent, says Dearden.
“What in effect this will mean is that vulture activity becomes impossible in these cases. So hopefully it’s a real attack on the vulture model in these cases of the very poorest countries,” he said.
But Dearden says the law needs to be passed elsewhere in the world and not only affect the very poorest.
“We see this as a step towards making the lending system and third world debt a little more just, a little more responsible but there’s a long way to go in terms of cleaning up the financial system and the way that it works,” he said.
The law comes into force later this year. It will block a move to extract around $20 million from Liberia for a debt dating back to the 1970s.
[Voice of America]