Debt: Vulture funds legislation introduced
The following reflection was written by Tony Cortese who worked as an intern with the Maryknoll Office for Global Concerns during the 2009 summer.
Read this excerpt from the poem “Vulture” by Robinson Jeffers through the perspective of a debt-laden, impoverished country:
I had walked since dawn and lay down to rest on a bare hillside
Above the ocean. I saw through half-shut eyelids a vulture wheeling high up in heaven,
And presently it passed again, but lower and nearer, its orbit narrowing, I understood then
That I was under inspection. I lay death-still and heard the flight-feathers
Whistle above me and make their circle and come nearer.
I could see the naked red head between the great wings
Bear downward staring. I said, “My dear bird, we are wasting time here.
These old bones will still work; they are not for you.”
Imagine that through “half-shut eyelids” the country gazes upon its surroundings, only to see commercial creditors narrowing their orbits. Imagine that “lower and nearer” these private equity and hedge funds come to inspect the prey, searching for just one sign: distressed debt. Imagine further that instead of being alive and able to turn the vulture away, the country must admit defeat; it is holding a dead carcass of debt. The country cannot resist the scavenging of the vulture.
Just before a poor country’s debt is to be defaulted, cancelled, or restructured, a “distressed debt fund,” or vulture fund (which can also target private debt), swoops in and purchases this debt for pennies on the dollar from the original creditor. Appearing dignified and altruistic at first, the action soon turns damaging as the vulture fund begins a process of litigation to recover up to 10 times the purchase price from the impoverished country. This is highly destructive to Heavily Indebted Poor Countries (HIPCs), which are cheated out of the debt cancellation promised to them by the HIPC Initiative. In fact, a 2008 report by the IMF states that vulture funds were engaged in claims seeking a total of $1.47 billion from HIPCs. Money that was intended for social services and infrastructure instead finds itself in the pockets of secretive commercial creditors, many of which are based in tax havens.
Some of these vulture funds are owned by large, U.S.-based financial institutions such as hedge funds, while others are highly secretive. Often, subsidiary companies are established by larger hedge funds solely to pursue a debt, and then shut down after winning the assets. This makes the process of tracking and regulating these vulture funds immensely difficult – something the Jubilee USA network and, most recently, the U.S. Congress are trying to do.
In order to begin the process of tracking and regulating, Rep. Maxine Waters (D-CA) introduced the Stop VULTURE Funds Act (HR 2932) on June 18. If passed, the bill would significantly reduce the litigating power of vulture funds in U.S. courts and would outlaw profiteering (more than six percent interest) by U.S.-based vulture funds on debts held by countries eligible for debt relief. Before any litigation occurs in U.S. courts, HR 2932 requires public disclosure of the names of any persons with an interest in the sovereign debt claim, how and where the claim was acquired and the purchase price. Furthermore, the bill also addresses the ongoing issue of bribes being paid by vulture funds while pursuing collection of defaulted debt claims.
Thus far, HR 2932 has accumulated 18 co-sponsors and is beginning to receive considerable attention in Congress. A hearing is scheduled during September; Jubilee USA has been assigned the task of finding witnesses to testify at the hearing.
Faith in action:
In order to apply this pressure to Congress, call your representative and senators and encourage them to 1) consider becoming a co-sponsor of this bill, and 2) support and vote for the bill. Be sure to express your concern about the devastative effects of vulture funds. More information can be found on Jubilee USA’s website.