UN human rights expert welcomes British law to stop predatory financial funds
A United Nations human rights expert on foreign debt today welcomed a landmark debt relief law in the United Kingdom which limits the ability of so-called “vulture funds” to sue the world’s poorest countries in British courts for repayment of debts, saying they could have ramifications for a recent court verdict involving Liberia.
“This law marks the first occasion on which a country has banned profiteering by vulture funds,” said Cephas Lumina, in his role as the UN Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights.
“I commend the UK for taking a critical step to halt the profiteering of vulture funds at the expense of both the citizens of distressed debtor countries and the taxpayers of countries that have supported international debt relief efforts,” Dr. Lumina added in a statement released by his office in Geneva.
Vulture funds buy up either all or a portion of debt of a weakened country. The funds often target governments that have received international debt relief, and then sue to recovery the full amount of the debt, diverting precious financial resources saved from debt cancellation.
“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,” said Dr. Lumina, noting that “unconscionable profiteering” steals funds which could be better spent on health, water and sanitation, food, housing and education.
One of the first impacts of the British law could be to block a November 2009 ruling by London’s High Court awarding $20 million to two vulture funds that bought Liberia’s debt at a fraction of the sum.
The case dates back to 1978. Liberia, which is recovering from a 14-year civil war, has said that it does not have the funds to pay back the debt.
At the time of the case, Liberia was taking part in the Heavily Indebted Poor Countries Initiative (HIPC) process, an internationally agreed debt relief measure designed to free up funds for poor countries to invest development issues.
The World Bank reported in 2008 that 54 lawsuits had been instituted by commercial creditors against 12 HIPCs over the past decade.
Secretary-General Ban Ki-moon has called for greater investment reform and international cooperation to ensure that vulnerable countries are not burdened by “onerous conditions or burdensome external debt.”
Dr. Lumina, who serves in an unpaid capacity, reports to the UN Human Rights Council in Geneva.