Vulture Funds: the Ziegler Report points in the right direction

18 October by Renaud Vivien

Jean Ziegler (CC - Wikimedia)

Last September, for the first time, a report on vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
 |1| was presented at the UN. Prepared by the UNHRC’s Advisory committee chaired by Jean Ziegler, former UN Special Rapporteur on the right to food, this report provides a treasure trove of data on the strategies developed by vulture funds, on the profits they derive from the stricken populations of the countries under attack, and on the ways and means governments can rely on to fight them. We have selected some extracts from this report, the entire text of which can be accessed at

Vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
, also known as ‘litigating creditors’ or ‘predatory funds’, are private financial entities that are often located in tax havens and that “acquire the defaulted sovereign debt Sovereign debt Government debts or debts guaranteed by the government. of poor countries,
on the secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded. at a price far less than its face value and then attempt, through litigation, seizure of assets or political pressure, to seek repayment of the full face value of the debt together with interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. , penalties and legal fees” (Cephas Luminas, see A/HRC/14/21, para. 8). To achieve their aim, “vulture funds may resort not only to court proceedings but also to lobbying and other pressure tactics, which can range from attempting to attach the debtor State’s assets to organizing discrediting press campaigns with a view to forcing the Government to pay” (page 4, note5).

The profits they obtain through such harassment are exorbitant since “vulture funds have achieved, on average, recovery rates of some 3 to 20 times their investment, equivalent to returns of 300 to 2,000 per cent” (page 5, (f))

Unsurprisingly, these profits, that are derived from an obvious disproportion between the price at which debts were acquired and the payment they managed to obtain, are detrimental to the targeted governments and thus to the populations. The report includes several case studies of countries attacked by vulture funds, namely the Democratic Republic of the Congo, Zambia and Argentina. Zambia offers a telling illustration. “In 2006, only months before Zambia was due to receive debt cancellation under the HIPC Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
Initiative, [Donegal International, a vulture fund] sued the country in the United Kingdom courts for a total amount of $55 million. Donegal obtained a favourable ruling, obtaining a 370 percent return, nearly 17 times the value of the original debt. The Government of Zambia reportedly recognized the judgment and allocated about 65 percent of the amount received, already earmarked for health programmes, to service the debt [...] As a result of this litigation, vulture funds took away from the country almost 15 percent of its total social welfare expenditure, funds that could have been channelled instead towards education, health care and poverty alleviation.
(page 6, items 12 and 13)

Fortunately, the report goes beyond a description of vulture funds’ strategy and their deleterious impact on the populations of countries under attack since it also develops several measures governments could immediately implement such as (quite simply) have laws voted at national level to prevent courts from complying with the demands of vulture funds. It now appears as urgent and necessary to act in the legal field to change ‘the rules of the game’. Indeed, “statistics show that lawsuits and attempted attachments are increasingly becoming a common way of solving sovereign debt disputes, entailing costly and protracted judicial processes for the State that has defaulted. The trend has grown since the 1990s from 10 to almost 50 percent of such disputes.” (page 10, item 29)

To enact laws that counter vulture funds, States do not start from scratch. Belgium, the United Kingdom and quite recently France provide models to be emulated, particularly the law adopted in Belgium in 2015 that the report sets up as an example. “The Advisory Committee recommends to Member States that they (a) Enact legislation aimed at curtailing the predatory activities of vulture funds within their jurisdiction. Domestic laws should not be limited to HIPCs but should cover a broader group of countries and apply to commercial creditors that refuse to negotiate any restructuring of the debt. Claims that are manifestly disproportionate to the amount initially paid to purchase the sovereign debt should not be considered. (b) Adopt measures aimed at limiting disruptive litigation by vulture funds in their jurisdiction. National courts or judges should not give effect to foreign judgments or conduct enforcement procedures in favour of vulture funds that are pursuing a disproportionate profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. . It is a good practice to limit the value of vulture funds’ claims to the discounted price originally paid for the bonds.” (page 23, item 87)

This is exactly what the Belgian federal Parliament did when on 12 July 2015, with the encouragement of the CADTM and of the CNCD-11.11.11, it enacted a law that makes it possible for a Belgian magistrate to rule that no more should be paid to a vulture fund than what it paid to purchase the debt in the first place. |2|

The report occurs at a historical juncture for two main reasons. First, this very Belgian law is currently being attacked by one of the most powerful vulture funds at a global level, namely NML Capital, which belongs to billionaire Paul Singer, one of the largest donors to the US Republican Party. NML had also successfully attacked Argentina and is now asking the Belgian Constitutional Court to nullify the law, which in itself is evidence of its efficiency. Second, States find it more and more difficult to repay their sovereign debts (especially in Africa, which is the most harassed continent with an average of eight lawsuits a year against African States). Facing the possibility of several countries’ defaulting, current creditors might feel tempted to sell off their debts, which vulture funds can then buy at a much lower rate than their face values.

In the face of such an emergency, immediate measures need to be taken, such as laws against vulture funds to prevent the situation from further deteriorating, but also moratoriums on payment of all unsustainable debts while debt audits are carried out so as to identify and then unconditionally cancel odious, illegitimate and illegal debts.

As recalled in the Ziegler report, the State’s first duty is to guarantee people’s economic and social rights, and this duty has precedence over its obligations to repay its debts. Many other texts say the same, yet still without concrete effects since governments still give priority to repaying their debts. We can mention here the Independent Expert’s report 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, which state in no uncertain terms that if “excessive or disproportionate debt servicing . . . takes away financial resources meant for the realization of human rights [it] should be adjusted or modified accordingly to reflect the primacy of human rights. Debtor States’ budgetary allocations should reflect the priority of human rights-related expenditures.”  |3|

There is no longer any time to wait for some international framework of debt restructuring under the aegis of the UN, especially since major creditor states, as well as the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.
, have hampered its existence for years. Let us use the legal tools that are already available, such as the right to suspend debt payment and audit debts, to repeal those that were contracted against the population’s interests.

Translated by Christine Pagnoulle and Snake Arbusto


|1| United Nations, HR Advisory Committee Report, 20 July 2016, document no. A/HRC/33/54 (3rd and 5th items on the agenda) :

The law says that for creditors to be disallowed in Belgium, there has to be an obvious “disproportion between the purchase value of the loan or debt by the creditor and the face value of the loan or debt, or between the purchase value of the loan or debt by the creditor and the amount they want to be paid for it”. Aside from this necessary condition, a Belgian magistrate must also identify at least one of the items listed in the law as related to the State’s financial distress when the debt was bought, such as the creditors’ domiciliation in a tax haven; the denial of any debt restructuring, or a negative impact on the living conditions of people in the attacked country. In such a case the benefits the creditors are after are defined as ‘illegitimate’. Consequently they can only be paid the amount they paid to purchase the debt, even if they can claim a favourable decision abroad.

|3| Guiding Principles on foreign debt and Human Rights, Appendix to the report by the independent expert on the effects of foreign debt and of related international obligations of States on human rights, and in particular economic, social and cultural rights, Cephas Lumina, 10 April 2012 (A/HCR/20/23).


Renaud Vivien

co-secretary general of CADTM Belgium, member of the Truth Commission on Public Debt.



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