UNCTAD organizes a side-event of the Second Committee on Sovereign debt restructurings

27 October 2016 by Renaud Vivien , UNCTAD

Panel at the UNCTAD

Renaud Vivien (CADTM) intervened at the special event of the second committee of the general assembly, prepared by the secretariat of the United Nations Conference on Trade and Development (UNCTAD) on sovereign debt restructurings, on wednesday, october 26th 2016.

Here’s the text of his intervention.

Brief video conference appearance to speak about this situation and core arguments of the defense (Belgian anti- vulture fund 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.
law, following the suit brought by Elliott ) 10 minutes :

Excellencies and distinguished delegates,
Dear colleagues,

I am very pleased to contribute to this event, albeit from a distance. Many thanks to UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

for this invitation.

My organization, CADTM – or the Committee for the Abolition of Illegitimate Debt - has been working on the specific issue of holdout creditors and vulture funds for 10 years. In 2008, we pushed hard for a Law, here in Belgium, that protects development aid from being seized by creditors. Since then, we have worked closely with other civil society organizations in other countries in the South but also in the North on such issues, such as for example, in UK prior to its adoption, in 2010, of the UK debt relief legislation to protect 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.
countries against vulture funds.

However, since then, the international context has changed radically. Vulture funds now don’t attack only the poorest countries (even those especially poor African countries remain the main victims of their operations). They have taken advantage of the lack of an international legal framework on sovereign debt Sovereign debt Government debts or debts guaranteed by the government. restructurings, meaning that there are no limits to their activies: All the countries are potentially concerned. The case of Greece, attacked by vulture funds in 2012 , is a good example.

That is why, here in Belgium, we worked for three years (from 2012 to 2015) on national legislation that adopts a new approach in response to this global evolution. To achieve this, we worked closely with lawyers and magistrates. Eventually, in July 2015, a new anti-vulture fund law was passed by all the MPs in the Belgian Parliament, which is very rare, indeed.

This new law is supported by the main debt campaigners all around the world and also by the current UN Expert on debt and human rights, in an official statement. The last Report of the Human Rights Council Advisory Committee on vulture funds activities, presented to the HRC only last month, also cites the law as an examplary of national regulation and recommends other States adopt similar legislation.

Even though the Belgian anti-vulture fund legislation implements a key recommendation contained in several resolutions of the UN Human Rights Council, but also in documentation by the Group of the G77 and China, the UN General Assembly, the Parliament of the Council of Europe, to name but a few, it is now being challenged by a Cayman Islands based hedge fund, NML Capital, before the Constitutional Court of Belgium. This vulture fund is owned by the investment fund Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
Elliott, well-known as one of the biggest vulture funds world-wide. As you will be aware, Elliott won the so-called “trial of the century” against the Argentine government in matters concerning its sovereign debt restructurings. In the past, Elliott also successfully sued countries such as Peru or Congo Brazzaville.

Now, it is asking the Belgian Constitutional Court to revoke the Belgian anti-vulture fund law. The main objective is to dissuade other States from adopting similiar regulations on vulture funds.

The CADTM and two other Belgian civil society organizations - CNCD and Elf-Elf-Elf - immediately reacted to this attack on democracy by presenting a request to the Belgian Constitutional Court to be allowed to present legal counter argument against the case made by NML Cap Ltd. Our goal is of to preserve the Law.

In its case, NML raises 3 main arguments :

  • The first related to the right of property : NML argues that the law breaches this right. This argument, as we explained in our counter-argument, is manifestly wrong, since the Belgian law allows vulture funds to recover what they paid for sovereign debt bonds The law only sets limits on what are considered excessive profits on sovereign debt bonds by creditors, where these limits are based on criteria defined precisely in the law.
  • The second argument put forth by NML Cap. Ltd, refers to the principle of equality and the interdiction to discriminate. NML say that the current law establishes a wrongful discrimination between creditors of States and creditors of individuals. This argument is, in fact, emblematic of the actions of vulture fund which seek huge profits without taking into account the impact of their actions on entire peoples and populations. As we all know very well, States are special debtors since they have legal obligations towards their populations they must respect and defend, including social, economic et cultural rights. NML furthermore argues that the law allows for the discimination between creditors that pursue an « illegitimate interests » (according to the words used in the Law) and creditors who are « legitimate ». In other words, NML aspires to ‘play’ legislator, when it is of course the role of the parliaments to act for the public 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. and to decide what is legitimate and what is illegitimate. To this end, MPs declared illegal certain behaviours which until then were considered abusive and immoral but were still legal.

To conclude, I would like to thank again UNCTAD for the opportunity to speak on these recent developments here in Beligum, and on a law that is a source of inspiration for other countries.

In view of mounting debt problems and potential debt crises, in particular in the countries of the South, it is is very important to act, and to ensure that sovereign bonds will not be bought up by vulture funds in many such cases, much below their face values.

National laws against vulture funds should therefore be considered an urgent concern, to prevent the situation from further deteriorating, in addition to moratoria on the payment of all unsustainable debt. We would also argue that unsustainable debt should incorporate human rights obligations to ensure that debt service Debt service The sum of the interests and the amortization of the capital borrowed. does not undermine the enjoyment of human rights, as the UN expert on debt and human rights recommends.

Let’s recall once again that the State’s first duty is to guarantee their people’s economic and social rights, and this duty has precedence over its obligations to repay its debts.

Thank you for your attention.

Renaud Vivien

member of CADTM Belgium, member of the Truth Commission on Public Debt.

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