For the Orphan, the Widow, the Poor: How to Curb Enforcing by Vulture Funds against the Highly Indebted Poor Countries

Abstract

The dynamic of the secondary market for sovereign debt has been affected by the presence of a peculiar category of holders: vulture funds. These funds, specializing in purchasing the debt of sovereign states in distress at a discounted market price, stay aloof from restructuring processes and then enforce their claims in courts to secure the face value. For low revenue debtor countries, paying the claims may involve reducing the resources available for basic services to the population. For very poor countries this also involves a significant regression in terms of development. Against this background, the purpose of this work is to inquire whether and to what extent there exists a rule permitting the suspending and rescheduling of payments so as to pay dues without impairing services. In order to find such a rule, inquiry is to be made into general norms: necessity and public policy. It is under the umbrella of the truly international public policy that the duty of a state to provide certain basic services to its population can be subsumed and the corollary of the suspension and rescheduling of these payments consistently with this duty can be applied.

The return of austerity imperils global health

“…While progress has been made in limiting their ability to litigate to recover funds, there is more that could be done. 16 Relying only on voluntary participation by private creditors is likely to be ineffective, as it has proved to be in the past two years. Without comprehensive debt relief and restructuring of both public and private debt, coupled with grants, concessional financing, and policy reforms, many LMICs will not be able to access and mobilise the necessary resources to support even their current, low levels of health spending.…”

“…A particular concern has been the emergence of ‘vulture funds’ that buy distressed debt at a large discount and seek to recover it from debtor governments through the courts. While progress has been made in limiting their ability to litigate to recover funds, there is more that could be done 16. Relying only on voluntary participation by private creditors is likely to be ineffective, as it has proved to be in the past two years.…”