UN expert on foreign debt regrets British court order that Liberia must pay 1978 debt to ‘vulture funds’

GENEVA (17 December 2009) – The UN expert on foreign debt and human rights, Dr. Cephas Lumina, regrets the recent ruling of London’s High Court ordering Liberia to pay a debt of approximately US$20 million, dating from 1978, to two private investment funds which acquired the debt after it was resold several times.

“Liberia’s populace should not be burdened with the repayment of this debt to the so called ‘vulture funds,’” said the 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.

‘Vulture funds’ are private investment firms that purchase the debts of distressed companies or sovereign States on the secondary market, often for a sum far less than the face value of the debt obligation. They then pursue repayment of the nominal full face value of the debt together with interest, penalties and legal costs. They also seek seizure of the overseas assets of the debtor to force recovery of the debt.

“This is a morally unacceptable trade-off,” stressed Dr. Lumina. “Payment of this debt by Liberia would have a direct negative effect on its government’s ability to fulfill its human rights obligations, resulting in further impoverishment and privation of basic human rights, especially economic, social and cultural rights, such as the rights to water and sanitation, health, housing and education. In return, two private speculative investors will unfairly increase their profit margins.”

The 26 November ruling comes at a time when Liberia is going through the Heavily Indebted Poor Countries Initiative (HIPC) process – an internationally agreed debt relief measure which is designed to free-up funds for poor countries to invest in education, health and poverty reduction. It potentially diminishes the impact of any debt relief that may be granted to Liberia by reducing resources available for investment in these vital sectors.

Ranking 169 out of 182 countries on the UN’ Human Development Index, Liberia continues to struggle to recover from years of war. Much of the country lacks the basic infrastructure of electricity, piped water, and sewerage systems. The sum of US$20 million awarded to Hamsah Investments and Wall Capital Limited by the British court represents a significant portion of Liberia’s annual budget for education and health.

“I strongly urge the international community, the Paris Club and, in particular, the United Kingdom, the USA and France – which are preferred jurisdictions for many ‘vulture funds’ - to urgently consider enacting legislation to prevent ‘vulture fund’ activity within their jurisdictions as a clear indication of their commitment to find a durable solution to the debt problem. It is illogical to cancel poor country debt and at the same time allow unconscionable ‘vulture fund’ claims.”

“For their part, developing countries should ensure transparency, participation and accountability in the negotiation, contraction, restructuring and settlement of public loans, including through legislation providing for oversight by parliaments and civic organizations,” said Dr Lumina. “It is time to move beyond the rhetoric to more robust action outlawing this retrogressive practice.”

In 2008, the World Bank reported that 54 lawsuits had been instituted by commercial creditors against 12 HIPCs over the past decade. The Jubilee Campaign has stated that Liberia has been heavily targeted by vulture funds.

Although some steps have been taken by some governments and multilateral institutions to address the problem, most of these measures hinge on voluntary commitments not to sell debts on to speculative investors or they provide funds to poor countries to deal with speculative litigators.

Dr. Cephas Lumina was appointed 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 by the United Nations Human Rights Council in 2008. He is independent from any government or organization and serves in his individual capacity. The mandate covers all countries