The term "vulture." Although there is no biological bird with this name, it is commonly used to refer to condors or vultures, both of which are carrion-eaters. Since both species swarm around corpses and devour carrion, "vulture" is often used as a descriptive term for evil people who prey on the weak for their own personal gain. One of the most famous examples of such an unflattering appellation are the companies called "vulture funds. Many of you may have heard of this term before, due in part to novels and dramas, but a new aspect emerges when we look at it in relation to the state. We would like to decipher the influence of vulture funds on nations around the world.
Vultures (Photo:Ian White/Flickr [CC BY-NC-SA 2.0])
If you can't pay your debts.
Whether it is an individual, a company, or a nation, there will be times when a variety of factors make it impossible to pay back borrowed money. In other words, when an individual or a company defaults on its debt, it can choose to "go bankrupt. There is a well-developed legal remedy system in place, and anyone can file for bankruptcy according to a fair process. If the assets are liquidated to the maximum extent possible and each creditor is paid equally, no further debts will be pursued. Debts in excess of the ability to repay are, simply put, written off. Of course, if a company goes bankrupt, it will not be able to reorganize itself, but an individual will never be forced to starve or die in order to repay its debts.
On the other hand, if a state defaults on its debt, there is no "bankruptcy" option there, and things change abruptly and obscurely. Applying "bankruptcy" to a state, like to a corporation, would force the state to cease to exist, because it is impossible to do so.
When a state defaults on its debt, it is called default, but no international legal framework has been enacted in the first place in the event of default. First, there is no major entity that stands above the state and exercises power over it. Second, the burden of debt collection borne by creditors is relatively heavy in the event of state failure, whereas that of individuals or companies, and the same system as in the so-called private sector cannot be easily adopted. These factors make post-default procedures very ambiguous.
Since social credit is needed to borrow again in the future, the defaulting state itself does not want to write off its debts as it does in the case of individual or corporate bankruptcies. Therefore, the state itself takes the initiative in reducing the debt and easing the terms, but this is a very complicated process, and negotiations are usually lengthy. These negotiations are deeply exhausting for both the state and its creditors.
Police guarding banks in Greece in the midst of an economic crisis (Photo:Wikipedia [CC BY-SA 2.0]
How Vulture Funds Work and Problems
Now, with this background, let us look at how the vulture fund is structured. The Office of the United Nations High Commissioner for Human Rights (OHCHR) publishesReportAccording to the "Vulture Fund" is defined in the original sense of the term as follows
."Private commercial entities that purchase, transfer, or otherwise deal in defaulted debt or distressed debt (debt issued by institutions in financial distress) for the purpose of recovering profits."
It is the goal of this article to read this from the perspective of the relationship between nations. In other words, it is in relation to national bonds (sovereign bonds) issued by governments and government-related institutions in various countries. In the context of these national bonds, vulture funds are often called "bad debt funds," and they mainly target poor countries and devour their corpse flesh.
Here's how they do it. First, they acquire the national debt of the defaulting poor country at a price far below its actual value in the secondary market. Once they have them, they pursue full repayment of the debt, along with interest, fines, and legal fees, using every conceivable means, including lawsuits, asset seizures, and political pressure.
Looking at this alone, some may think that they are not collecting debts illegally or that this is a normal practice in a capitalist society. What is the problem with vulture funds?
I mentioned that poor countries are the target of vulture funds, most of which are devoured by them,Heavily Indebted Poor Countries (HIPCs)Some 40 HIPCs are recognized worldwide by the World Bank and the International Monetary Fund (IMF) according to certain criteria on poverty and debt severity (more than 30 of them are in Africa).Focus on Sub-Saharan Africa(I don't want to forget that I am doing this).
Since funds are essential for the alleviation of poverty and development of the HIPCs, there is a world-wide movement to accept debt reduction and the easing of conditions for such countries and to promote debt restructuring for relief.
To begin with, the debts carried by heavily indebted countries, as represented by the HIPCs, are largely attributable to the developed countries, which are also on the creditor side. In the respective East-West schemes formed during the Cold War, it was none other than the HIPCs that, for strategic and political reasons, lent large sums of money to support dictatorial regimes in Africa and Latin America.Developed CountriesThe oil crisis and its aftermath were a time when developed country banks, enriched by oil money and protected by guarantees from their own governments, sent large amounts of money to developing countries without considering their ability to repay. During and after the oil crisis, banks in developed countries, enriched by oil money and protected by guarantees from their own governments, sent large sums of money to developing countries without considering their ability to repay the loans.loansharkinghad done so. In other words, the lender is often responsible for the debt, not just the party who owes the debt.
In addition, much of the debt held by poor countries is subject to fairly high interest rates (there are no clear global arrangements for interest rates on loans to the state, compared to the private sector), and theon the high side(which have been imposed), and the principal has already been paid off, but the accumulatedOnly interest continues to be paid.Sometimes this is the case. Thus, in a sense, it is natural for creditors as a whole to accept a restructuring or debt cancellation negotiated by the debtor country. Vulture funds, however, go directly against this trend and try to squeeze money out of poor countries.
Currencies from around the world (Photo:Images Money/Flickr[.CC BY 2.0]
National bonds of HIPCs that have defaulted are difficult to collect their debts, and entering into debt restructuring negotiations often takes a long time. Moreover, it can be practically difficult to collect the debt. Therefore, many creditors who are looking for short-term profit recovery or fear that their debts will be scorched will give up on collecting their debts when default occurs, or try to let go of the country's national bonds at the earliest possible time in order to recover even a portion of the principal amount. This is where the vulture funds come in, and this is why they get the bonds at much lower prices than their actual value.
Vulture funds with access to national bonds reject the debt restructuring plan agreed upon by all creditors together with the debtor countries, and rather begin to make strong demands for full debt repayment. This move to stall amicable restructuring is called a holdout (*1), but ignoring the global trend toward bailing out heavily indebted poor countries is a major problem.
Case study: Argentina, which fought vulture funds
Argentina went into default in 2001. Some of you may remember it. At the time, Argentina was saddled with an enormous debt of 81 billion U.S. dollars, and restructuring this debt was an urgent necessity for the survival of the nation. Negotiations with creditors were difficult, but after about 10 years, in 2010, Argentina92% or higherreached an agreement with the creditors of the company to reduce its debt. Argentina was one step closer to restructuring its debt. Argentina was on the verge of a bailout, but the vulture fund NML Capital, a subsidiary of Elliott Management, a major U.S. hedge fund, refused to comply.
Instead of participating in the debt restructuring agreement, they filed a lawsuit in U.S. courts demanding payment of their debts to Argentina. They bought Argentina's national bonds, which had leaked onto the market at low prices for fear of being burnt, and tried to ignore the bailout move and take a huge profit. As a result, the trial court accepted NML's claims and ordered Argentina to pay a huge amount of debt. Not only were the efforts that had been underway by the creditors completely ignored, but they were also overruled by them.Repayment to NML had to be a priority.The first is the "I" in "I".
Protests against vulture funds hit Argentina (Photo:Jubilee Debt Campaign/Flickr[.CC BY-NC 2.0]
In the first place, the principle of equality is the world's common sense in debt contracts, and to give preferential debt repayment to NML alone would represent a departure from this common sense. However, NML has filed a further lawsuit in the U.S. courts to ensure that Argentina does indeed repay its debts and to impose strict economic conditions on the country.setting (of a computer or file, etc.)Argentina was no longer able to cope with the financial strain caused by this. Argentina was no longer able to cope with the resulting financial strain; the nearly decade-long judicial dispute with NML had exhausted the country, and it was eventually forced to accept payment of its debts.
Negative impact of vulture funds
Argentina is not alone. Many poor countries, including Zambia and the Democratic Republic of the Congo, have suffered from vulture funds; for the 26 countries that defaulted in the nearly 35 years from 1976 to 2010, theApproximately 120 lawsuits claiming repaymenthave occurred. What is surprising is that this figure is limited to lawsuits in two countries, the United States and the United Kingdom, and does not include lawsuits in other countries. Moreover, the lawsuits have a high success rate of 721 TP3T, which shows the poor countries that are suffering from vulture funds.
In Africa, the region most hit by vulture funds to date, an average of eight lawsuits are filed against defaulting countries per year, and in some countries the total amount of claims for repayment is estimated to be as high as GDP12-13%It is said to constitute At the same time, Africa has a low win rate in litigation, with total payouts exceeding US$700 million.
Once a lawsuit is filed, the cost and time required are enormous, and the government is forced to accept payment orders, as in Argentina. As revenue is used to pay the debt, funds that should be allocated to public programs such as hospitals and schools disappear, and the country becomes no richer. A country struggling to make short-term money is forced to sell public works projects to the private sector, and the people's standard of living may even be put in jeopardy. There is a negative cycle centered on vulture funds.
Moreover, once a payment judgment is made, repayment to creditors who have agreed to debt reduction is put on the back burner, and payment to creditors who have rejected it, like vulture funds, is given priority. Is this unfair structure, in which those who accept the debt restructuring plan in order to fulfill their responsibilities as lenders suffer a loss, really the ideal state of society? There is no end to the question.
A front for vulture funds
We have seen the problems with vulture funds squeezing wealth out of poor countries, but is there any movement against them?
Protests against vulture funds hit Argentina (Photo:Jubilee Debt Campaign/Flickr[.CC BY-NC 2.0]
There is, of course, movement. The UN-led Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF) issued its 2014(written) reportIn the following paragraphs, the authors state this in the following manner.
."The national debt crisis is severely hampering countries' efforts in financing sustainable development. It leads to capital outflows, parity devaluation, and rising interest rates and unemployment. Effective debt management to prevent debt crises is a priority. The holdouts undertaken by some creditors ...... (regarding the debt crisis following Argentina's default) are a deeply worrisome move for both developed and developing countries in that they delay the restructuring of the country's debt."
The negative impact of vulture funds is well recognized.
The activities of Argentina and Greece, which were suffering from a debt crisis, led to a proposal in the 2015 UN General Assembly to establish a set of principles for resolving disputes between countries in default and their creditors.There were 141 votes cast. 136 votes in favor to 6 against. 41 abstentions.It was.
At issue were the countries that voted against this agenda. It was opposed by powerful creditor nations such as the United States, Japan, Germany, and the United Kingdom. The European Union (EU), in spite of a strong petition by Greece, stuck to its position of abstention, including all other agenda items related to the national debt issue.
One of the reasons why the problem of vulture funds has not been resolved is the opposition of developed countries that block activities against vulture funds. Although there are some countries that have enacted national laws to block the activities of vulture funds, the reality is that countries with a large voice in the so-called international community are not seriously engaged in solving the problem.
Developed Countries "Enactment of Rules on Debt Restructuring Creates Uncertainty in Financial Markets"claimBut is this really the result of thinking objectively and without regard to the interests of one's own country? The resolution adopted is not legally binding. It is definitely a big step forward, but at this rate, I can't help but think that a fundamental solution is still a long way off.
Toward the Eradication of Vulture Funds
Vulture funds target poor countries and devour them as they struggle with debt. Debt repayment to them puts a strain on the treasury of poor countries, but the fact that money that should be earmarked for the people is earmarked for debt repayment is more serious than the letter implies.
Without adequate funds allocated to the medical field. If there is no investment in infrastructure such as water and electricity. Vulture funds are not only an economic issue. There are ethical issues here that affect human lives.
An Ethiopian child taking a vaccine (Photo:UNICEF Ethiopia/Flickr[.CC BY-NC-ND 2.0]
It may be necessary to enact an international framework for when a nation defaults, as the majority of countries in the UN General Assembly have agreed to do. Perhaps the principle of equality in creditors should be made to function well and not uniformly allow holdouts. Addressing national defaults.Institutions such as courts do not exist.This may also be a problem. In any case, there is certainly a need for the entire world, whether developed or developing, to work on solving the problem.
As mentioned earlier, many of the debts that poor countries carry are debts that developed countries should also be held accountable for. Who were the ones who irresponsibly lent money to African and Latin American dictatorships at several points in history, such as the Cold War and the oil shocks, just for their own convenience? Is not the debt restructuring proposed by the poor countries that have defaulted something that the developed countries must be willing to work on, not to bail them out, but rather to take the responsibility that they should have fulfilled?
Poor countries, plagued by debts whose necessity for repayment is questionable, and vulture funds that seek to generate further profits from these debts. The background of this problem may reflect a distorted structure of the weak and strong.
*1: To oppose a debt restructuring plan and stall a moderate restructuring. Also, a creditor who takes such actions.
Writer: Tadahiro Inoue
Graphics: Tadahiro Inoue
It started with an explanation of "when you can't pay your debts," which was very easy for me to understand, even with my limited knowledge of the subject.
As in the case of illegal capital outflows described in a previous GNV article, we feel a sense of crisis that world poverty is in large part due to the composition of developed countries in a strong position trying to squeeze profits out of poor countries.
I am also very conscious of the fact that people in developed countries are not aware of the composition of such poverty that is created by developed countries.
With people suffering from vulture funds, I was shocked that Japan also voted against the proposal to establish a "set of principles for resolving disputes between defaulting countries and their creditors. I think we as a nation must do something about this.
This was a very clear article.
The situation seems to be bogged down, or rather stuck in a vicious circle, and it seems to be very difficult to resolve.
I wish the selfish attitude of developed countries would disappear a little.
I was surprised to learn that one of the reasons why poor countries cannot develop easily is the vulture funds by developed countries. I thought that the problem of poverty is greatly affected by developed countries and that people in developed countries should be aware of this fact. It is difficult to solve the problem because there is no international organization, but I thought that more donations, etc., rather than lending money, are needed to solve poverty.
It was very interesting to see the issues raised from an economic perspective.
How can we improve in capitalism,,