Subcommittee on Africa and Global Health
Hearing Opening Statement
Chairman Donald M. Payne
"Vulture Funds and the Threat to Debt Relief in Africa: A Call to Action at the G-8 and Beyond"
May 22, 2007, 2pm, 2172 RHOB
Good afternoon. Thank you all for joining the Subcommittee on Africa and Global Health for this very important hearing entitled: "Vulture Funds and the Threat to Debt Relief in Africa: A Call to Action at the G-8 and Beyond."
I learned about this new threat to the debt relief campaign in Africa this past February, as I was on my way to meet with President Ellen Johnson-Sirleaf of Liberia. Amy Goodman, host of the Pacifica Radio Show "Democracy Now" was speaking with BBC reporter Greg Palast on investigative reporting he had done on vulture funds. I was shocked to learn that Zambia, a southern African nation mired in poverty, was being sued by a US company Donegal International.
In 1979 Zambia borrowed agricultural equipment and services from Romania on credit. Zambia was unable to continue paying off the debt and made an agreement with Romania to liquidate the debt for $3.28 million. Before the deal was complete, Donegal International swooped in. Donegal International Limited is registered in the British Virgin Islands, but is an off-shoot of a Washington, D.C.-based company called Debt Advisory International, owned by a man named Michael Sheehan. Michael Sheehan sued Zambia in a UK court for $55 million. He purchased the debt for $3.28 million. The UK court recently ruled in favor of Donegal for $15 million. We will hear from our esteemed witnesses how this will hurt Zambia's development efforts.
That same day I heard the story on "Democracy Now", I met with President Bush, along with the Members of the Congressional Black Caucus. Mr. Conyers and I both mentioned our concerns with the vulture fund crisis. The President assured me his staff would look into it. And other nations are taking notice as well.
Top economic officials from the U.S., UK, Canada, France, Germany, Italy, Japan, and Russia -- known collectively as the G8 -- will meet from June 6-8 in Germany. At the G8 summit German's Chancellor Angela Merkel and Prime Minister Tony Blair agreed to discuss vulture funds. Even the presumed next Prime Minister of England, UK Chancellor of the Exchequer Gordon Brown has spoken out, saying recently, "I deplore the activities of the so-called vulture funds that seek to profit from debts owed by the poorest countries in the world. I am determined to limit the damage done by such funds".
The term "vulture fund" refers to a class of investors that operate in the secondary sovereign debt market known as distressed debt investors. They have been defined as "investment funds, particularly hedge funds and mutual funds, that purchase the debt of countries, or companies, that are in financial distress. These funds thus become creditors of the countries, or companies, through purchases of debt in the secondary market, rather than as primary lenders. "Vulture Funds" may seek to maximize their profit by buying below-market value debt prior to entering a restructuring negotiation, and then holding out in the negotiation in the hope of being paid full value, or by seeking to collect the full value of the debt through litigation. In addition to private securities, "vulture funds" have actively participated in the secondary sovereign debt market, a market with a $6 trillion annual turnover, according to the Congressional Research Service.
These funds feed upon financially distressed nations by purchasing their debt for pennies on the dollar only to turn around and demand through litigation the full value of the initial debt plus interest. Devoid of any moral compunction, these vulture funds take advantage of ambiguous international and domestic laws to collect on debts that were acquired by authoritarian regimes and that were not used in the legitimate interest of their people.
When world governments and international financial institutions created the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MRDI) in 1996, indebted countries finally began to see a light at the end of the tunnel. Instead of servicing millions of dollars in debt annually, these nations could finally begin to service their own people. Schools could be built; teachers and nurses could be hired; life-saving medication could be distributed.
Yet, the threat of vulture funds waiting in the wings to swoop down and prey on struggling, impoverished nations in Africa, poverty reduction programs and plans for economic development could come to a grinding halt. These companies threaten to strip nations of the opportunity to apply newly freed financial resources towards achieving the UN Millennium Development Goals that improve quality of life for Africa's people. Meanwhile, these investors themselves stand to rake in millions upon millions of dollars off of African debt which they buy at a cheap price.
Thus, a few Americans are begetting fortunes at the expense of the misfortune and further impoverishment of millions of Africans. This is morally reprehensible and exploitative.
Very little is known about these companies that operate as vulture funds. They operate in the shadows where their actions are not monitored and their tactics change on a case-by-case basis. While the Zambian case brought this issue to the forefront for many of us, it is not unique. Over 20 HIPC countries have been the target of these funds since 1999 and approximately 40 more cases are on the horizon.
If something is not done to stem this tide, these funds could negate the efforts made by all the organizations engaged in debt relief, some of whom are represented today. Most importantly, vulture funds can undo the tremendous efforts made my HIPC countries who have worked to get their debt cancelled.
The Subcommittee on Africa and Global Health has been actively engaged in serious discussions with Chairman John Conyers' Judiciary committee and Chairman Barney Frank's Financial Services Committee, as these committees share jurisdiction over debt relief and a deep concern for the protection of heavily indebted nations. Chairman Conyers plans to hold a hearing in the near future and Chairman Frank is also studying the issue. It should be noted that this Congress will not turn a blind eye to the exploitative activities of Debt Advisory International or other US companies which prey on poor nations in Africa and elsewhere. We will continue to exercise oversight until we are satisfied that these nations are no longer at risk from these vulture funds.
For this hearing, we are honored to have Mr. Danny Glover who is not only a good friend whom I greatly admire, but is also a world-renowned Actor/Activist and Chairman of the Board of TransAfrica Forum. Mr Glover will testify on the first panel and will have to leave before 3:00 to catch a flight. We thank him for his strong interest, leadership on issues related to African nations, Haiti, and other important issues, and for his time today.
He will be followed by the second panel which will include Ms. Emira Woods, the Co-Director of Foreign Policy in Focus at the Institute of Policy Studies and Mr. Neil Watkins, Counsel for JublieeUSA. Emira Woods, a Liberian by birth, is well known in Washington and Africa for her commitment to debt relief in Africa and her work on Liberia. Neil Watkins has been working very closely on the vulture fund issue for Jubliee, an organization which has championed the cause for poor nations to receive debt relief.
I would like to point out for the record that we contacted the Department of the Treasury to request Secretary Paulson or one of his deputies testify today. Unfortunately, he was unable to make it and Treasury said no one who was well-versed on the issue was available today due to the start of the US China Strategic Economic Dialogue which begins this week.
The BBC investigative reporter Greg Palast, who broke the story on Democracy Now with Amy Goodman, had planned to testify today but was unable at the last minute.
I thank the witnesses for their work and their time on this critical issue and look forward to their testimony.
With that, I turn to Ranking Member Chris Smith for opening remarks.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
