April 2007
Response to Jubilee Debt and Oxfam email campaign on Vulture Fund Litigation against Zambia
Thank you for raising your concerns regarding the Zambia vulture fund case.
The UK Government shares your sense of outrage about the activities of vulture funds and the problems they cause for those countries that have received debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. All governments and companies have a social responsibility to ensure that debts of vulnerable countries are not sold to vulture funds.
Zambia worked very hard to complete the HIPC process and received significant debt relief under HIPC and the Multilateral Debt Relief Initiative (MDRI), reducing its external sovereign debts from $7.1 billion (end 2004) to $0.5 billion (end 2006). Zambia has used some of its savings from debt relief under the Multilateral Debt Relief Initiative to abolish health fees in rural areas. As a result thousands of people are now receiving free health care. The behaviour of these vulture funds undermines the strong efforts of the international community to provide irrevocable debt relief to countries such as Zambia who reach Completion Point under the HIPC Initiative.
The Zambia-Donegal case is still the subject of litigation. However, the lawyers acting on Zambia's behalf indicated that they expect Zambia's liability to be significantly less than the $55 million claimed by Donegal. The final sum to be paid will be determined following further hearings. By this judgement, Zambia has publicly exposed the unacceptable way in which Donegal has operated in relation to the assignment and enforcement of Zambia's sovereign debt.
Sadly the issue of vulture funds is not isolated to Zambia. All governments and companies have a social responsibility to ensure that debts of vulnerable countries are not sold to litigating funds. The UK is working bilaterally and multilaterally with HIPC governments to raise awareness of this problem and to encourage preventative action.
The Department for International Development (DFID) has part-funded a Debt Management Capacity Building programme that, through better debt management, should help to avoid debts being sold on to potential litigators. DFID has also supported the World Bank's Debt Reduction Facility, which gives countries grants to buy off commercial debts at very significant discount (on average over 90% reduction), thereby removing the potential for litigation. Since its establishment this facility has provided support to eliminate around $8 billion of debt in low-income countries.
Tackling existing cases where debts have already been bought by vulture funds is extremely difficult because of the legal constraints involved. However, the UK has assisted HIPCs in fighting aggressive creditors. DFID is also encouraging the African Development Bank to develop a Legal Assistance Facility, which will offer free advice to HIPC countries facing litigation.
