The Inevitable Rise of Vultures Amid Skyrocketing Debt Levels

Supporters of Paul Singer, an US billionaire hedge fund manager, will describe him as an esteemed investor, philanthropist and tireless political activist. Mr. Singer’s critics however, commonly refer to him as a fundraising terrorist, vulture capitalist and the “inventor of vulture funds,” due to his infamous practice of finding countries in dire economic distress, buying its debt and demanding full payment.

These nefarious vulture funds have acquired millions of dollars from developing countries all over the world thus leaving the countries in a worse economic state. Mr. Singer would argue that vultures uncover corruption and force accountability for national borrowing. Well, congratulations Mr. Singer. You were able to gain $400 million of West Africa’s assets in exchange for the $10 million in debt you initially paid, which exacerbated the region’s cholera epidemic. You’ve also profited millions from Greece as the nation stands on the brink of an economic crisis.

Singer and other vultures are clearly not helping countries restructure or reduce the $4 trillion currently owed by developing countries. Fortunately, International Financial Institutions such as the International Monetary Fund (IMF) and the World Bank have reduced debt for nations through bailout loans, structured programs, and new initiatives to cancel debt. Despite the significant gains in debt reduction, the number of countries returning to unsustainable debt levels is increasing, economies are again collapsing, and financial speculators such as Singer are still profiting. So how and why is this happening?

Not Poor Enough

Zimbabwe’s finance minister was recently told by the IMF that the country was not poor enough to qualify for debt relief. Let’s review some facts: Zimbabwe has an external debt of $10 billion; Zimbabwe owes the IMF $111 million; hyperinflation at one point reached 231 million percent; the country also has a poverty rate at 80 percent. Since the country does not qualify under current debt relief conditions, less money is available to spend on services such as education and healthcare. The cycle of compounded debt and economic instability continues.

Counter-Productive Debt Relief Conditions

Countries have to go through extensive structural reforms to qualify for debt relief conditions sanctioned by the IMF and the World Bank. Imagine you are the Finance Minister of your country, which is currently $20 million in debt. To satisfy conditions of the debt relief program, you must spend additional borrowed money on new infrastructure to privatize utilities, which then drives prices up for individuals. Failure to fulfill conditions results in debt relief suspensions. In Nicaragua, this privatization made it impossible for the poor to afford electrical service.

Debts Are Increasing … Again

Repayments by developing countries are predicted to rise by about one-third between 2010 and 2014. Ethopia’s debt has reached its highest levels since the nation first received debt relief years ago. Philippines, El Salvador, Jamaica as well as Sri Lanka continue to spend more on debt payments than they are able to spend on social services, such as education and basic medical care. Several countries, including Tonga and Yemen, cannot afford to pay ANY of the debt they inherited.

Arbitrary Completion Points

Haiti is one of the poorest countries in the world but was initially excluded for debt cancellation in 1996 under the IMF’s debt relief program because of a technicality. Haiti was finally included ten years later, however it took several years for the country to reach the “completion point” in order to receive debt cancellation. To achieve completion, countries must meet stringent structural and economic conditions. Since it took the country years to meet all these standards, Haiti had to pay an additional $44.5 million in debt service payments to international financial institutions (including the IMF). This was extremely destructive to the overall economy and public health system.

Vulture Funds

The confluence of exponentially rising debt and the lack of anti-vulture legislation will further contribute to the extreme economic and political fragility of indebted countries. More than one-third of the countries that have qualified for its debt relief programs have been targeted with lawsuits by at least 26 vulture funds. The funds have so far received payouts up to $1 billion.Elliot Management (Singer’s vulture fund) is one of the major players behind the recent lawsuit that sought to prevent Argentina and Greece from paying-off its restructured debts.

There is little reason to believe that the conditions set by the IMF and World Bank for further debt cancellation are likely to benefit these heavily indebted countries. And it’s obvious that wealthy vultures like Paul Singer are severely contributing to the problem. Only immediate debt cancellation can increase economic stability and free up millions of dollars for poverty-reducing expenditures, like education, food and basic medical care.

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