Vulture Fund

“Holy crap… no way,” was my reaction when I learned of this.

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Vulture Fund

Definition: A company that buys the debt of a poor country when it is about to be written off by the donor and then sues the country for the original amount of the debt plus
interest.

While debt relief is being encouraged, there are companies making a lot of money from the debt of poor countries.

One vulture fund case in Zambia:
In 1979, the Romanian government lent Zambia $15 million to buy Romanian tractors. Twenty years later Zambia was broke, so in 1999, Romania agreed to write off the debt for $3 million. Before the agreement was finalised, a company based in the British Virgin Islands swooped in, hence vulture, and took up Romania’s cheap offer and bought the debt for less than $4 million.

This company then sued Zambia for the original debt plus interest – $42 million. The court ruled recently that Zambia must pay a portion of the fund, between $10-20 million.

In a twisted way, the End of Poverty campaign encouraging government to write off third-world debt has allowed companies to buy out debt cheaply only to demand the original amount from the country. These vulture funds have sued and won their case. I wonder, is there such a thing as morals in economics?

For more information on Zambia’s vulture fund case, visit BBC.

For more information on vulture funds, I came across a Democracy Now story.

Some other vulture fund cases highlighted by Democracy Now:

An American billionaire bought some of Peru’s debt for $11 million and then demanded $58 million. Similarly, some of the Congo’s debt was bought for $10 million and $127 million gained from the lawsuit.

Holy crap.