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Vulture funds: Why the UK voted ‘no’ to action at the UN – dissected

More than 700 people have written to their MP to ask why the UK government voted against action on vulture funds at the United Nations in September.

Many have now received a standard letter from the Chancellor, George Osborne, and the Chief Secretary to the Treasury, Danny Alexander, in reply. Here, we respond to the Treasury Ministers’ main points.

UN delegates applaud as the resolution passes at the General Assembly on 9 September.

UN delegates applaud as the resolution passes at the General Assembly on 9 September.

1) There was enough time to discuss the ‘complex issues’ raised. The issue of debt restructuring has been on the table at the UN for at least 12 years, and the resolution itself allowed up to a year of negotiation.


George Osborne and Danny Alexander said:
“We were concerned that the process for drawing up and agreeing the resolution did not allow enough time for members to discuss the complex issues it raised.”

Jubilee Debt Campaign says:
With considerable international attention on the Argentina vulture funds case in 2014, particularly since the country was forced into a new debt default in July, it is inconceivable that the issue took the Treasury by surprise. What’s more, the issue of debt restructuring that the resolution addresses has been on the table at the United Nations for at least the last 12 years. For example:

  • In 2002, the UN Financing for Development Conference in Monterrey agreed that UN members would consider how to create “an international debt workout mechanism, in the appropriate forums, that will engage debtors and creditors to come together to restructure unsustainable debts in a timely and efficient manner.” The UK signed the agreement.
  • In 2008, the UN Financing for Development Conference in Doha said that UN members would “consider ways to explore enhanced approaches of sovereign debt restructuring mechanisms”. The UK signed this as well.

The text of the resolution itself was tabled around three weeks before it was voted on, plenty of time for the Government to make a decision (it is longer than the offer of more powers made to the people of Scotland before the recent independence referendum, for example). Furthermore, the resolution was to agree to start negotiations which would take place over the next year. Saying that there was ‘not enough time’ to agree to start negotiations is not a credible reason for voting against.

In addition, Danny Alexander is the senior Liberal Democrat Minister at the Treasury. The Liberal Democrats have had a policy for the last five years to “lead international calls for the creation of a fully transparent international debt arbitration service”.

2) If the Government’s concerns were over process not principle, it could have abstained. But the Ministers dodge the question of whether they support debt restructuring at the UN. In fact, they oppose it.


George Osborne and Danny Alexander said:

“The Government recognises the need for effective debt restructuring processes where a country can no longer afford to repay its debts… The UK is actively engaged in ongoing discussions on this issue in a number of international fora, including the IMF”

Jubilee Debt Campaign says:
Jubilee Debt Campaign supporters asked the UK government “To constructively engage in discussions on establishing a legal framework for sovereign debt restructuring processes at the United Nations.” In their letter, George Osborne and Danny Alexander have dodged this request.

If the UK government really did recognise the need for effective debt restructuring processes, and if the UN was one of the fora where it is actively engaged, it would have supported and engaged with the negotiations at the United Nations. If it had concerns over the process not the principle, it could have abstained, as other countries did.

Instead, the UK actively opposed the resolution, just as it opposed proposals for a debt court as part of the new UN Sustainable Development Goals in the summer. The only possible explanation for this is that the UK is opposed to such a mechanism being established through the United Nations, because it thinks all global financial matters should be dealt with by the International Monetary Fund, where it and other Western nations have a disproportionate influence. This allows the UK to protect its financial sector – the City of London – from having to face the consequences of its irresponsible lending around the world.

In our view, therefore, the UK Government decided to put the interests of the banking industry ahead of the interests of people in poverty in indebted countries around the world with this vote. What’s more, Ministers don’t want to acknowledge to the electorate that they did so. That is why they have relied on a procedural explanation for their ‘no’ vote.

3) ‘Widespread international support’ was achieved by this resolution – most countries supported it, including both creditors and debtors.


George Osborne and Danny Alexander said:

“Like many other countries, we were concerned that the process for drawing up and agreeing the resolution did not allow enough time for members to discuss the complex issues it raised. Implementing an effective mechanism requires widespread international support on the side of both the creditors and debtors, which has not been achieved through this resolution.”

Jubilee Debt Campaign says:
The Ministers say that “many other countries” were concerned about the process. But the UK was one of just 11 countries which voted against, trying to block negotiations from even starting, while 124 countries voted in favour. Furthermore, the Ministers try to suggest that only debtors supported the resolution, while creditors were opposed. However, many creditor countries voted for it, including China, Saudi Arabia, Brazil, India, Russia and Algeria. Other creditor countries abstained, including Norway, Switzerland, France and the Netherlands. Far from being a divide between creditors and debtors, this vote was about a small number of Western countries with disproportionate power at the IMF holding out against the rest of the world.

One significant fact about the vote was that the EU normally votes as a bloc at the UN General Assembly. In this case, with some countries in favour and some against, the EU decided to collectively abstain. However, whilst the majority of EU member states did so, six of the 28 EU member states broke from this position and chose to vote against, including the UK.

While widespread international support was achieved for the resolution – contrary to what the Ministers state – full international support was not. As well as the 11 countries that voted against, 41 countries abstained. With a year of negotiations over the form of the debt restructuring mechanism envisaged by the resolution, there was plenty of time for the UK to help build widespread international support among creditors and debtors, global North and global South, if it had wished to. But the UK chose to vote against.

4) The IMF’s market-based approach to sovereign debt restructuring will not solve the problem of vulture funds. Instead, we need to change the law.


George Osborne and Danny Alexander said:

“The UK is actively engaged in ongoing discussions on this issue in a number of international fora, including the IMF’s work on the contractual framework for sovereign debt restructuring that will shortly propose new measures to reduce the power of holdout creditors and so-called ‘vulture funds’ in future debt restructurings.”

Jubilee Debt Campaign says:
The IMF published its work on the contractual framework for sovereign debt restructuring In October. This states that the only role for the IMF in relation to vulture funds is in helping to facilitate the adoption of voluntary measures in government bond contracts.
As with many economic issues, the voluntary measures proposed by the IMF will not solve the problem. They will not prevent vulture funds buying up debts cheaply when a country is in crisis, refusing to take part in a debt restructuring, then suing for a gigantic profit. They would only come into effect in more than 30 years time. And they would only cover a type of government debt known as ‘bonds’. At present, bonds account for just 40% of the debt of developing countries, and an even lower amount for the most impoverished countries (The rest of developing country government debt is owed to multilateral institutions such as the IMF and World Bank (30%), other governments (20%) and in other ways to private creditors (10%).)

Even if the IMF voluntary proposal was adopted across the world, in 30 years time vulture funds would still be able to follow their business model by buying up debts other than bonds (which they have done many times before, for example in the vulture fund cases against Liberia, Zambia and the Democratic Republic of Congo). Rather than a voluntary approach, the UK government must acknowledge that a statutory approach is needed – ie. changing the law.

Moreover, effective debt restructuring needs to reduce debt levels to an amount that is compatible with a government being able to meet the basic needs of its people. This does not usually happen when it is left to a negotiation between a single debtor and many powerful creditors. Instead, an independent arbitration is needed, based on an independent assessment of how much debt is sustainable. The IMF is the last body which should be making such an assessment, as it is a creditor itself, so it has a clear conflict of interest. Giving the IMF the job of resolving debt crises is like making one side in a court case both judge and jury in the case.

5) Referring back to debt relief schemes agreed a decade ago does not deal with today’s problems.


George Osborne and Danny Alexander said:

“We continue to support the debt sustainability of developing countries through our commitment to provide debt relief under the Heavily Indebted Poor Countries (HIPC) initiative.”

Jubilee Debt Campaign says:
While there were problems with the Heavily Indebted Poor Countries (HIPC) initiative, it has led to $130 billion of debt being cancelled for 35 countries, with millions of people receiving health and education as a result. But it was a one-off scheme relating to the debts of 40 eligible countries up to the end of 2004. Two countries, Eritrea and the Kyrgyz Republic, declined to participate, which means it is now only relevant to the three countries which are eligible but have not completed it: Chad, Somalia and Sudan. It is of no relevance to tackling the debt problems of any other countries, including those caused by the new lending boom that has been building up since the financial crisis of 2008. Countries affected by today’s lending boom include countries which received debt cancellation under HIPC as well as countries which didn’t (see our New Debt Crisis campaign for more).

6) The UK’s past leadership on vulture funds makes this change of position all the more disappointing.


George Osborne and Danny Alexander said:

“The UK remains the only country to have introduced comprehensive legislation to prevent commercial creditors of HIPCs recovering an amount of debt in excess of that consistent with the HIPC initiative through its courts.”

Jubilee Debt Campaign says:
The legislation passed against vulture funds in the UK in 2010 was ground-breaking in showing that it is possible to make vulture funds comply with agreed debt restructurings. But it only applies to the old debts of the 40 countries covered by the HIPC agreement. It has no relevance to other countries being pursued by vulture funds, from Argentina to Grenada to Greece. And over time it will become less relevant to HIPC countries as their debts originating from loans since 2004 are not covered by the law. This limited coverage is why new international rules are needed to prevent vulture funds making unjust profit out of people today.

The vulture funds law was an important precedent which was only achieved because of campaigning by Jubilee Debt Campaign supporters and allies. The passage of the law before the 2010 general election, and its extension to become permanent after the election, attracted cross-party support. This makes the Coalition government’s change of position on vulture funds all the more disappointing.

TAKE ACTION

  • Reply to your MP: You may want to use the above points to reply to your MP – online via www.writetothem.com or by post to House of Commons, Westminster, SW1A 0AA.
  • If your MP is a member of one of the Coalition parties, you could ask them to pressure the minister to change their party’s policy on action against vulture funds at the UN (or implement it, in the case of the Liberal Democrats).
  • If your MP is a member of an opposition party, you could ask them if their party supports action against vulture funds at the UN.
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