Tackling the Vultures: A briefing on legislative action to address vulture funds
This briefing gives an insight into vulture fund behavior, the consequences for developing countries, and lays out proposals for vulture fund legislation in the European Union.
Vulture Funds are speculative investment funds that buy up the debt of distressed countries at a very low price and then pursue full reimbursement of the original debt through lawsuits. Vulture funds target crisis countries that are already struggling to finance public services and infrastructures and wait until a debt restructuring takes place so that they can sue for high returns.
The lack of a comprehensive international framework to deal with debt restructuring means that vulture funds can get away with this, and the latest case of Argentina has only strengthened their position. Besides their effect on individual nations of slowing down or preventing economic recovery, the actions of vulture funds are jeopardising debt restructuring the world over.
Although they tend to target poor countries, vulture funds are a threat to any country facing debt distress, including members of the European Union.
An efficient EU legislative initiative against the vulture funds must be reached and should include the following points:
- Improve the transparency of vulture funds. Some are located in tax heavens and their owners are usually unknown. This affects the capacity of targeted countries to deal with their actions. The creation of public registries of vulture funds would be a good solution to this problem.
- Prevent vulture funds from making exorbitant profits from their actions. Using the model of the UK Debt Relief (Developing Countries) Act, legislation should ensure that any existing national debt restructuring agreements also apply to such funds.
- Make development cooperation funds non-assignable and elusive, as well as funds that European enterprises must transfer to foreign states and assets of states and enterprises that are on European territory.
- Prohibit commercial or public entities based in the EU to invest in vulture funds.
- Prevent any juridical action from vulture funds in European courts.
To read the full briefing, click here or on the download button below. For the French version, click here and for the Spanish version, click here.