The parliament of Jersey, known as the States, has today passed legislation to limit the ability of vulture funds to sue some of the world’s most impoverished countries in the islands courts. The bill needs to be given Royal Assent by the UK Privy Council before becoming law, a process which normally takes several months.
The legislation follows a UK Act of Parliament introduced in 2010, which limits debt claims against forty impoverished countries in line with internationally agreed debt relief. It only applies to debts which originate prior to 2004, and does not cover all low income countries.
A US vulture fund, FG Hemisphere, tried to sue the Democratic Republic of Congo for $100 million in the Jersey courts on a debt it bought for just $3 million. However, in July 2012 the UK Privy Council ruled that the money the vulture fund was trying to seize could not be claimed against a government debt.
Jubilee Debt Campaign Policy Officer Tim Jones said:
“We warmly welcome this legislation to protect forty countries from odious vulture fund claims in Jersey. However, vulture funds continue to cause havoc across the global economy. One case currently being heard in the US may even force Argentina to default on its debt. Global action is needed to make all creditors comply when government debts have to be written off.”
The UK Treasury estimates the UK Debt Relief (Developing Countries) Act passed in 2010 will save some of the most impoverished countries £145 million over six years.
In 2001 Argentina defaulted on unaffordable debt payments. At the time the Argentinian people had experienced three years of recession and over half the population, 20 million people, were living below the poverty line.
The Argentine government subsequently reached a deal with most creditors to pay the equivalent of 25-35 cents on every dollar owed, over several years. However some creditors refused to accept this deal. These included vulture funds such as Elliot Associates, which are thought to have bought Argentinian debt at knock-down prices during the debt crisis, and are now suing for exorbitant profits. Argentina is making debt payments to the creditors which accepted the deal, but not the holdouts.
Last month a New York appeal court ruled that every time the Argentinian government makes debt payments to any creditor, it must also make payments to the holdouts. The Argentinian government could be faced with a choice of making unjust debt payments to vulture funds, or being forced to default on its payments to all creditors.