ARGENTINA/GHANA: VULTURE FUNDS SHOULD NOT BE ALLOWED TO PARALYZE DEBT RELIEF, SAYS UN EXPERT ON THE EVE OF KEY RULING
13 December 2012
GENEVA (13 December 2012) - The United Nations Independent Expert on foreign debt and human rights, Cephas Lumina, has urged world governments not allow ‘vulture funds’ to paralyze debt relief for heavily indebted countries, while expressing his concern about the continued impounding of the Argentinian navy training ship ‘ARA Libertad’.
The Argentinian naval vessel has been impounded since 2 October 2012 in the port of Tema in Ghana on the basis of a court order obtained by the ‘vulture fund’ NML Capital Limited, a Cayman Islands-based subsidiary of the US investment firm Elliot Capital Management. The International Tribunal for the Law of the Sea is expected to announce a decision on the case between Argentina and Ghana on 15 December 2012.
“‘Vulture funds,’ such as NML Capital, should not be allowed to purchase debts of distressed companies or sovereign States on the secondary market, for a sum far less than the face value of the debt obligation and then seek repayment of the nominal full face value of the debt together with interest, penalties and legal costs or impound assets of heavily indebted countries in an attempt to force repayment,” Mr. Lumina stressed.
“From a human rights perspective,” the UN expert said, “reduced debt burdens and increased fiscal capacity contribute to the creation of the conditions necessary for the realization of all human rights, particularly economic, social and cultural rights.”
NML Capital has been suing Argentina on the basis of debt arising from the country’s defaulted bond swaps in 2005 and 2010. On 11 October 2011, the Commercial Division of the Accra High Court upheld the restraining orders placed on the Argentine naval vessel. NML Capital was only willing to release the frigate against a payment of USD 20 million in Argentinian bonds, and demands that Argentina settles USD 370 million of its debt.
The firm bought bonds from the heavily indebted Argentinian Government in 2000, a year before the country’s USD 100 billion sovereign default. “While the majority of creditors accepted a repayment at a lower nominal value (30 per cent) of sovereign debt, enabling the country to recover economically, NML Capital refused to participate in the debt restructuring offered by Argentina,” Mr. Lumina noted.
In 2001, the country successfully reduced its public debt from about 160 per cent of Gross Domestic Product (GDP). Argentina’s total public debt currently stands at around 40 per cent of the country’s GDP.
The UN Guiding Principles* on Foreign Debt and Human Rights, endorsed by the Human Rights Council in June 2012, underscore that States, international financial institutions and private companies have an obligation to respect human rights, including the duty to refrain from formulating, adopting, funding, and implementing policies and programmes that directly or indirectly contravene the enjoyment of human rights.
According to the principles, “loan agreements should impose clear restrictions on the sale or assignment of debts to third parties by creditors without the prior informed consent of the Borrower State concerned. Every effort must be directed towards achieving a negotiated settlement between the creditor and the debtor.” They also state that “creditors should not sell sovereign debt on the secondary market to creditors that have previously refused to participate in agreed debt restructuring.”
“Successful debt restructuring for deeply indebted countries will be made impossible if vulture funds are allowed to paralyse debt relief,” Mr. Lumina warned, recalling that “NML Capital already won a case against Peru in 2000, recovering 400% of what the fund paid for the country’s distressed debt.”
The UN Independent Expert on foreign debt and human rights urged States to follow the example of the Channel Island of Jersey and the United Kingdom. Both recently adopted legislation to prevent vulture funds from pursuing excessive claims against heavily indebted countries before their national courts.
(*) Check the UN Guiding Principles on Foreign Debt and Human Rights: http://www.ohchr.org/EN/Issues/Development/IEDebt/Pages/GuidingPrinciples.aspx
Mr. Cephas Lumina is an Advocate of the High Court for Zambia and an Extra-Ordinary Professor of Human Rights Law at the University of Pretoria. He was appointed Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights by the UN Human Rights Council in 2008. He is independent from any government or organization and serves in his individual capacity. The mandate covers all countries. Learn more, log on to: http://www.ohchr.org/EN/Issues/Development/IEDebt/Pages/IEDebtIndex.aspx
“Vulture funds” - Read the Independent Expert’s report to the UN Human Rights Council: http://daccess-ods.un.org/access.nsf/Get?Open&DS=A/HRC/14/21&Lang=E
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