Vulture Funds
Numerous countries are saddled with unmanageable amounts of debt, and routinely pay more to service their debt to wealthy nations and International Financial Institutions (IFIs) than they receive in loans and international aid. For example, African nations pay creditors $14 billion each year while receiving less than $13 billion in international grants and loans.
As a result of years of pressure by the international debt cancellation movement, some countries have seen their debts reduced or totally cancelled. While there are still nuances being worked out regarding eligibility and conditions for completing the process, debt cancellation efforts have resulted in a higher quality of life for millions of people in the world’s poorest countries.
Portions of a country’s debt or sovereign debt can be traded in much the same way that domestic mortgages are transacted between banks, with little to no impact on the debtor nation. However, in recent years a number of private investment funds have begun to view countries that qualify for debt cancellation as a lucrative target, because a country that has its IFI debt cancelled then has money to pay other debts.
These private funds, also known as “hedge funds,” are not subject to SEC regulations and reporting requirements, and as a result, it is often difficult to monitor their transactions. Not all hedge funds are considered “Vulture Funds,” nor do all hedge funds that purchase sovereign debt exhibit Vulture behavior. It is the nature of the behavior that dictates that the funds be labeled as Vultures.
Vulture Funds are hedge funds that purchase debt for pennies on the dollar, while actively preying on countries that are likely to default on the loan. Using tactics including extortion and litigation, these Vultures then demand full payment on the debt. In some cases, Vultures have asked for interest payments dating all the way back to the original date of the loan, not from the date it was purchased by the Vulture.
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