Vulture Funds Morale Issue or Real Threat

1
Vulture FundsMorale Issue or Real Threat?

• UNCTAD 6th Debt Management Conference
• Geneva, November 20, 2007
• Mark Roland Thomas
• Economic Policy and Debt Department
• The World Bank

2
Definitions and Facts

• One definition of vultures ispurchasing with
  a view to litigation
• May undermine debt relief but is legal
• As stewards we encourage full burden sharing by
  commercial creditors
• But HIPC is a voluntary initiative
• 2007 Status of Implementation noted 11/24
  responding HIPCs targeted with lawsuits by 46
  creditors
• Judgments believed to total about 1 billion

3
Real or Morale?

• Actual amounts may be viewed as not that large
  although neither are they insignificant
• Morally divert much needed debt relief away from
  the poorest countries on earth and into the bank
  accounts of the wealthy
• HIPCs responses are a source of inefficiency
• Non-transparent accounting to protect assets
• Use of intermediaries and shell companies
• Manage foreign assets in costly ways
• Spend scarce resources on expensive legal defenses

4
What Can We Do?

• Change the law
• Probably an unrealistic expectation
• Amicus briefs?
• Name and shame
• Status of Implementation reports
• Help HIPCs defend themselves
• AfDB and Commonwealth Secretariat
• World Bank is constrained by operational policies
• Contextual Notes
• Starve the birdlife
• Paris Club undertaking
• IDA Debt Reduction Facility (DRF)

5
The IDA Debt Reduction Facility

• Objective enable heavily indebted IDA-only
  countries to reduce their sovereign commercial
  external debt as part of a broader debt
  resolution
• Operations involve a government buying back its
  PPG debts from external commercial creditors for
  cash at a deep discount
• Strategically allied with HIPC
• Supported 23 operations in 21 IDA-only countries
• 4.5 billion principal and 3.5 billion interest
  (arrears and penalties) extinguished
• 637 million utilized
• 218 million IBRD net income transfers
• 207 million donor funding
• 212 million beneficiary countries own
  resources, IDA credits, and IMF financing

6
DRF Technical Assistance

• Financial and legal advisers hired with grants
  under WB procurement
• Assist with debt reconciliation
• Contact creditors to determine market
  expectations
• Agree buy-back strategy with government, IDA (as
  trustee) and co-financiers
• Provide legal advice
• Draft offering memorandum to creditors
• Act as closing agents for the buy-back

7
DRF Recent Events

• Oversight Committee established (July 2006)
• DRF extended to July 2012 (April 2007)
• 23rd buyback (Oct. 2007) 2nd Commercial Debt
  Reduction Operation for Mozambique extinguished
  all remaining eligible debt
• 153 million of principal and interest plus
  associated penalties
• 9 cents on the dollar
• Invitation to Creditors for 24th buyback (Oct.
  2007) 2nd Commercial DRO for Nicaragua
• Expected to extinguish 90-95 percent of the
  countrys remaining 1.4 billion of eligible debt
  
• About 4.5 cents on the dollar
• Creditors with judgments against Nicaragua
  forwent litigation and provided HIPC-comparable
  debt relief