Beware of Scavengers

David Bosco makes a number of interesting points, but his argument that vulture funds are "only doing what the international financial system can’t" by holding corrupt and irresponsible regimes accountable is flawed ("The Debt Frenzy," July/August 2007). Simply because some governments involved in vulture fund litigation may have serious corruption issues to address does not mean that Western companies have the right to expect outrageous profits. There’s no denying that bottlenecks to development and political corruption must be dealt with aggressively, but a Western courtroom is certainly not the place to do so.

The case of Donegal International vs. Zambia serves as a cautionary tale of vulture fund litigation. Donegal purchased Zambia’s debt for a bargain price and then aggressively pursued collection of this debt, seeking many millions of dollars more than Donegal originally paid for it. The case made international headlines. But what’s little known is that Zambia’s Anti-Corruption Commission ordered the government to stop paying Donegal’s owner, Michael Sheehan, when it learned the debt to his company had been established by corrupt means. So in response, Sheehan took the government to court — in London. Thus, in this case, it was local anti-corruption efforts that inspired the vulture fund litigation. Far from holding corrupt regimes accountable, as Bosco suggests, the vulture fund was itself a source, or at the very least a beneficiary, of corruption.

If companies like Elliott Associates are taking the government of the Republic of Congo to court simply to make a point that governments should not be allowed to get away with corrupt behavior, there are better ways of fighting their cause. If the leadership of these companies is truly concerned about development and poverty, as Jay Newman of Elliott implies, they ought to make a more profound statement by pledging to donate any litigation proceeds to groups working on the ground to deliver essential services to the poor. Better yet, they could put litigation aside and find other ways to make their investments work for development.

 — Karen Joyner
Communications and Advocacy Coordinator
Jubilee USA Network
Washington, D.C.

David Bosco replies:
I readily accept Karen Joyner’s main point: Vulture funds are not in business to fight corruption; they are about making money. The question is whether their activities, however repugnant to Joyner, play some useful role in facilitating the flow of international capital and encouraging respect for binding legal obligations.

Joyner is uncomfortable with the fact that vulture fund managers sometimes make large profits. But she does not consider the possibility that these fund managers actually make investment in poor countries more likely in the long run by giving frustrated investors somebody to whom they can sell bonds or other debt instruments that are not being honored. The case of Donegal and Zambia is one end of the spectrum, as I pointed out. Does Joyner have a view as to whether Argentina should pay the thousands of bondholders it stiffed?

Too often, debt relief campaigners exit the debate after hurling insults at the vulture fund managers. I understand why they do — it’s a great advocacy strategy. Policymakers attempting to improve the international financial system, however, will require a more nuanced view of the role vulture funds play.