A/HRC/14/21 59. According to a joint World Bank and IMF report, pending litigation and outstanding court awards may also prevent HIPCs from regularizing financial relationships with the international banking community.67 60. EMTA also claims that “the process of commercial creditor debt renegotiation and debt relief within the HIPC Initiative framework is already functioning effectively without legislative intervention”.68 To buttress its claims, it relies on the example of the Liberia Debt Reduction Facility buy-back operation in April 2009 which saw US$ 1.2 billion of commercial debt extinguished at 97 per cent of face value. However, EMTA expediently omits to mention that participation in Debt Reduction Facility buy-back operations is voluntary and the facility does not prevent hold-outs by creditors, as the case of Hamsah Investments Ltd v. Liberia,69 discussed in section III above, clearly demonstrates. 61. In its consultation paper on vulture fund legislation, the Government of the United Kingdom acknowledges the successful Liberian buy-back operation but cautions that “the non-participating creditors continue to hold claims against Liberia worth 85% of the cost of the Debt Reduction Facility buybacks”.70 Further, the World Bank and IMF have repeatedly emphasized that while the HIPC Initiative has helped reduce the external debt burdens of HIPCs, a number of challenges remain, including ensuring that HIPCs get full debt relief from all creditors, including private creditors.71 This underscores the pressing need for legislative measures to combat predatory creditor activity. 62. In the estimation of the independent expert, the EMTA submission and similar concerns by other proponents of vulture funds appear to be based on the erroneous assumption that markets have efficient, self-correcting mechanisms. As the recent financial crisis has amply demonstrated, this assumption is fundamentally mistaken. It is precisely the lack of State regulation that facilitated the abuses that manifested themselves in the financial crisis.72 In the Outcome of the Conference on the World Financial and Economic Crisis and Its Impact on Development, Governments recognized that the crisis was caused by “regulatory failures, compounded by over-reliance on market self-regulation, overall lack of transparency, financial integrity and irresponsible behaviour …”.73 Vulture funds are part of this flawed international financial system. Consequently, measures to reform the global financial system must include measures to curb profiteering by unethical commercial creditors. In this regard, it is worth recalling that the Monterrey Consensus recognizes that the orderly development of capital markets aimed at addressing development financing needs and nurturing productive investments requires “a sound system of financial intermediation, transparent regulatory frameworks and effective supervisory mechanisms” (para. 17). 67 68 69 70 71 72 73 18 sovereign immunity and Texas garnishment law: a new threat facing U.S. oil and gas companies”, Houston Journal of International Law, vol. 29 (winter, 2007), p. 277. IMF and IDA, “Heavily Indebted Poor Countries (HIPC) Initiative – status of implementation” (2003), para. 54. EMTA, “Submission” (see footnote 60), p. 4. High Court of Justice, Case No. 2008/587, 26 November 2009. United Kingdom, Ensuring Effective Debt Relief (see footnote 44), p. 17. IDA and IMF, “HIPC Initiative” (2009), p. 5 (see sect. III, footnote 7). The financial crisis started as the “sub-prime mortgage crisis” in the United States in August 2007 and then erupted into a global credit crisis in September 2008. It was caused by a combination of factors, including loose monetary policy, deregulation, excessive risk taking by banks and the explosion of credit/debt between 2002 and 2007. See UNCTAD, The Global Economic Crisis: Systemic Failures and Multilateral Remedies (United Nations publication, Sales No. E.09.II.D.4). General Assembly resolution 63/303, annex, para. 9. GE.10-13156