A/HRC/23/37 E. Vulture fund litigation 48. The participation of creditors in the two international debt relief initiatives is entirely voluntary. This has created opportunities for some commercial creditors to refuse to participate, then attempt – through litigation, seizure of assets or political pressure – to recover the full face value of their debt together with interest, penalties and legal costs.46 These creditors – termed “vulture funds” or “distressed debt funds” – purchase defaulted sovereign debt on the secondary market at significant discounts, hold out for other creditors to cancel their debts and then aggressively pursue repayments which are considerably in excess of the amount that they paid for the debt obligation. 47 49. According to the World Bank and IMF, the number of vulture fund lawsuits against HIPCs “has been declining in recent years but flattened over the past few years.” 48 However, it is difficult to ascertain the actual number due to the secretive nature of vulture fund operations. At least 19 impoverished countries (Angola, Bolivia (Plurinational State of), Cameroon, Congo, Cote d’Ivoire, Democratic Republic of Congo, Ethiopia, Guyana, Honduras, Liberia, Madagascar, Mozambique, Nicaragua, Niger, Sao Tome and Principe, Sierra Leone, Uganda, United Republic of Tanzania and Zambia) have been subject to or threatened with vulture fund lawsuits since the HIPC Initiative was launched in 1996. 50. Vulture fund lawsuits erode the gains from debt relief by preventing heavily indebted poor countries from using resources freed up by debt relief for their development and poverty reduction programmes, thereby jeopardizing the fulfilment of these countries’ human rights obligations. It has been estimated that, on average, the potential cost of lawsuits represents 18 per cent of annual health and education spending, 59 per cent of debt service and 5 per cent of budget revenue. In 2008, the World Bank and IMF estimated that the potential impact of court awards varied from less than 0.5 per cent of the debtor country’s GDP to 49 per cent in the case of Liberia. F. Other shortcomings 51. There are two other notable shortcomings of the initiatives. First, the eligibility criteria under the HIPC Initiative are too restrictive and exclude many highly indebted countries that have high levels of poverty and often pay more on debt service than on basic services.49 Among these are Bangladesh, Djibouti, Grenada, Jamaica, Kiribati, Lesotho, Maldives, Myanmar, Philippines, Tonga and Zimbabwe. For example, in 2009, the external debt of the Philippines was estimated at $60.3 billion, and it paid $13.6 billion in debt service in 2006.50 Nevertheless, as a middle-income country, it does not qualify for debt 46 47 48 49 50 Vulture fund litigation has thrived in circumstances where the international community has done little to tackle them legally. For a discussion of the impact of vulture funds on human rights, see Report of the 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, Cephas Lumina (A/HRC/14/21). See IMF, “Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative”, Factsheet (2 April 2013), available from www.imf.org/external/np/exr/facts/hipc.htm. The IMF’s response to this criticism is that the eligibility criteria “reflect a broad-based consensus of member governments that the poorest countries should have the highest priority in concessional debt relief,” see IMF, “HIPC Initiative: The IMF’s Response to Critics,” September 1998, available from www.imf.org/external/np/hipc/res.htm. In 2011, the total external debt was $76 billion. See World Bank, International Debt Statistics 2013 (Washington D.C., 2013), p. 23. 15