If the IMF speaks of litigious creditors, the bankers of intractable creditors, we prefer the terms of the United Nations of rapacious funds, or that of the CADTM (Committee for the abolition of illegitimate debts), of vulture funds. For they express perfectly what they are: financial enterprises that feed on failed states, progressively killing their population, except for those who profit from it. But how does a vulture fund act, who is behind it and, more broadly, who benefits from the debt system? Meeting with Renaud Vivien, co-secretary general of CADTM Belgium.
KAIROS: « Vulture funds » is a term that is common in certain circles: financial circles, NGOs active in the field, etc., but which is perhaps little known to the public. However, the practices of vulture funds have a direct impact on public finances, and therefore on the distribution of wealth and life in society? Can you explain simply what vulture funds (VFs) are?
Renaud Vivien: a FV is a financial company, most often based in tax havens, whose immoral strategy consists of buying up claims on financially troubled, highly indebted states that are on the verge of or already in default. As a result, the strategy of the VFs is targeted towards these states, since their rating on the second-hand debt market — the secondary market, where prices are set — where the vulture funds operate, is falling. The FV buys the debt for a pittance, but waits until the country in financial distress is better, in quotation marks, solvent, to sue, claiming the original amount plus interest, legal fees and other penalties. A UN report released last year, the « Ziegler » report(1), studied all the activities of the VFs and the profits they made on average: it ranged from 300% to 2,000% more value. In Argentina, it was more: the vulture fund NML, which is part of a « super vulture fund » owned by the same person, the American billionaire Paul Singer, made a profit multiplied by 25! He bought debts for $80 million and obtained $2 billion from the US courts.
To do this, the FV use the courts, without limit, that is to say, they use any court as long as there is a connection with the country that is attacked. For example, in Belgium, the Belgian courts, in Brussels, have been seized with requests, with actions by FV. So litigation is a strategy, but often the VFs use direct intimidation: they put pressure on the state (lobbying, intimidation campaigns, et cetera) by saying: » If you don’t pay us now, we’ll go straight to court and that’s when it’s going to hurt .
When you talk about vulture funds waiting for countries to get better, do you mean that they « get better » by borrowing on the market, by engaging in more liberal policies?
For example, with Argentina, ECO immediately applauded Macri’s victory [président actuel de l’Argentine], the financial markets also applauded, but the New York judge Griesa, who condemned Argentina, also applauded, saying: » Ah, now we’ll be able to get along « , which is crazy! The situation in Argentina was settled by a negotiation largely in favor of the VFs. Although we are not at the CADTM for economic growth, Argentina’s economic growth has increased in recent years under Kirchner, precisely because there was a policy of suspension of debt payments that resulted in negotiations with 93% of Argentina’s creditors. So Macri comes to power, allows Argentina to borrow again on the financial markets, but at 10%, and with the express purpose of paying the vulture funds, that is to say the 7% of creditors who had refused the negotiation of the restructuring of the Argentine debt.
Another example is Zambia. A few weeks before Zambia’s official debt relief in 2006, classified as a heavily indebted poor country by the IMF (HIPC), FV Donegal International, Zambia’s creditor, based in the British Virgin Islands, another tax haven, sued the country in the High Court in London(2).
So debt relief is not beneficial to them, it’s a subterfuge?
Not at all. While the Zambian government had decided that the benefits of the debt relief would be allocated to health spending, these funds were taken away once the judgment came down. Another example is Congo-Brazzaville, with mind-boggling figures: the FV Kensington Internationalwhich is part of Elliott, bought a debt for 1.8 million dollars and obtained a judgement for 118 million dollars, and on the basis of this judgement was able to extract part of the sum directly from the Belgian treasury, in this case allocated to development cooperation.
Are vulture funds special, or simply an extension of certain financial speculation practices?
Their business is very focused, it’s speculation on debt. They’ve been around for 20 years. They made their mark on companies: they bought up their debts to take control of them and liquidate them, with layoff plans. This is what is happening at the moment in France with Vivarte, the leading French clothing group: vulture funds have taken over the shareholding. This technique was extended to the state, with the first attack on Panama, by Paul Singer’s FV, in 1996.
Are they counting on non-payment too?
Yes, they feed on that. If countries are not on the verge of collapse, we don’t know how to buy debt securities so low. One specificity is that they consciously put themselves in a risky position: they know that they are making a risky investment, knowing also that other creditors will collaborate and give debt relief which, let us remember, is conditional; Argentina paid dearly for it, it was not a victory. The FV puts itself in a risky position but refuses to assume this risk, i.e. it refuses to respect the rules of the market since it appeals to the state courts to demand reimbursement.
But FVs are separate and at the same time identical: the vulture fund FG Hemisphere, for example, was created by two former consultants of Lehman Brothers. And with the Belgian law, we realize that they have the bank lobby behind it.
We don’t know who the shareholders of the FV are?
No, we can’t get that information. But chances are there are banks here that have shares in these vulture funds, because they are crazy returns.
Following the Congo affair and the seizure by the FV of development cooperation money, what is Belgium doing?
The beginning was Zambia in 2005, from the right to the left, everyone agreed that it was disgusting. The legislative process was very quick and resulted in a very short law, two articles, the main one stating that development cooperation funds are non-transferable and non-seizable; no one, including the VF, will be able to seize development cooperation money in the future. But it is not only the countries of the South that are victims. Greece in 2012, already bludgeoned by its creditors (the Troika), found itself facing an old FV, Dart Management, which bought back part of its debt on the secondary market and demanded that the country pay 100%, nearly 500 million euros.
So what happens after the Belgian law is passed, there are reactions?
The International Institute of Finance (IIF) and Febelfin react and say that this will scare away investors. They even sent letters to parliamentarians to dissuade them from passing the law as is. The National Bank of Belgium does the same thing: » Thislaw is not good.
This law is not good, we need an international initiative… « . So we immediately see an outcry.
A vulture is a bird of prey that feeds on carrion and detritus. The funds of the same name feed on failed states. Doesn’t the law reveal the last spasms of a State that has left power in the hands of finance and that, as a last resort, tries to protect itself from what it has created, or in any case allowed to happen?
Yes, but the way to regain control is to legislate. But indeed, it is revealing that the economy is not regulated at all, and even less so international finance.
Many people may not realize this? When you talk about the Belgian National Bank, private banks like BNP, investment funds, tax havens…, it’s a real mafia?
Yes, of course, and the vulture funds do the « dirty work », while being very concerned about their image, as when the lawyers of FV Elliott asked for a right of reply after my carte blanche in Le Soir. He also spends a lot of money on newspaper inserts to discredit the state in question.
So they have some media with them?
Elliott may have stock in the mainstream media. Paul Singer [propriétaire du fonds Elliott], is the main donor to the Republican Party in the United States, which also explains why there is no law on vulture funds in this country.
With the attack on vulture funds, a certain parliamentary unanimity for the 2015 law, is there not a risk of falling into the phenomenon of the tree that hides the forest? That is to say, these debts themselves are often odious, have no reason to exist and are paid back by the middle and working classes, that they give rise to austerity policies and the search for taxes elsewhere, such as VAT or income tax.
This risk exists, but for us at the CADTM, the VFs are an entry point to dive into the meanders of finance, of the debt system, to then realize that the VFs are real parasites, but that on the other side we have the Paris Club which brings together the large creditor States, the IMF, the World Bank, the European Central Bank, also creditors and which cause enormous damage to the population. The goal for us is to end the domination of debt.
It should be remembered that the States borrow at exorbitant rates from central banks, in particular from the European Central Bank, which lends to private banks at rates…
…Nothing at all! It’s 0%.
What can be done about it? It is important to say that a state can go into debt for the welfare of the population.
Public debt is a very special thing: it must serve the public interest. This is rarely said, however, because the state is seen as a business or an individual. The State has obligations towards its creditors when the debt is legitimate, but it also has obligations towards its population, for whom it must ensure the continuity of public services. And these are greater than the financial obligations, the debt repayment obligations, we must remember.
To come back to the European Central Bank, it is a scandal, because it really supports the private sector, it does not lend to the States, it lends to private banks that borrow at 0% and then lend to the States at rates that can reach 7%. It should also be noted that the ECB, which is participating in the shock therapy in Greece, has bought Greek securities worth 40 billion euros from several private banks and is now demanding that Greece pay back the full face value, i.e. 55 billion euros plus interest!
Let’s remember who is at the head of the ECB…
Who comes from Goldman Sachs.
Yes, the ECB is clearly linked to private interests, there is no doubt about that.
The former president of the Commission, Barroso, left it and went to Goldman Sachs; Juncker, the current one, is the main architect of the ultra-liberalization of Luxembourg and tax havens… How do we do it?
It is not with them that we will change the treaties, it is unimaginable. So, what we are saying is that we must disobey the European treaties.
In September 2015, Belgium did not vote in favor of the UN resolution aimed at establishing an international legal framework for public debt restructurings, which would have nevertheless made it possible to hinder the action of vulture funds? It’s still ironic this 2015 national law and this refusal at the UN.
Here you touch something… in March 2016, there is a resolution that deals with the debt of the countries of the South: Belgium votes against. As for the UN resolution, they abstained. Belgium, at the European and international level, is not doing anything progressive on debt and VFs, while we have a pioneering law at the world level. They don’t do it because the Belgian government doesn’t want to.
Has Belgium put in place the parliamentary resolutions that call for an audit of its debts to identify and cancel all odious ones?
Yes, but the government is consciously sitting on the texts of Parliament, notably the resolution of Parliament of March 29, 2007. It’s voted on, but it’s never implemented. We question the government, they answer » Yes, yes, it is in progress « .
In France, the repayment of interest on the debt represents 10% of the government budget. In Belgium, how much is it?
It is the first budget item. It is 40 billion euros every year that are paid to creditors (including 13 billion for interest alone) while at the same time federal spending on social security amounts to 10 billion, or 4 times less than the debt service.
People also need to be told of the enormous effects of debt repayment on the social structure, and that it is mainly the middle class and the poorest who pay it, with the rich always finding ways to get out of it. People don’t always realize this?
Yes, and that is why we are trying to talk about it through the citizen audit, as Ecuador has done with the participation of social movements. At the governmental, parliamentary, institutional level, nothing is moving. To come back to the Belgian debt, there is clearly a problem: it is the debt that governs our policies. It is in the name of the debt, in the name of the deficits that we are going to say: » Frankly, we don’t have a choice, we have to be more competitive, we have to cut our social budgets to make them more efficient, we have to have public-private partnerships because it costs too much, we have to freeze salaries… ». In short, the entire austerity policy is carried out in the name of debt repayment, which must be questioned, asking ourselves: » Is this debt really legitimate? « . From there, we question the bank bailouts, the fiscal policies where it is the working and middle classes who pay the price of the debt, since the rich in Belgium benefit from it, and this in two ways: in terms of fiscal policy, they pay very little tax, and then it is these people who hold the Belgian debt, through their shareholding in the big banks, and will say: « I’m not going to be able to pay the debt. You are living beyond your means, you have to stop this pace of life. » The repayment of the Belgian debt represents 20% of the country’s budget, without any debate, especially on the interest rate. However, we have just calculated that if the Belgian State had no interest to pay, just the capital to reimburse — while we have seen that interest enriches the banks that benefit from the ECB’s 0% interest rates — the Belgian State would have a budget surplus; we can therefore already question the interest payments. There’s no debate about it, and it’s the number one government expense!
Obviously, if there is no debate, it is because we know who owns the media. So, they let you do a carte blanche, it’s fun, it’s good, but if they talked about it often, if they made files about it, if they made broadcasts, the public opinion, in quotation marks, would be very quickly aware of it, and there would be a much stronger popular mobilization.
So, as you say, we have a few forums but they are not up to the challenge. Belgium is today attacked by Paul Singer, who represents the 1%: American billionaire, lobbyist in the United States for the Republican party, his whole business is really scandalous and today, he wants to make the law in Belgium, can you imagine! » This law is not good, you cancel it for me ! « . And there was no televised debate in Belgium, nothing at all!
Interview with Renaud Vivien, co-secretary general of CADTM Belgium,
January 26, 2017. Interviews by Alexandre Penasse
- Appelé ainsi car le vice-président de la commission est Jean Ziegler, ancien rapporteur de l’ONU pour le droit à l’alimentation.
- Qui donne son accord, même si des actes de corruption ont été notés. Mais cela n’influe pas sur le jugement… La Zambie est débitrice et doit payer au fonds vautour 17 fois la créance d’origine.