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Vultures over Liberia

December 2, 2009 Leave a comment

Things don’t really get any easier if you’re a fragile state in the developing world slowly recovering from a traumatic civil war and Liberia is no exception. Last week brought about an incredibly upsetting, albeit inevitable, decision at the High Court wherein the Liberian state was ordered to repay the more than $20m it owes to Hamsah Investments and Wall Capital – two Caribbean registered so-called ‘vulture’ funds – on a loan taken out from the US-based Chemical Bank in 1978 that has been repeatedly passed along throughout the intervening years.

Although such companies are more-than-a-little shady in their operations (a google search finds very little aside from the Liberia case), bereft of compassion, and adept at tax avoidance, they are legal and, as such, little could be done to prevent their victory in the Royal Courts of Justice (although by all accounts, the Liberian defence was lacking).
We hear sporadic rhetoric concerning the legal status of such companies, yet little active progress has been made in a move towards outlawing their operations. The legal argument is definitive – there is no basis for Liberia to avoid repayment.
However, we don’t always obey the law. Our prison populations are clear evidence of this, although obviously this is taking law-breaking to its furthest limit. Many people break laws on a daily basis. Maybe they speed slightly whilst driving to work, perhaps they smoke slightly too close to their bus stop, and they might well be in possession of controlled medication that was not prescribed for them. This is not to even touch upon those who commit traffic violations as they rush their sick relative to A&E and other such crimes where the alternative outcome is potentially more damaging than simply sticking to the law. This is where the moral argument takes precedence.

Vulture funds are immoral. The CEOs, and other employees of such organisations are immoral. Unlike other financial institutions, their profit margins are of no significant benefit to wider society. Their actions could, however, dismantle any slow progress that Liberia has made (and could make) in its post-war recovery.

Taking 5% of the Liberian state’s total annual budget for 2009 makes it worryingly apparent that the repayment of debts could disrupt and even devastate the lives of a majority of the country’s populace. State spending in Liberia should be steadily increasing year upon year (or at the very least remaining static). The notion that the state would be forced into retraction would stunt development in the country for the foreseeable future, although would no doubt please most neoliberal policymakers and economists. The upshot will most likely manifest itself in greater infant mortality rates, an exacerbation of the numbers living in abject poverty, and a consistent worsening of the quality of life for its population. You wouldn’t think these would be easy things to have resting upon your conscience.

Most decisions in life are a compromise. It is unlikely that in a situation where two parties are involved, any decision will be made that is satisfactory to both of them. Regardless of the laws surrounding vulture funds, a moral decision would choose an outcome that would result in the least harm overall. As such, the vulture funds should remain unpaid. Yes, a small number of people may lose their jobs and others may not be able to buy that sports car or yacht they’ve been eyeing up over the past 12 months but in contrast to an alternative where people will actually lose their lives, the decision is clear. It is undeniably unfair but then most financial institutions have benefitted massively from the very same lack of fairness – vulture funds more so than most.

The Liberian government shouldn’t, and most likely won’t, repay the debt owed. It is both morally correct to do so (with respect to protecting its population) and practically correct, given that vulture funds have no viable mechanism through which they could recover such debts.

Looking to the future, there clearly needs to be a more concerted effort to criminalise the actions of vulture funds and their leading employees, besides subsequent moves towards cancelling any outstanding debt repayments (although there is some good progress being made on these issues). With an American administration amenable to international cooperation and a global economic and political climate that has moved towards favouring greater financial regulation, we are well placed for such efforts.

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