Comments on: The UK government and vulture funds A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: MichaelSheehan Sun, 14 Mar 2010 00:23:08 +0000 The report states:

Against this background, a commercial creditor that successfully litigates and recoups the full value of its debt does so only by free-riding on the relief provided by others, including the great majority of commercial creditors. Legislation is an effective solution to this problem if the benefits of eliminating this free-riding on the component of the debt claim that represents an economic rent rather than the underlying asset value outweighs the cost of interfering with property rights. The Impact Assessment, while unable to quantify the net impact, sets out reasons for expecting benefits to exceed costs for legislation restricted to prevention of recovery of the economic rent component. Legislation that prevented this would help bring about a full, fair and necessary resolution of HIPCs’ debts whilst protecting the rights of all creditors to recover the economic value of their claims. The welcome provision of HIPC-comparable relief by the majority of commercial creditors would not be affected; instead legislation would help to ensure that the proportion of creditors that currently go against this approach would be prevented from doing so.


This is erroneous in that commercial creditors marked their paper down long before bilateral Paris Club creditors who were paid far more in interest than their original principal on the debt they wrote off in the HIPC program.

It is also gobbledy gook. It admits that really the sponsors of the legislation have no real idea of what its impact will be, either on the HIPC countries concerned or the UK itself. This is because it is impossible to precisely define. But it does not even consider the risks. If cost of funds for HIPC countries move even by 25 basis points, the estimated savings are blown away.

It is an admission that the motive for this legislation is political and that the authors really have no idea what the economic impact on the HIPC countries and the UK will be. Pre-election cocktail anyone?

At a time when the probity of the economic data of EU issuers is very mush in the news, it is surprising to see one of its largest debtors supporting such legislation.

By: johnhhaskell Tue, 23 Feb 2010 19:19:48 +0000 Highly indebted low income countries need to have the legal ability to default at will, and then immediately return to the capital markets for a top up.

The Brown government should immediately pass legislation stating that status as a recently defaulting country should under no circumstances be used as a factor in denying credit to a sovereign borrower.

This will allow credit to flow freely to creditworthy borrowers such as the Democratic Republic of the Congo, North Korea, Somalia and other countries unfairly penalized by bankers’ unwillingness to lend.