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Debt Relief (Developing Countries) Bill

My Lords, I am delighted to be able to act as sponsor of this Bill, which was passed in the other place yesterday, and I pay tribute to the Members in another place who worked hard to secure its passage there. In particular, Andrew Gwynne chose to put the Bill forward after securing a high position for it in the ballot for Bills. Sadly, he was unable to speak to it because of illness, so I also pay warm tribute to Sally Keeble, who both presented it on Andrew Gwynne’s behalf and piloted it through its various stages. The Bill has attracted widespread cross-party support in Parliament, and has also been very widely supported outside, particularly by NGOs and voluntary organisations that are interested in development and debt relief for the poorest countries in the world. I congratulate the Jubilee Debt Campaign in particular on all its work and efforts on this matter. The Bill’s main aim is to curtail the activities of what have come to be called vulture funds—commercial entities that buy developing countries’ sovereign debt at discounted prices when those countries are in economic distress and aggressively litigate to recoup the debt’s full value, thereby causing financial difficulties and consequent severe economic, and indeed social, hardship in the countries concerned. Not only do such activities by vulture funds strike many people as indefensible, it is also a huge problem that the activities of such funds run directly counter to the debt relief schemes and initiatives such as the HIPC—heavily indebted poor countries—initiative that many countries, including the UK, have operated successfully in recent years. As a House of Commons brief on this Bill states, the activities of vulture funds undermine debt relief initiatives such as HIPC. Ironically, as debt relief improves the financial situation of a developing country, it increases the prospect of repayment of the debt owned by the vulture funds. Where litigation is successful, the resources that are freed up by debt relief and intended for poverty reduction and development are diverted instead to the vulture fund, which very often receives more than it paid for the previously discounted debt that might otherwise have been written off. There have been several instances of this. Zambia, in the 1990s, tried to reach a settlement on a loan that dated back to the 1970s, but a fund purchased the debt for the knock-down price of $3.3 million and proceeded to pursue Zambia through the UK courts for the full amount of the debt, plus interest and fees, demanding an astonishing $55 million in total. My honourable friend Sally Keeble made this point very effectively in the other place. In the end, the courts awarded $15.5 million, but that was five times the amount that the fund had paid for the debt, and that money would have paid for 30,000 primary school places in Zambia. In a similar case in Liberia, the funds were awarded $20 million on a loan that also dated back to the 1970s and was worth $6 million. That $20 million represented 5 per cent of the Liberian Government’s entire budget. As Dr Cephas Lumina, the UN Human Rights Council’s expert on the effect of foreign debt, said: ""It is illogical to cancel poor country debt and at the same time allow unconscionable ‘vulture fund’ claims"." The Prime Minister, when Chancellor, recognised this problem as long ago as 2002 when, in a speech to the United Nations, he called on the UN to consider giving assistance to any heavily indebted poor country that was being sued by a vulture fund, stating: ""Whenever a country has to defend a legal case it has to divert considerable time, attention and resources away from focusing on poverty reduction, health and education and we must do everything we can to stop this shameful practice"." Clauses 1 and 2 define the debts to which the Bill applies. Basically, they refer to debts that are included or expected to be included under the HIPC programmes: the debts of the 40 most heavily indebted poor countries in the world. Clauses 3 and 4 reduce the proportion of the debts that are to be recovered to the level that corresponds to the HIPC initiative. I should point out that those amounts are assessed internationally according to a set assessment procedure. The Bill is quite tightly drawn. It does not affect new lending, but basically deals with historical debts. It allows creditors to get back a share of their money, which they would otherwise be very unlikely to get, but it allows them a return and is therefore consistent with development goals and the HIPC initiative. I accept that the Bill comes to us very late, but it has been discussed and debated in the other House. Indeed, as a result of discussion in Committee there, the Conservative Opposition tabled an amendment, which was passed, to include a sunset clause whereby the Act will expire after one year unless the Government and Parliament decide through the affirmative procedure either to extend it for another year or to make it permanent. I hope that the passing of that amendment will help to reassure Members of your Lordships’ House, who may be understandably concerned about the shortage of time in which to consider these issues, as they have been about other measures, and that they will at least realise that the Bill’s effect will be fully evaluated in Parliament after a year. I hope that informed decisions about its long-term future can then be taken. The sunset clause addresses some of the concerns about last-minute legislation and also, in a way, picks up on the very important points which my noble friend Lord Rooker made yesterday about the wash-up procedure. Finally, the Bill begins to tackle the distressing situation that sometimes allows vulture funds in effect to make excessive and unjustified profits from developing countries and therefore creaming off the relief and aid which British taxpayers, our international partners, and other more ethical commercial creditors provide. It builds on the excellent record of the Government in debt relief and in enlightened aid and development policy, and is an important measure that we should be proud to implement today. For that reason, I hope that it can be accepted today in your Lordships’ House.