Promises Kept, Vultures Keep Out

When I sent a letter to Chief Minister Senator Frank Walker in 2007, he passed it on to the Treasury Minister Senator Terry Le Sueur, who said

Thank you for your e-mail addressed to Senator Walker. I am sure that the latter is not being "simply left to rest" and I have urged all firms involved in international activities to be aware of, and refrain from, activities involving 'vulture funds'. I have been given an assurance that they will, and we all recognise the potential harm this could cause to Jersey' s reputation, as well as to the 'victims' of the vulture fund.

The details of the correspondence and background can be read here:
http://tonymusings.blogspot.com/2011/06/vulture-funds-simply-led-to-rest.html

Frank Walker simply passed the buck to the Treasury Minister. Senator Le Sueur said the matter would not be "simply left to rest" and simply left it to rest. As was so often the case, Le Sueur did nothing.

In July 2012, however, Chief Minister Ian Gorst took up the matter as his responsibility

http://tonymusings.blogspot.com/2012/07/chief-minister-commits-to-september.html

He said in the States:

The U.K. is currently the only jurisdiction/country in the world that has such legislation. We are proposing to be at the forefront as well of such legislation. Earlier this year in late January, I instructed the drafting of such legislation and I hope that I will be in a position to lodge during September.

Obviously this is a piece of legislation similar to the United Kingdom's in that the aim is to ensure that debt relief efforts for developing countries are not interrupted by those who are not abiding by the rules agreed upon by the Paris Club nations and are recovering debts outside of the Common Reduction and Decision Point factors, so it gets quite technical. That is what we are talking about and that is what I am committed to delivering.

On the 11th September, I asked Ian what was happening, as no propositions had appeared in the States:

You made a commitment in the States (which I was very pleased to see) about bringing in legislation or proposals in September regarding Vulture Funds. I've seen nothing in the States sittings regarding this, and do hope it is not slipping out of the net altogether

He replied a week or so later:

I am due to sign the decision this afternoon to lodge the vulture fund legislation for states debate this quarter.

And then a day later:

I have now signed the decision so the legislation should be lodged in the next few days.

So despite the delays caused by the failure of Frank Walker or Terry Le Sueur to act, which were in Churchill's memorable phrase ""the years that the locust hath eaten", we now have a Chief Minister who made a promise in July, and kept it in September.

That's a very notable change - to commit to deadlines, and to deliver, and it marks out, I think, a significant change from the Ancien Régime of his predecessors, who did not seem to think the matter was important enough to warrant legislation - that there was a moral imperative.

That it might be morally wrong for Jersey courts to be used in this way, and that the laws should be changed, simply did not appear on the radar. That no longer is the case. And it is also interesting that where Chief Minister Frank Walker simply passed the buck on that issue, Chief Minister Ian Gorst took it upon himself to promise change and deliver.

Of course, the businessmen using "Vulture funds" say they are pursuing legitimate debt legally. But slavery was legal once, and just because something is legal does not mean that it is moral. Now it seems that the message is filtering into the political arena that there is a case for using legislation to prevent the law being used by every shyster who wants to legally collect their "pound of flesh" like Shylock in the Merchant of Venice.

The legislation proposed can be seen at:
http://www.statesassembly.gov.je/AssemblyPropositions/2012/P.091-2012.pdf

Draft Debt Relief (Developing Countries) (Jersey) Law

It is (as far as I can see) extremely similar to the UK law - the Debt Relief (Developing Countries) Act 2010

http://www.publications.parliament.uk/pa/cm201012/cmgeneral/deleg2/110516/110516s01.htm

The UK legislation notes that it doesn't cancel debt, it simply ensures that debt cannot be bought up by what are speculators, in effect international loan sharks, who apply punitive rates of interest, and use legal processes to enforce remittance of the debt and interest, hence wiping out any Government initiatives on debt cancelation or overseas aid programmes.

The HIPC (Heavily Indebted Poor Countries) initiative aims to ensure that no poor country faces a debt burden that it cannot manage. All creditors-multilateral, bilateral and commercial-are expected to provide the debt relief required to return HIPCs' external debts to a sustainable level. The majority of creditors provide debt relief consistent with the HIPC initiative.

The Act tackles the problem of a small minority of commercial creditors that free-ride on the relief, litigating and recovering the full value of their debts plus accumulated interest. Such behaviour is economically inefficient and inequitable. The resources implicitly siphoned off by such creditors include debt cancellation and development assistance funded by United Kingdom taxpayers.

The Act supports the legitimate interests of creditors and includes safeguards to protect against negative impacts on financial markets. It promotes a negotiated settlement of HIPC debts on terms consistent with the initiative by excluding from the scope of the legislation debts where the HIPC debtor does not offer to settle on such terms.

The Jersey legislation mirrors the UK one, and notes in the preamble:

The enhanced Heavily Indebted Poor Countries Initiative (HIPC) seeks to provide debt relief to heavily indebted low income countries. Under this Initiative, the International Monetary Fund and World Bank calculate the reduction required in a country's external debts in order to return them to a level of debt that is considered to be sustainable. All creditors are expected to provide the proportionate reduction that will achieve this. This Law will, when enacted, prevent the Jersey Courts being used to seek to enforce in full, the debts of countries to which the governments of other countries, multilateral lenders and commercial creditors have provided relief under the Initiative.

Repayment of these creditors seeking to recover the full value of the debt is believed to divert resources which are intended to support development and the reduction of poverty in the country. The Law will prevent creditors from recovering an amount in excess of that consistent with the Initiative. The Law also encourages the negotiated settlement of these debts on terms compatible with the Initiative by excluding from the scope of the legislation debts where the country does not offer to settle on such terms.

The UK debate when the Act was made permanent noted the changes this had made internationally, giving the example of Liberia:

The recent case of Liberia illustrates the positive impact of the 2010 Act on HIPCs. Liberia received substantial debt relief under the HIPC initiative in June 2010, including 100% cancellation from the UK. The majority of its commercial creditors also provided debt relief, and that was assisted by a buy-back operation of commercial debt under the World Bank's development debt reduction facility in April 2011.

In November 2009, the High Court gave judgment for $20 million against Liberia in a claim brought by two commercial creditors that had not participated in the debt buy-back operation. That allowed them to seek to enforce repayment in the UK of an amount that was then equivalent to about 5% of Liberia's national budget. However, one year later, by which time the Act was in place, those two remaining commercial creditors agreed to a World Bank debt buy-back operation. Consequently, Liberia will have to pay back only 3% of the amount owed-an amount consistent with the HIPC initiative. It is clear that the Act was one factor prompting that settlement.

Jersey has now followed the UK, and is the first jurisdiction to do so. Senator Gorst commented: "This law will send a clear and positive message that Jersey is committed to supporting international debt relief efforts, and that ours is a well-regulated, co-operative and transparent jurisdiction."

It is good that Jersey is at the forefront of matters for once, and a strong message has been sent to the "Vulture funds" to go elsewhere. That's the sort of business we could well do without.