Robert Oakeshott (Lyne, Independent) Share this | Link to this | Hansard source

I thank colleagues for allowing this debate to occur. It is an important one not only for the international community about also for Australia's sovereign position in the way Australian aid dollars are use. This comes from a lot of work done in the United Kingdom on debt relief. There was a 2005 UK report into heavily indebted poor countries which led to a tripartite supported bill in the UK parliament known as the Debt Relief (Developing Countries) Act 2010. At a time in the Australian parliament when bipartisanship is so difficult to achieve, it is good to see another jurisdiction in a minority government delivering tripartite support for something of such importance. It can be done when people act in good faith. The significance of this bill is obviously to provide relief through an international initiative on heavily indebted poor countries. Around 40 eligible countries are involved in dealing with their significant problem of debt, which then applies obvious pressures on any form of program delivery for those countries to participate in the modern economy, whether it is through progress in agriculture, women's health, education or basic governance principles. All of those issues become secondary in a country trying to work its way out of a very heavy loading of debt through questionable dealings.

I fully understand concerns in regard to chasing dodgy lenders and having a parallel exercise of pinning down those who, for the wrong reasons, have provided lending. The International community should do more to pin down those who have been the vultures in this exercise. I would also urge this fundamental support for debt relief in developing countries.

The reason this is not only about providing relief to 40 countries and the Millennium Development Goal arguments about doing that is the issue of Australian aid dollars. If we are going to maximise the effectiveness of Australian aid dollars, I would have thought we need them to go to the very important programs in agriculture. I remind everybody of the words of Bill and Melinda Gates, who said that 'no country has achieved a rapid ascent from hunger and poverty without raising agricultural productivity'. You cannot do that without making a financial contribution. I remind the House Tim Costello's comments that, in dealing with global poverty, the one issue he thinks there should be focus on is women's empowerment and related issues around women's health and sexual health. Those programs cannot be delivered without dealing with debt. Issues of corruption or maladministration around governance principles will not be addressed unless there is some conditional program work in dealing with debt. Long term, the knowledge contribution of many countries of the world will not happen unless debt is tackled. Australian aid dollars should be going to those programs, not to vulture funds.

We have a precedent on the table in the UK parliament, where long and good work has been done and where consensus has been reached in building a model that sees UK aid dollars—much of it in the Asia-Pacific region—going to valuable aid programs to help countries participate in the modern economy and modern community rather than paying off debts to vulture funds. Australia could replicate that and should replicate that, not only for the moral arguments but for the pure economic arguments around Australian aid dollars going to the right programs rather than to any dodgy lenders or to vulture funds. I urge this House to support this motion.

Melissa Parke (Fremantle, Australian Labor Party) Share this | Link to this | Hansard source

I want to thank the member for Lyne bringing this important motion before parliament. I also want to thank Jubilee Australia for its advocacy on this issue. Not many Australians know about vulture funds, but the name sums it up quite well. Vulture funds buy debts owed by very poor countries for a small amount and then seek to enforce the full face value of the debt plus interest and fees in courts around the world, including here in Australia.

In November 2010 the New South Wales Supreme Court ruled that the Democratic Republic of the Congo must pay $30 million, plus legal costs and a $2 million court imposed fine, to a New York based vulture fund named FG Hemisphere Associates or FG Capital Management. As explained by the ABC's Damien Carrick on Radio National last year, the sum forms part of a debt incurred in the 1980s by the authoritarian government of what was then Zaire. The original $37 million loan, which has now ballooned to over $100 million, was for power transmission lines and a hydropower dam near the home of long-time dictator Mobutu.

The DRC is a country of around 66 million people, 80 per cent of whom live below the poverty line. DRC has been involved in a protracted internal conflict which has claimed around 3½ million lives, and it has very little infrastructure. It has gone through a process of debt cancellation, having completed the World Bank and IMF Heavily Indebted Poor Countries, HIPC, process and received some debt forgiveness from creditors. However, the vulture funds refuse to participate in the debt relief scheme and, in the case of FG Hemisphere, it instead began pursuing repayment of $100 million for the old DRC debt, which is $80 million more than the DRC would have been expected to pay for the debt under the HIPC process. FG has scoured the world in search of foreign assets belonging to the DRC. The vulture fund was able to bring the case in Australia because the DRC held shares in an Australian mining company. The DRC was forced to sell its shares to transfer the $30 million profit to FG.

As Jubilee Australia notes, this is not the first time the Congo has been targeted. In January 2009, a South African tribunal authorised FG Hemisphere to seize, for 15 years, payments owing to the DRC's state owned electric authority, SNEL, for electricity generated from the Grand Inga hydroelectricity facility and sold to South Africa. This should amount to $105 million. In March 2009 FG obtained a court order from the Royal Court of Jersey for an interim injunction upon the right of the DRC state owned mining company Gecamines to receive payments on its 20 per cent share in GTL. GTL was ordered to send all future payments owed to Gecamines to FG Hemisphere until the debt was satisfied. In 2010 a Hong Kong court gave FG Hemisphere vulture fund the right to seize the $350 million sum the China Railway Group was to pay a state owned Congolese mining company. While the actions of vulture funds in taking advantage of legal loopholes to profit from desperately poor countries have been condemned by the United Nations, IMF, World Bank, donor governments and civil society and while there have been multilateral initiatives such as the Paris Club to try to discourage vulture funds, it remains entirely legal for vulture funds to pursue their claims in court. As Jubilee Australia has described it:

The insatiable greed of a small number of individuals is undermining international debt relief initiatives. Money that thanks to debt relief, should be going to lifesaving medicines and schooling, is lining the pockets of wealthy investors instead. Without legislation to prevent it, these so called ‘vulture funds’ are free to profiteer from poor country debts in Australian courts.

The UK parliament, with tripartite support, passed legislation in 2010 entitled the Debt Relief (Developing Countries) Act, which limits the ability of creditors to use UK courts to recover extortionate amounts from poor countries engaged in international debt relief efforts. The landmark law, which was due to expire in June 2011 as a result of a sunset clause in the legislation, has been made permanent in April this year, with no opposition in the UK. The law has successfully kept the FG Hemisphere's vulture fund out of UK courts. I am confident that similar legislation would receive support from all members of this place and I look forward to it being the subject of a bill in the near future.

As noted by the United Nations independent expert on foreign debt and human rights, Dr Cephas Lumina, 'vulture fund activity erodes the gains from international debt relief efforts at the expense of both the citizens of distressed debtor countries and taxpayers of countries that have supported international debt relief efforts'. It does not make sense for Australia and other countries to give debt relief and foreign aid so generously while allowing vulture funds to take this money through litigation. I commend the member for Lyne for his motion, which brings this very important matter to the attention of the House.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

I concur with the comments of the member for Fremantle and I too thank the member for Lyne for bringing this matter to the attention of the House. I think it is worth going back and looking at the history of where these initiatives stemmed from, with the creation of the HIPC initiative in 1996 by the IMF and the World Bank. As both the previous speakers have touched on, we should be looking at taking all avenues possible to try to assist poor countries not only to get out of the burden of debt they are under but also to develop their economies so that they are able to compete on the world stage.

That brings me to my primary concern, which is that vulture funds impede the ability of those countries to undertake those activities. But, more importantly, there is a failure to deal with the underlying issue that creates this problem for these countries in the first place—that is, a lack of free and equitable access to the world economy. That is driven by the activities of Western developed nations in terms of tariffs and market restriction. In particular in this case I am going to single out the Europeans and the Americans. I think we in Australia have done a tremendous amount over the past 30 years to try to free up access to our economy and to compete effectively and efficiently in the world market and create opportunities for others to do so.

The member for Lyne touched on a really interesting point in terms of agricultural productivity and I certainly agree with his comments in that regard. How do we grow the agricultural productivity of these nations? I think in this case China provides us with a very instructive example. Forty years ago, with very poor agricultural resources, it was barely able to provide for itself. It made some very significant changes in its agricultural policies, including, firstly, allowing farmers to sell some of their produce, then allowing farmers to move that produce to different towns within the county and ultimately allowing farmers to own their own farms. One of the recurring problems in underdeveloped countries is the lack of clear and well-defined property ownership, and we see that here in Australia too, in the Indigenous community. I think that is a huge issue for the Indigenous community. In that international marketplace, it is actually property ownership, with clearly defined boundaries for who owns what, that creates the economic incentive for people to take risk, maybe obtain microfinance to start to grow their own small businesses and lift themselves out of poverty.

We as a nation, I think, are very generous in our aid, both from a government perspective and from an individual perspective. I certainly concur with the sentiments of the member for Lyne and the member for Fremantle that we want to ensure and we need to ensure that our Australian aid dollars are spent effectively and that it is not going to corrupt governments or to the arms dealers that like to foment conflict in many of these nations, which turns the money into an international money-go-round: we provide aid funding to these countries, the leaders of those countries then misuse those funds to purchase arms to continue the conflict and the population at large suffers as a result.

We as the coalition have said that we do not believe that this initiative will provide an effective remedy and, as we have flagged, we will oppose this motion.

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

Debt is not the most serious issue that developing countries face, but unsustainable debt burdens can, in certain cases, be a barrier to development. So the HIPC Initiative was launched in 1996 by the IMF and the World Bank, and its aim is to ensure that no poor country faces a debt burden that it cannot manage.

HIPC has a two-step process. The decision point requires that countries must fulfil the following four conditions: be eligible to borrow from the World Bank's International Development Association; face an unsustainable debt burden; have established a track record of reform and sound policies; and have a poverty reduction strategy paper. Of the 39 countries that are eligible or potentially eligible for HIPC Initiative assistance, 32 are receiving full debt relief from the IMF and other creditors after reaching their completion points. We know that, for these countries, debt relief has freed up resources for social spending. Before the HIPC Initiative, eligible countries were spending a little more on debt service than on health and education combined. Now their expenditure on health, education and social services has gone up and averages five times what they spend on debt payment. For the 36 countries that have debt relief, debt service paid, on average, has declined about two percentage points of GDP over the noughties. So the HIPC Initiative has been successful.

I think it is important that in considering any issue of debt relief we bear in mind the purpose for which debt is acquired. Debt is not of itself a bad thing. Just as we would not want to shut off credit markets to low-income Australians, so too we want to make sure that any reforms in the area of debt do not shut off access to credit for well-managed developing country borrowers. In fact, what is particularly striking is that more finance is not flowing to the world's poorest countries. The return on capital ought to be highest for countries that are furthest behind the world average incomes, yet it has proven difficult to attract investors to these countries.

The concept that I find most attractive in this space is Michael Kremer and Seema Jayachandran's notion of 'odious debt'. They define odious debt as sovereign debt that is incurred without the consent of the people and not for their benefit. They give the example of debt incurred by apartheid era South Africa. They argue that that debt should not be transferrable to successor governments. They argue that the development of an institution which could truthfully announce whether regimes were odious could create an equilibrium in which lenders have a strong incentive not to loan to odious countries but in which regimes in low-income countries that are spending borrowings for the advantage of their people could still obtain access to credit markets. To me, the notion of odious debt is particularly attractive, because it focuses on how the money is spent rather than on how much money is acquired. I would urge the House to do what it can to pursue the notion of odious debt.

The big shift since the creation of the HIPC initiative has been the rise of China as a donor. This is transforming overseas direct assistance. China currently operating largely outside the OECD DAC framework means that it is difficult for other countries to know what aid China is providing and to work in with that aid. So anything that we are doing in the space of odious debt, vulture funds or the HIPC initiative needs to take into account how the Chinese government will respond. To the extent we can, we need to bring China into the community of nations that believes that overseas aid should be used to further the wellbeing of individuals rather than simply of regimes and leaders.

Debate adjourned.