Debt Relief (Developing Countries) Bill

So, vulture funds are now illegal. The Debt Relief Bill passed in the wash-up on Wednesday. The Guardian reported today.

I have had a quick skim through Hansard to see if there were any good moral hazard arguments put forward by the Conservatives. Mr David Gauke (Cons MP) defended the sunset clause, which will mean the Bill being reviewed after 12 months.

“It is important that its provisions are carefully calibrated, because if we prevent creditors from enforcing debts against developing countries, there is a risk that they will not lend to developing countries in future. The law of unintended consequences could apply and we could make things worse for developing countries. Nobody wants to do that, which is why the Bill is carefully calibrated to apply only to heavily indebted poor countries. It relates only to past debt and not to future contracts. Future lending agreements can be enforced unaffected by the Bill.”

He goes on: “Concern was frequently expressed by industry bodies during the Treasury consultation that the Bill might send the message that creditors in the UK could not enforce debts against developing countries and that that could be applied more broadly. As part of the consultation, it was pointed out that those possible spill-over costs would be difficult to assess. For example, would a risk premium be applied to developing countries that would make it harder for them to obtain credit?”

He rounds up: “Let me say why I think this debate is helpful. Parliament is dealing with the matter sensibly, recognising the potential dangers and treading carefully. That is a good message to send out. The concern about the risk premium centres not on the Bill itself, but on the possibility that it will become a precedent for a future Bill that prevents the enforcement of future debts. No doubt some in this House would argue that that would be a great thing to do, but it would pose significant dangers for developing countries.”

The responsibility doesn’t just lie with the developing country; it also lies with the creditor.