Mrs Hillary Rodham Clinton
450 Seventh Avenue
Suite 804
New York
New York
10123

19^th October 2000

Dear Mrs Clinton,

Open letter from Jubilee 2000 Coalition: Vultures of the poor of Peru

We are writing to you in your capacity as candidate for the New York Senate to ask you to use your considerable influence to defend the interests of millions of poor Peruvians against the predatory actions of a New York hedge fund. This issue has already been raised in the international media and we hope will attract still greater attention over the next few days. It coincides with the pending decision of the US Congress to finance the write-off of some of the debts of the poorest countries, and to do so at the behest of President Clinton. The hedge fund is Elliott Associates, L.P., and it makes a living from buying at a discount the debt of distressed countries in the third world, and then suing for full payment, reaping millions of dollars of profit. This is done at the expense of the poorest people in the world, and in the view of Jubilee 2000, it is a practice beneath contempt.

The US Treasury refers to such funds as “rogues”, the IMF as “vultures”. Elliott Associates also successfully changed New York State law in order to maximise the profit they made from Peru. The details are as follows. Four years ago Elliott Associates acting on behalf of a group of investors led by the company's General Partner, Paul Singer, bought $11 million of Peruvian government debt, which traded in the secondary markets at just over 50 per cent of the face value, $20 million. The fund then set about suing the Peruvian government for full payment. Mr. Singer concisely stated their policy: "Peru would either...pay us in full or be sued." Whilst the case was ongoing, Elliott managed to change New York State law to enable them to claim capitalised interest—a significant sum in the case of Peruvian debt. This they did whilst disguising their real intentions in the case. The full sum they sought with interest and attorneys' fees was $68 million. The court battle started in 1996. The New York trial court found in favour of the defendant the Peruvian government, but this decision was finally overturned at the Federal Court of Appeal.

Elliott Associates then took legal action in Canada, Belgium, Luxembourg, Holland, Germany and the UK, serving restraining orders on any payment on Peru's Brady bonds. Because of the legal decision in New York, they were able to argue that they had preferred creditor status, and that no part payment should be made on any Brady bond. Peru makes two payments each year of about $80 million to its Brady bond holders, but the freeze on payments meant that Peru faced defaulting on its Brady bonds, unless Elliott Associates were paid.

Faced with the severe drop in confidence that default would signify, the Peruvian government paid Elliott Associates in full and then made the $80 million payment to Brady bond holders. Had the hedge fund opted to collect its debt along with the other Brady bond holders, it still would have made a hefty profit, realising about $10 million. But this was not enough for Elliott: instead they made a $47 million profit on their $11 million investment, $47 million that is now denied to the poor of Peru.

This is not an isolated case. The people involved, Paul Singer, adviser Jay Newman, and attorney Michael Straus, have carried out similar practices on debt from Panama, Ecuador, Poland, Côte d'Ivoire, Turkmenistan and the Democratic Republic of Congo.

G7 leaders promised regulation of hedge funds following the Asian and Russian crises in 1997 and 1998 together with the destabilising role played by the collapse of hedge fund Long Term Capital Management (LTCM). No action has been taken, and the unregulated greed of Elliott Associates almost led to the default of a Latin American country. The ominous signs are that Elliott Associates will simply continue in its role as vulture. Given the central role that New York State law plays in these cases, we call on you to:

a. promote an amendment to the law that will protect the interests of sovereign debtors like Peru and outlaw the practices of vulture hedge funds, and

b. through publicity draw attention to the practices of these hedge funds.

We know that many communities from developing countries live in New York, including a substantial Latin American community. We will be publicising this matter amongst these communities and hope that you will identify yourself with the poorest people of developing countries and publicly disassociate yourself from the practices of vulture hedge funds. We understand that in the run up to the election you are under tremendous pressure, but we would be grateful to hear from you on this matter. We will certainly publicise your response amongst our supporters within New York, the rest of the USA and also in the international media.

Yours sincerely,

Ann Pettifor and Liana Cisneros
Director and Latin America and the Caribbean Co-ordinator,
Jubilee 2000 Coalition UK.

cc

Bono, U2

The Right Hon. Gordon Brown MP

Senator George W. Bush

US President Bill Clinton

US Vice-President Al Gore

Mr Richard Lazio

US Treasury Secretary Lawrence Summers