Their nickname is the vultures - hedge funds which swoop on struggling economies in the developing world, buying up their debts at a discount then suing the governments for the full face value.

One New York based fund, Elliott Associates has made more than $130m (£93m) out of the practice over the past year, according to Jubilee 2000, the lobby group campaigning for the cancellation of unpayable third world debt.

After winning a landmark judgment against the Peruvian government in the New York courts in October last year, Elliott finally forced Peru to pay it $65m this month, by threatening to seize money which the Lima governm ent had transferred to Wall Street banks to pay other bondholders.  The company had bought up the Peruvian debt for $20m.

"It may be business to them but these people are trading in misery," says Liana Cisneros, Latin American coordinator for Jubilee 2000.  "To the children of Peru it is schoolbooks, medicines and clean water."  Half of Peru's population live in extreme poverty, and debt payments to western creditors consume almost a third of the government's budget, 
outstripping spending on either health or education.

The case has raised alarm bells in capitals throughout Latin America. The vultures travel in flocks, and are already lining up their next victim.&= nbsp; Ecuador, which has almost completed a deal with its creditors in the aftermath of its debt default a year ago, has already been stung.  As long as the creditors were threatening legal action, a negotiated settlement was impossible, and Quito was forced to pay off the vultures, before it could sort out the rest of its debts.

The funds of course, do not see themselves as parasites, but rather as champions of creditors at a time when, they argue, sovereign debtors are being allowed to walk away too lightly from their legal obligations.

When a defaulting country renegotiates its outstanding debts, creditors typically lose out badly, accepting much less than the face value of the loans.  In the case of Ecuador, creditors accepted just 40 cents for every dollar they were owed.

Squeezing the debtor
Except that is, the vultures who got in first and got a much better deal.  But while the funds are raking in the money, concern is growing that the actions of a few rogue creditors are threatening attempts to get bankrupt economies back on the road to financial health

The US Treasury has warned that the funds risk creating "economic chaos" in foreign lands.  Other creditors are not happy either.  They say the vultures are pushing their way to the head of the queue, squeezing the maximum out of debtor nations and leaving less for other investors. Under New York law, a creditor with a tiny proportion of a country's 
outstanding debt can block a settlement which would be in the interest of the majority of creditors.

The solution according to international finance experts, is for borrowing countries to include a clause in bond contracts requiring bond holders to agree a settlement by majority vote, rather than allow one creditor to grab as much as possible through the courts.  such arrangements, known as collective action clauses (CACs), are already standard practice in London, but the New York financial community is resistant.

The Wall Street big hitters argue that CACs will increase the cost of borrowing for poor countries because the markets suspect that any country, including one is worried about, defaulting.  Like a pre-nuptial agreeme= nt which rather suggests that marriage partners do not trust one another, they say CACs increase perceptions that a country is not creditworthy.

Richard Portes, the head of the London Centre for Economic Policy Researc= h, says comparing borrowing costs for emerging countries in London with New York shows that the claim that CACs increase borrowing costs is untrue.  "Except for countries which are at the bad end of the credit ratings and shouldn't be borrowing commercially anyway, CACs result in an improvement in terms," he says.

"Its the same reason we have bankruptcy laws; you want to have a rules based procedure to sort things out."  Otherwise, he says, countries can end up tied in legal knots by some creditors, as Peru was, to the detriment of others.  Making CACs mandatory in bond contracts would avoid the problem.

The main players in the international financial system are sympathetic to the case for CACs and most of the Group of Seven leading industrial nations have backed them.  But the US, the most important player because it regulates Wall Street is dragging its feet.

for Jubilee 2000 however, collective clauses do not fo far enough.  CACs are fairer for creditors but do not take into account the economic hardship that paying back debts is imposing on many desperately poor countries.

"The lawlessness of the international financial system gives all creditors enormous power over sovereign debtors," says Ann Pettifor, director of Jubilee 2000.  "We urgently need an independent international insolvency process which takes into account the true cost of repaying debt, and holds creditors as well as debts, responsible for the debt crisis."