Vulture fund
Vulture fundBy Mweelwa Muleya
Tuesday February 20, 2007 [02:00]
The case in the London High Court where a private company sued the Zambian government for US$42 million over a debt it bought at US$3.2 million has attracted widespread attention and condemnation. A vulture fund, Donegal International, based in the British Virgin Islands and is partly owned by US-based Debt Advisory International, in 1999 bought a debt of US$3 million from the Romanian Government which the Zambian government had contracted in 1979. The Zambian government had signed a loan agreement for purposes of acquiring agricultural machinery. However, in 1999- 20 years later - Donegal International acquired the rights of Romania to debt in accordance with the assignment agreement between Romania and the Zambian Government.
According to the BBC report quoting the International Monitory Fund and British Exchequer, Gordon Brown’s definitions, vulture funds are companies which buy up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest-which might be ten times what they paid for. Indeed, Donegal International is reported to have paid US$3.2 million to the Romanian Government and was now claiming an initial amount of US$42 million out of the claimed US$55 million due to interest.!
Five years ago, Brown-who is tipped to be the next British Prime Minister after Tony Blair-told the United Nations that the vulture funds were perverse and immoral. He is quoted as saying, “We particularly condemn the perversity where vulture funds purchase debt at a reduced price and make a profit from suing the debtor country to recover the full amount owed-a morally outrageous outcome”. A lot of statements, condemning the “immorality” of the vulture funds while acknowledging the legality of such funds, have so far been issued. According to the BBC reports, the Zambian case is just but one of the many such cases taking place. They cited the company owned by a New York billionaire, Paul Singer, “who virtually invented vulture funds”, which paid US$11 million for some discounted Peruvian debt and then threatened to bankrupt the company unless they paid US$58 million, which they got. Currently, the company is reported to be suing Congo Brazzaville for US$400 million for a debt they bought for US$10 million. Commenting on the Zambian case, Norwegian Ambassador to Zambia, Terje Vigtel, pointed out that the London High Court judgement while regrettable that it may adversely affect Zambia’s economy, was a lesson that the country should service foreign debts. He added that Zambia was lucky because such amount could have been doubled (Zambia Daily Mail, February 17th 2007).
Oxfam Consultant, Martin Kalungu- Banda is reported to have stated that while the repayment might be legal, it arose from debts accrued when the country was under an undemocratic system”. The question people should be asking is: has the process of contracting foreign debts and servicing them been democratised?.
This is a critical question which should lead to legal, institutional and procedural reforms that will promote transparency and accountability in the manner the country sources and services debts, be they domestic or foreign. From the little information that has filtered through to the public from the London High Court judgement, there are speculations of impropriety in foreign debt management by some people in strategic and privileged positions to have access to foreign debt information.
For instance, it is reported that the Zambian legal team led by William Blair QC, Tony Blair’s brother, argued in the London Court that a “US$2 million bribe was offered to the former Zambian president to make it easier for the vulture funds to claim their money. They showed the court an e-mail disclosed in the Zambian case, saying that a payment to the president’s favourite charity had allowed them to do a more favourable deal (BBC Features Story, Times of Zambia February 17th 2007)” There are other individuals being mentioned in the Zambian case in the London High Court judgement, which point to the need to act on the long-standing demand for all foreign debts to be ratified by Parliament before committing the country to some of the debts that have continued to impoverish the nation.
There are reports alleging loan agreements stipulating huge sums of money being signed but in actual fact Zambia continues to receive more documents than money. Most of the funds borrowed are spent in creditor nations who supply technical, human and financial resources. Through loans, some creditor nations facilitate the awarding of contracts to their companies, private or public, in debtor countries. Then such companies are paid in their countries by their respective governments and just send documentation to Zambia while the money continues to add value to the economies of such creditor nations.
Hence, the significance of some loans is more on siphoning the little resources from poor countries through debt repayment and enriching unscrupulous local agents than on improving the living conditions of the majority of the poor in debtor countries. Certainly the need to stop some unscrupulous individuals from conniving with vulture funds to “swindle’ debtor countries through foreign debt repayment is more than ever before. Instead of the government trying to be transparent by promising to table the whole judgement of the London High Court in Parliament, it should accept the demand to transfer the authority of contracting loans to Parliament as a way of providing checks and balances.
There is also need to release full details of loan agreements to various stakeholders such as civil society organisations for purposes of monitoring the utilisation of the funds as well as the servicing of such loans. There is need for concrete legal and institutional frameworks that will promote transparency and accountability in the manner Zambia contracts and services foreign debts. On their part, Jubilee Debt Campaign have called on Brown to turn his moral outrage about vulture funds into action if he becomes British Prime Minister by changing the law to make the Zambian case the last to appear in a British Court.
As long as the country remains vulnerable to loopholes for inefficiency, negligence and corrupt practices in managing foreign debts, “vultures” will continue feasting on it. It happened in 1993 when the Chiluba government gave coupons to farmers. Some unscrupulous companies reaped supper profits by cheaply buying off coupons from desperate and vulnerable farmers and then claimed the full amounts plus interest from the government. One wonders whether or not there was no government official benefitting from that transaction
Labels: VULTURE FUND
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