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Zambia loses 'vulture fund' case

BBC News | February 16, 2007

Zambia's infrastructure plans could be threatened
'Vulture fund' report

A High Court judge has ruled that Zambia must pay a substantial sum to a so-called "vulture fund".

British Virgin Islands-based Donegal International paid less than $4m (£2m) for a debt the African nation owed, but sued Zambia for a $42m repayment.

It said its bill was the result of interest and costs, but the judge has indicated that Zambia should pay less.

The ruling has angered anti-debt campaigners, who say it will undermine Zambia's plans for poverty reduction.

The judge ruled against Zambia's application to dismiss Donegal's claim, but at the same time proposed to end a freeze of Zambian assets secured by the fund.

Donegal, however, will have a chance to argue the case for a continued freeze of Zambian assets.

According to BBC economics reporter Andrew Walker, people familiar with the case believe that the judge will order Zambia to pay Donegal between $10m and $20m, less than half what Donegal sought.

Lawyers for Zambia, however, said the judgement was a victory for Zambia.

Janet Legrand of DLA Piper called the ruling "fantastic news for both the government of Zambia and its people".

The fight against Donegal's claim had been "entirely vindicated and [marked] a significant milestone in the efforts of [the Zambian government] to fight corruption and maintain a stable economic course".

Concerns

Vulture funds - as defined by the International Monetary Fund and UK Chancellor Gordon Brown among others - are companies which buy up the debt of poor nations cheaply when it is about to be written off, then sue for the full value of the debt plus interest.

There are concerns that such funds are wiping out the benefits which international debt relief was supposed to bring to poor countries.

A Zambian presidential adviser and consultant to Oxfam, Martin Kalunga-Banda, said $42m was equal to all the debt relief it received last year.

He told the BBC that this would take a serious toll on education in Zambia.

"It also means the treatment, the Medicare, the medicines that would have been available to in excess of 100,000 people in the country will not be available," he added.

The Zambians at that time did not even have the capacity to know this was happening
Martin Kalunga-Banda

Mr Kalunga-Banda added that while the repayment might be legal, it arose from debts accrued when the country was under "an undemocratic system".

"The consequences of the debt are impacting on the people of Zambia," he said.

"The Zambians at that time did not even have even the capacity to know this was happening and that is probably what brings in this issue of unfairness."

'No comment'

In 1979, the Romanian government lent Zambia money to buy Romanian tractors.

Zambia was unable to keep up the payments and in 1999, Romania and Zambia negotiated to liquidate the debt for $3m.

But before the deal could be finalised, Donegal International, which is part owned by US-based Debt Advisory International (DAI) stepped in and bought the debt from Romania for less than $4m.

DAI founder Michael Sheehan was confronted by the BBC's Newsnight programme before the court ruling, but said only: "No comment. I'm in litigation. It's not my debt."

Profiteering doesn't get any more cynical than this
Caroline Pearce
Jubilee Debt Campaign

In 2002, Gordon Brown told the United Nations that the vulture funds were perverse and immoral.

"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."

Jubilee Debt campaigner Caroline Pearce said that vulture funds "made a mockery" of the work done by governments to write off the debts of the poorest - a key theme of 2005's Live8 concert.

"Profiteering doesn't get any more cynical than this," Ms Pearce said.

"Zambia has been planning to spend the money released from debt cancellation on much-needed nurses, teachers and infrastructure.

"This is what debt cancellation is intended for, not to line the pockets of businessmen based in rich countries."


“Vulture Fund” Company Wins $20 Million Payment from Zambia on $4 Million Debt

Greg Palast | February 15th, 2007

Watch the BBC Newsnight investigative report on BBC Newsnight — or at Democracy Now! with Palast and Amy Goodman.

“Vulture fund” companies buy up the debt of poor countries at cheap prices, and then demand payments much higher than the original amount of the debt, often taking poor countries to court when they cannot afford to repay.

Investigative journalist Greg Palast reports on one company that has won the right to collect $20 million from the government of Zambia after buying its debt for $4 million. In his recent State of the Union address, President Bush declared the United States was taking on the challenges of global hunger, poverty and disease, and urged support for debt relief, which he called the best hope for eliminating poverty.

But what exactly are wealthy nations doing to reduce the debt of impoverished countries?

Today we take a close look at companies known as “vulture funds.” Vulture fund companies buy up the debt of poor countries at cheap prices, and then demand payments much higher than the original amount of the debt, often taking poor countries to court when they cannot afford to repay.

For an in-depth look at this issue, we turn to a BBC Newsnight documentary by investigative reporter Greg Palast. Greg Palast's BBC report on vulture funds. Today a high court judge in London ruled on the case that a vulture fund can extract more than $20 million from Zambia for a debt which it bought for just $4 million. To tell us more about this case and more we now turn to Greg Palast.

 

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