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Zambia: Stop the Debt Vultures!
AfricaFocus Bulletin
Feb 22, 2007 (070222)
(Reposted from sources cited below)
Editor's Note
A High Court in Britain has rejected the claims of a U.S.-owned
debt-collection firm to $42 million of debt from Zambia, but left
open the door for the firm to get as much as $10 million to $20
million for the loan, which it purchased from Romania at a discount
for less than $4 million. The firm is one of a number of "vulture
funds" that specialize in buying up discounted third-world debt and
then trying to collect the full sum.
Debt campaign organizations in the United States and the United
Kingdom have mounted a campaign to call on the firm to give up its
litigation for the funds, and for the U.S. government to take
action against such "vulture funds." Another such fund, owned by
leading Bush campaign contributor Paul Singer, is trying to sue
Congo Brazzaville for $400 million for a debt they bought for $10
million.
This AfricaFocus Bulletin includes background notes and action
alerts from the Jubilee Debt Campaign and from Jubilee USA Network,
as well as an opinion article on the topic by Jesse Jackson.
For earlier AfricaFocus Bulletins on African debt,
see http://www.africafocus.org/debtexp.php
For earlier AfricaFocus Bulletins on Zambia,
see http://www.africafocus.org/country/zambia.php
For more information on this case see:
Times of Zambia, February 17, 2007
http://allafrica.com/stories/200702170107.html
Blog the Debt
http://jubileeusa.typepad.com/ (includes links to
stories on BBC and Democracy Now!)
Jubilee Debt Campaign UK:
http://www.jubileedebtcampaign.org.uk/?lid=2893
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
http://www.jubileedebtcampaign.org.uk/?lid=2893
Stop the debt vultures
The vultures are circling! Right now, a private company is trying
to scavenge a huge profit from Zambia, one of the world's poorest
countries. Please take action to prevent this.
In 1999, a 'vulture fund' called Donegal International bought a
debt owed by Zambia, originally worth $15 million and then valued
at about $30 million, for a knock-down price of $3.3 million. Now
it has sued Zambia for the full amount, plus interest and costs -
a staggering total of over $55 million! On 15th February 2007, a
judge in London rejected the size of Donegal's claim, after Zambia
fought back in the courts. But he nevertheless ruled that under law
Donegal is entitled to something from Zambia.
The exact total is to be determined, but may be around $20 million.
This would be half of the amount that Zambia is due to save from
debt relief this year: but it desperately needs all its money to
invest in teachers, doctors and infrastructure. Donegal must not
take this money, and you can help.
Jubilee Debt Campaign, together with Oxfam, is calling on Donegal
International not to claim this money. Please add your voice to our
call.
[send protest e-mails through the Jubilee Debt Website:
http://www.jubileedebtcampaign.org.uk/?lid=2893]
Why did Donegal sue?
It's completely legal, but profoundly unjust - here's why Donegal
International took Zambia to court.
In the 1970s, Zambia borrowed money from wealthier governments,
including $15 million from Romania in 1979 to buy agricultural
machinery and vehicles. By the 1990s, because of crushing poverty,
it was unable to repay these debts and became eligible for the
process to qualify for debt relief. It began negotiating with its
creditors about partial payment of old, bad debts.
In 1999, as Zambia was trying to negotiate clearing the debt they
owed to Romania, Donegal International swooped in and bought up the
debt - then valued at around $30 million with accrued interest -
for a knockdown price of $3.3 million. Now they have sued Zambia
for the full amount of the debt. But that's not all. They also sued
for interest and costs, demanding a staggering $55 million in
total!
Why didn't Donegal get their full claim?
The judge in the case ruled that some of the clauses in the
agreement that Donegal got Zambia to sign after buying the debt
from Romania were "penal". Donegal had tried to insert clauses
which would mean that they could claim many millions more from
Zambia than the debt had been agreed to be worth, if Zambia missed
even one payment. The judge rejected these clauses. He also said
that some of their witnesses had at times been "dishonest" and that
he could not accept all their evidence. But in the end he ruled
that, legally, they are entitled to something from Zambia.
What will Donegal get?
The final award to Donegal may amount to around $20 million. These
rich pickings might be just business to Donegal. But for Zambia, it
is money that could train doctors and nurses, pay teachers, and
build hospitals.
Insult to injury
Donegal International launched proceedings against the Republic of
Zambia in the British courts in March 2005. The timing adds insult
to injury: Donegal sued just one month before Zambia finally
qualified for debt relief, after it had spent years struggling to
meet the harsh conditions needed to qualify for debt cancellation.
The judgment for Donegal means that Zambia will lose millions that
it could be investing in much-needed teachers, nurses or
infrastructure. If the award is $20 million, this will be half of
what it saves in 2007 because of the Gleneagles debt cancellation
deal.
Why shouldn't Zambia pay?
There are compelling moral reasons why Zambia shouldn't have to pay
Donegal International.
1. Zambia is poor Zambia needs its money to meet the needs of its
own people. Average life expectancy in Zambia is just 38. Average
income per person is about 60p a day. Four out of ten women cannot
read or write. Zambia desperately needs investment in healthcare,
in education and in infrastructure. Its government is trying hard
to use the proceeds of debt cancellation in this way, with notable
success.
The cancellation that Zambia secured in 2005 and 2006 was intended
to ease its financial situation and release resources for social
spending. Donegal should not be exploiting this situation by
demanding a huge sum from Zambia, especially since it is in payment
of a debt that cost relatively little.
2. Zambia was eligible for debt relief, as Donegal should have
known full well The company bought the debt at a highly reduced
price in 1999, at a time when it would have known that Zambia was
considered poor and indebted enough to qualify for debt relief -
and that it would be obliged to ask all creditors for this relief.
Zambia had already been trying to negotiate a deal with Romania,
which would have seen it paying only around $3 million - a vast
reduction on the original $15 million owed, let alone the $55
million then claimed by Donegal International. Yet one month before
Zambia was finally granted debt cancellation by most creditors in
April 2005 - intended to improve its economy and provide the
necessary resources to meet its peoples' needs - Donegal launched
its lawsuit to cash in on Zambia. The problem is that it is up to
each creditor to decide whether they will cancel debts: that's why
we need a better and fairer system.
3. Other creditors are doing their part and Donegal should not take
advantage Other creditors have, in good faith, cancelled debts that
are in some cases much larger. Rich country creditors, including
the UK, have agreed to cancel Zambia's debt to them on the
understanding that Zambia should then have extra funds available
for poverty reduction, rather than extra funds to repay other
creditors in full. For its part, Zambia has an obligation to
negotiate comparable levels of debt relief with its other
creditors, as it was doing with Romania when Donegal bought up the
debt. If Donegal persists in demanding this cash, Zambia will be
forced to compromise these obligations to creditors and the spirit
of cooperation and good will on which the existing debt
cancellation framework depends. And a large sum of money will go to
an offshore company, instead of helping finance Zambia's poverty
reduction efforts.
...
What is a vulture fund?
'Vulture fund' is a name given to a company that seeks to make
profit by buying up 'bad' debt at a cheap price, then trying to
recover the full amount, often by suing through the courts.
What is Donegal?
Donegal International Limited is a company registered in the
British Virgin Islands. It is part of a group of companies,
including one called Debt Advisory International which is based in
Washington DC, USA. These companies try to profit from poor country
debts by buying and selling these debts, trying to get repayment -
including through the courts - or trying to exchange the debts for
shares in private companies.
Hasn't Zambia had debt cancellation?
Zambia completed the Heavily Indebted Poor Countries (HIPC) scheme
in 2005. As a result of this, Zambia has secured cancellation of
most debts to the World Bank, IMF, African Development Fund and the
richest country governments. This has been of huge benefit to
Zambia. It has, for instance, introduced free primary rural
healthcare, and announced plans to recruit 4,500 new teachers as
well as building new schools. These interventions are desperately
needed.
But completing HIPC does not bring any guarantee that debt
cancellation will come through. Even after debtor countries spend
years meeting the harsh and undemocratic conditions set by the rich
world in order to get HIPC debt relief, many creditors simply don't
comply. That's why we need a better and fairer system.
Have other companies done the same thing?
Yes! There have been at least 40 lawsuits by commercial creditors
against Heavily Indebted Poor Countries, many still outstanding.
But some companies have been deterred from lawsuits by campaigners.
For instance, in 2003, the Big Food Group, owner of Iceland
supermarkets and other companies, was suing Guyana for over œ12
million. After an outcry by Jubilee Debt Campaign and partners,
they dropped the case, saying "the interests of both our Company
and those of the people of Guyana, are best served by not
proceeding." And in December 2002, Nestl‚ dropped a claim of $6
million against Ethiopia, after a campaign by Oxfam and others. But
other companies have kept up claims and won.
Taking Millions from Zambia's Debt Relief
Jubilee USA Network
http://www.jubileeusa.org
February 20, 2007 "The vultures are circling!" Right now, a private
company is trying to scavenge a huge profit from Zambia, one of the
world's poorest countries which has just benefited from debt
relief. Please take action today to prevent this.
This morning, Jubilee USA and our partner organizations - Africa
Action, American Friends Service Committee, 50 Years is Enough
Network, and TransAfrica Forum - asked you to call Debt Advisory
International's Washington, D. C. office and tell Michael Sheehan,
the owner of Debt Advisory International and Donegal International,
not to take up to $20 million from Zambia. However, the company
routed their number to an automated message, which essentially
blocks the caller from speaking to anyone or even leaving a
message, since the voice mailbox is currently full.
In lieu of calling in, what we're asking you to do now is to go to
U.K.-based Jubilee Debt Campaign's website and send an e-mail to
Debt Advisory International with the same message.
In 1999, a 'vulture fund' called Donegal International bought a
debt owed by Zambia, originally worth $15 million and then valued
at about $30 million, for a knock-down price of $3.3 million. Now
it has sued Zambia for the full amount, plus interest and costs -
a staggering total of over $55 million! On 15th February 2007, a
London court rejected the size of Donegal's claim, but said that
under law it is still entitled to something from Zambia.
The exact total is to be determined, but may be as much as $20
million. This would be half of the amount Zambia is due to save
from debt relief this year, but it desperately requires all its
money to invest in essential social services and infrastructure
development. Donegal must not take this money, and you can help by
taking part in today's action!
Be sure to check back to our site March 10, a day after a U.K.
court decides the amount Zambia may have to pay to the vulture
fund...even though their debt was cancelled by the G-8 in 2005.
Time to clip the wings of vulture funds
http://www.suntimes.com
February 20, 2007
By Jesse Jackson
They prey upon the poorest nations, taking resources from the most
desperate peoples -- billionaire scavengers pocketing the funds
that might go to feed children whose families live on less than $1
a day. They are called the vulture funds. They protect their
scavengings with fat checks to politicians and lobbyists. One of
the leading vulture firms is led by major donors to President Bush.
Now it is time to put an end to this disgrace.
Consider impoverished Zambia, a small, poor country where the vast
majority of people survive on little more than $1 a day. In 1979,
the Romanian government lent Zambia money to buy Romanian tractors.
The tractors didn't work well, and U.S. and European agricultural
subsidies basically hijack Zambia's potential export markets.
Zambia was unable to earn the foreign exchange needed to pay for
this and other debts.
In 1999, Romania and Zambia negotiated to liquidate the debt for $3
million. The Paris Club of rich donors -- under great pressure from
the global human rights movement -- has finally been moving to
write off significant portions of unpayable debts, if the debt
relief is used for investment in health, education and other vital
needs in the debtor country.
Even as the deal was being signed, the vultures arrived. One of
Debt Advisory International's vulture funds bought the debt from
Romania for less than $4 million. They then renegotiated with
Zambian officials and -- amid charges of bribery and abuse -- cut
a new deal on the debt. They are now suing the Zambian government
for the original debt plus interest, which they calculate at over
$40 million, and they expect to win.
For the United States, with our $2 trillion budget, $40 million is
peanuts. In Zambia, it represents vital medicine and textbooks.
Martin Kalunga-Banda, Zambian presidential adviser and a consultant
to Oxfam, told the BBC's Newsnight, "That $40 million is equal to
the value of all the debt relief we received last year."
Investigative reporting by Greg Palast, broadcast on the BBC and
Democracy Now, has exposed the vulture funds, defined by the
International Monetary Fund as companies that buy up the debt of
poor nations on the cheap when it is about to be written off and
then sue for the full debt plus interest, often pocketing 10 times
what they paid for it.
"Profiteering doesn't get any more cynical than this," reported
Caroline Pearce of the global Jubilee debt forgiveness campaign.
Paul Singer, a reclusive billionaire, is said to have essentially
invented vulture funds. In 1996, his company paid $11 million for
some discounted Peruvian debt and then threatened to bankrupt the
country unless it was repaid $58 million. They got their pound of
flesh. Now, according to the BBC, they're suing Congo Brazzaville
for $400 million for a debt they bought for $10 million.
U.S. courts serve to enforce the vulture funds' contracts. The
president or Congress could bring an end to the practice. So
naturally, the vulture funds lavish attention and contributions on
key politicians. Debt Advisory International, for example, was
paying $240,000 a year to the lobby firm Greenberg Traurig --
before lead lobbyist Jack Abramoff was jailed.
Singer has more direct political connections. He is among the
biggest donors to Bush and the Republican cause in New York --
giving a reported $1.7 million since Bush started his first
presidential campaign.
Last week, Rep. John Conyers, the chair of the House Judiciary
Committee, raised the matter directly with Bush himself, asking him
if he knew what his leading backers like Singer and Michael Sheehan
were doing, and whether he would crack down on the practice.
Conyers reports that the president said, "I don't know anything
about this," and vowed to put an aide on it right away. Conyers has
promised to pursue the matter.
This is the new global order: the wealthy -- armed with lawyers,
lobbyists, courts and retainers -- making fortunes by preying on
the vulnerable. Our government says that we want to be a source of
hope to the poorest peoples of the world. The vulture firms make us
a source of despair -- and an object of hate.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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