By IAN HARTNER Beatitudes Fellow, Jubilee USA Posted on the Beatitudes Blog
June 25, 2008
Let's start at the beginning, why are these countries in debt to begin with and who do they owe the money to? Many highly impoverished poor countries ascertain debt through dictators and governments who greedily mismanaged the funds collected by the state from the people whom they serve. When a country runs out of money they have the option to borrow money from sources such as the World Bank or the International Monetary Fund. Later, after these governments have been removed from power, the country is left with large amounts of debt that can total hundreds of billions of dollars. The country can then apply for debt cancellation from their creditor, a practice that Jubilee supports in full.
Sometimes before a deal is finalized for debt reduction or cancellation, a company will swoop in and buy the debt from the creditor, usually for slightly more than the amount that the creditor has agreed to settle the debt to the poor country. This company will often draft a thick legally binding contract that an impoverished nation may not have the legal expertise to be able to see the full legal scope of the contract. If you haven't guessed already, these company's have been nick-named 'vulture funds.' After the poor country has paid the agreed upon amount, the 'vulture fund' will then sue them for the original amount of the loan.
For Example: Romania loans Zambia $15 million. Zambia was not able to repay the loans because the farming equipment they bought with the loan did not work well and European Agricultural subsidies rendered Zambia unable to hold stake in the global market place. Romania and Zambia came to an agreement to liquidate the debt to $3 million. Donegal International saw this as an opportunity and paid Romania $3.3 million for the debt. Due to interest and back payments, the debt was valued at this time to be $30 million. This transaction occurred while Chiluba, a notoriously corrupt man, was President of Zambia. By the time Zambia had settled on a debt settlement with Donegal International, the value of the debt was held at $44 million. Donegal International settled on a re-payment figure of $15 million (does that number sound familiar?).Soon after, Zambia stopped paying the debt saying that it was accrued under corrupt circumstances. Donegal waited to sue Zambia until one month before Zambia qualified for HIPC, the Highly Impoverished Poor Countries Initiative.
In 2005, the G8 leaders voted to relieve all of Zambia's debt. Unfortunately, the Donegal International debt was not included because it was not held by a country but rather by a company. Donegal International then took this opportunity to sue Zambia for $55 million, the full amount of the original debt plus interest and penalties. After the case was taken to a British court the debt was reduced to $15.5 million, $.5 Million more than the original loan. So, Jubilee is on a mission to "Stop the Vulture Culture!" One way to do this is to get private banks to promise not to sell the debts of low-income countries that they own on to vulture funds that intend to litigate. There is a petition at www.jubileeusa.org/vulturefunds that you can sign and we'll deliver it to private banks! Get educated and stay tuned for more information!
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Posted by: Debt Consolidation | November 25, 2008 at 04:06 AM