Time to close down the investment companies that feed off the living

New Internationalist
econ4
Conflict-ridden Democratic Republic of Congo (DRC) is the latest poor country to fall foul of a type of investment company called a ‘vulture fund’. It is being charged $20,000 a week – which will eventually rise to $80,000 – by a Washington DC court. The charges are adding to DRC’s already unpayable debt burden of $11 billion.

Vulture funds – otherwise known as ‘Distressed Debt Funds’ – feed off the very poorest. Usually based in tax havens, the investment companies buy up developing countries’ debts for a fraction of their real value and then sue the country in question for full, immediate repayment, making massive profits in the process.

A well-known case regards a debt that Zambia owed to Romania. This debt was generated as far back as 1979, when Zambia was lent $15 million by Romania in order to buy Romanian tractors. Twenty years on, Zambia was unable to repay its debts and became eligible for debt relief. The Zambian and Romanian Governments were negotiating the cancellation of the tractor debt as part of this process.

Enter Donegal International, a fund set up by US entrepreneur Michael Sheehan, otherwise known as ‘Goldfinger’. Donegal was able to purchase the debt from Romania for $3.3 million and then sue Zambia, in the British courts, for $55 million – eventually winning $15 million in 2007, despite the judge expressing deep concern about the dishonesty of Sheehan and other witnesses.

In essence, some of the debt relief Zambia had been given was snatched back by a vulture fund. Presidential advisor Kalunga-Banda said paying Donegal meant foregoing ‘medicines that would have been available to in excess of 100,000 people’.

Zambia is far from alone. The International Monetary Fund claims that at least 54 companies have taken legal action against 12 of the world’s poorest countries, for claims amounting to $1.5 billion. If a country fails to pay up, the vultures go after the country’s assets abroad, threatening trade, investment and even aid agreements.

The DRC case was brought by a company called FG Hemisphere, which bought a segment of debt that was run up under notorious dictator Mobutu Sese Seko. FG Hemisphere has been awarded $100 million against the DRC and is now seeking to seize the country’s assets through courts in Hong Kong, South Africa and the US. When the DRC refused to disclose the location and details of all its assets – something it would find extremely tough to do – the Washington court imposed a weekly fine, which is still rising. And all to a country recovering from centuries of slavery, exploitation, imperialism and bloody conflict.

Given that the majority of vulture cases are believed to be brought in British or US courts, there are legislative measures under way in both countries to outlaw the practice. In the US, Democrat congress member Maxine Waters is leading the charge to ensure vultures cannot use US courts to ‘profiteer’ (which they define as making more than 6 per cent interest on any debt bought). The British Government has announced its intention to, in effect, end vulture action against countries already eligible for debt relief.

This is a good start, but pressure needs to be maintained to make sure these funds – which, unlike real vultures, feed off the living rather than the dead – are closed down once and for all.

Take action at: www.jubileedebtcampaign.org.uk/vultures
or email info@jubileedebtcampaign.org.uk

Nicholas Dearden,
Jubilee Debt Campaign

2 thoughts on “Time to close down the investment companies that feed off the living”

  1. Mr. Dearden continues to print libel and slander about me and my company and refuses to admit that a dollar of profit made in Africa is not ipso facto a dollar out of the mouths of babes.

    He also refuses to admit that Donegal spent three years trying to convert the debt into equity in an investment in Zambia and only resorted to the courts when the government absolutely refused to negotiate a conversion into local currency…

    He also refuses to comprehend that so called anti vulture legislation will hurt the HIPC countries more than it helps them as it will increase their cost of credit and credit insurance and will do so across the board, not just for the defaulters…

    Unless Mr. Dearden and his colleagues think through their campaigns, they will be ineffectual. Africa needs more investment and not less and the conversion of defaulted debts into local investment is far preferable to aid as it will create jobs and taxes.

    It is significant that while he has spent his career slandering me, the African governments have been encouraging investment and moving away from the aid dependant mentality that he so favors.

    Sincerely,

    Michael Sheehan

  2. As a concerned person from Zambia, I differ with you on issues you write about. Firstly, the article you reacted to is right to mention that, you sued a poor country Zambia over defaulted debt.

    The comment that Zambian government refused to turn debt into equity require more disclosure. Why did the Govt. of Zambia refuse such an offer from Donegal and what kind of investments in Zambia was planned by Donegal for that equity?

    You write that turning defaulted debt into equity will create jobs and taxes. If done right, yes. But the reality is that most investors in Zambia do not pay a fair share of taxes and hire local people as temporary workers without any labor protection and operate with concern for the environment. So what is different about Donegal investment proposal for Zambia?

    My reaction to the HR 6796 Stop VULTURE Funds Act is positive because it would prevent vulture funds companies from using US courts to profiteer on poor country debt and would require them to operate in a more transparent manner. If really vulture fund is about investment in Africa as you wrote, then your company must support this congressional action to increase disclosure of all vulture funds activities.

    Zambia is poor and desperately needs money for education and to provide life saving medicines for millions of people impacted by HIV/AIDS, TB and Malaria. But due to Donegal lawsuit, the Govt of Zambia had to redirect its limited resources to paying the debt in the lawsuit.

    As a forward, if you still hold strong opposition Stop Vulture fund actions , it would good to engage in public debate/discussion on why your vulture fund case should be treated as investment in Africa against popular view that vulture fund is actually making the poor people pay heavily. Several concerned group would appreciate to engage you in a public discussion about the case for vulture fund.

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