A so-called “vulture” fund has been given permission by a British court to enforce a claim for tens of millions of dollars theoretically owed by Zambia.
The decision was immediately slammed by campaign groups who demanded that governments of rich countries moved to stop such funds reclaiming debt from poor countries that had supposedly already had their debts written off.
The high court ruled that a claim against Zambia by the United States company Donegal International, owned by American citizen Michael Sheehan, for debts incurred by the country more than a decade ago, was lawful.
Donegal is claiming about $55-million from Zambia but it is thought this will be reduced to about $20-million when the parties meet in court again next month and Judge Andrew Smith decides how much interest Zambia has to pay. The judge ordered that Zambian assets in the United Kingdom be frozen in the meantime.
Oxfam and the Jubilee Debt Campaign said Donegal — a vulture fund registered in the British Virgin Islands — should not accept any of the money because Zambia, one of the poorest countries in the world, has qualified for debt relief and desperately needs the money.
“It is clear that while the actions of Donegal International were not strictly illegal, they were immoral,” said Adrian Lovett, director of campaigns and communications at Oxfam. “Donegal should not take the money.”
Trisha Rogers, director of Jubilee Debt Campaign, said: “There is a clear need for a fair, comprehensive and binding framework for dealing with poor country debt which will ensure that commercial creditors will never again have the chance to profit in this way. “
Donegal bought the Zambian debt, with a face value of about $30-million, from Romania in 1999, for less than $4-million. Zambia had run up the debt, mainly for agricultural machinery, during the Cold War.
Zambia approved the Donegal purchase at the time and later agreed to pay Donegal $15-million for it. The judge had little choice but to say the contract was binding, although he is thought unlikely to allow Donegal’s claim that interest and costs have inflated the amount to $55-million.
The amount claimed by Donegal is more than the total debt relief Zambia is due to receive as agreed at the G8 meeting in Gleneagles in 2005.
A UK Treasury spokesperson said last week: “By depleting the resources of developing countries’ governments, these companies reduce the funds available for schooling and hospital treatment. This behaviour is socially irresponsible.”
Oxfam and Jubilee urged British Finance Minister Gordon Brown to use his influence as chairperson of the International Monetary Fund’s key decision-making committee to make sure that new regulations are devised that prevent private companies from bypassing international debt rules and pursuing debts from very poor countries. — Â