Debt Vultures

Most people who would be reading this blog know something of the awful debt crisis that has been crippling the development of dozens of countries and the world for generations. Recently a new chapter in their suffering has evolved that is new low of evil.

It seems that a number of international funds have been buying up the old devalued debts of a number of countries and then suing them in court for their full price. Here is an example. Zambia, one of the poorest countries in the world had an old loan from Romania for about $15 million. Since Zambia is too poor to make regular payments on it, over the years it was devalued to less than $3 million. At that point, back in 1999, Donegal International Ltd, a US owned company registered in the British Virgin Islands bought the old loan from Romania, and then sat on it for several years. Last year at the meeting of the group of eight wealthy industrialized countries, a deal was made to cancel $42 million of Zambia’s old debts owed to specific countries. It was cause for great celebration because freeing up that much money meant that schools could be reopened and medicines for malaria and AIDS could be purchased. However, not long after, Donegal sued Zambia in British court for all of the back money, plus fees, plus penalties. The total they claimed was (not surprisingly) was almost exactly the amount that Zambia was set to save after the cancellation of its debts. That is why these funds are called “Vultures.” The courts wrote it down to $15 million, but that is still more than five times what Zambia had owed on them.

Here’s an even more interesting story. The Democratic Republic of Congo is another African country that had a number of its debts canceled last year. Soon afterward Paul Singer, the head of Elliott Associates, bought up old, worthless bonds owed by Congo for about $10 million and then sued and won $127 in a US court. Along with other law suits, he expects to eventually win over $400 million from the Congo.

According to US law, President Bush could reverse the decision under the doctrine of “comity,” which gives the president the right to end a speculator’s seizure of a debtor’s funds if it violates US foreign policy, which this certainly does. Several faith groups and other non-profits have petitioned the president to do just that, and several court cases have been held up waiting to receive a note from the President halting the collections actions. Representative John Conyers once questioned the president about it and was assured by him that he would take care of it within the week. That was in February 2007, but so far he’s been silent. Why?

There’s no way of knowing exactly why President Bush has remained eerily quiet on helping out Congo, especially since what Paul Singer has done clearly violates US foreign policy. But it is interesting to note that Paul Singer has also given a total of $1.6 million to Mr. Bush’s two presidential campaigns, $10 million to Rudolph Giuliani’s campaigns, and $1.3 million to various other Republican campaigns, including a substantial portion of the infamously dishonest “Swift Boat” campaign against John Kerry. Whether or not Mr. Bush would do something as immoral as protecting a campaign contributor at the expense of millions of hungry people in the Congo is anybody's guess, but it's worth noting in passing nonetheless.

You can do something to help out debt-stricken Congo without waiting for the President to act. Jubilee USA, the interfaith debt campaign has introduced a “JUBILEE Act" in Congress that calls for the cancellation of US held loans to some fifty-five countries, improve the lending practices of banks and countries, and condemns the practices of vulture funds like these. You can help by calling your Congressional representatives and encouraging them to support this act.