"Vulture funds" are
private hedge funds which buy Third World countries' debt cheap
and then sue for full repayment."
Vulture fund must not take cash from Zambia,
Oxfam Press Release, February 15, 2007
In what is likely to be a welcome surprise
to Zambia, the Royal Courts of Justice today ordered that the
country should pay a much-reduced sum (to be decided next month)
to US company, Donegal International, as repayment on debts incurred
more than a decade ago. Donegal's claim was for over US$55 million,
but the judge decided that although the original agreement with
Zambia was legal, the award should be significantly less.
Debt campaigners, Oxfam and Jubilee Debt
Campaign, said that Donegal - a 'vulture fund' registered in the
British Virgin Islands and run by US businessman Michael Sheehan
- should not accept even the reduced amount because Zambia, one
of the poorest countries in the world, has qualified for debt
relief and desperately needs the money it could bring. Donegal
bought the debt from Romania in 1999, for less than $4m, when
Zambia was on the verge of renegotiating it.
UK Chancellor, Gordon Brown, has condemned
vulture funds in the past. Campaigners say he should use his influence
as chair of the IMF's Finance Committee to make sure that new
regulations are devised, which prevent private companies from
bypassing international debt rules and pursuing debts from very
poor countries, even when they have qualified for debt relief.
In his judgement, Mr. Justice Andrew Smith
said: "I have been driven to conclude that they [Sheehan
and associate] were at times being deliberately evasive and even
dishonest [Sheehan] was not merely careless but cavalier in presenting
While considering the question of assigning
costs, he pointed out in court that some delays had been caused
to the trial because "put at its kindest," some of Donegal's
witnesses were, "less than candid."
Adrian Lovett, Director of Campaigns and
Communications at Oxfam said: "The judge was unable to dismiss
the whole claim but it is clear that while the actions of Donegal
International were not strictly illegal, they were immoral. When
a country is as poor as Zambia, in desperate need of money to
pay for basic services like health and education, it is unconscionable
to pursue an inflated claim for a debt that should have been written
off years ago. 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. Gordon Brown, as UK Chancellor and
Chairman of the IMF Finance Committee, is in a strong position
to make this happen. He has previously stated that he is against
vulture funds: he should use his position to put a stop to their
The debt, originally owed to Romania for
agricultural machinery and services, was accrued during the cold
war. The amount claimed by Donegal was far more than Zambia is
due to receive this year in debt relief - as agreed at the G8
meeting in Gleneagles in 2005. It is equivalent to more than six
months of Zambia's health budget.
Since qualifying for debt relief, Zambia
has introduced free primary rural healthcare and announced plans
to employ 4,500 teachers and hundreds of nurses. But one in three
children in Zambia still does not go to primary school, nearly
80% do not receive secondary education and the average income
is barely $1 a day. Donegal International's claim threatens to
undermine Zambia's plans for poverty reduction.
Notes to Editors
- Donegal International is closely connected
to Debt Advisory International of Washington, USA. Michael Sheehan
describes himself as a debt advisor.
- The $15 million loan from Romania (to
buy tractors, agricultural machinery etc) was incurred in 1979.
- In January1999, Donegal International
bought the debt from Romania for $3.28 million. This represented
11% of the value of the debt, which was then assessed at $29.3
- There have been at least 40 lawsuits
by commercial creditors against Heavily Indebted Poor Countries.
- So far commercial creditors have delivered
only 5% of the debt cancellation expected through the Heavily
Indebted Poor Countries initiative. The HIPC Initiative was launched
in 1996 by the IMF and World Bank, with the aim of ensuring that
no poor country faces a debt burden it cannot manage. To be considered
for HIPC Initiative assistance, a country must fulfil specific
criteria which are fully explained on the IMF website:
- In Zambia one in 5 people are infected
with HIV, and life expectancy has dropped to 38 years.
- Young people aged 20-25 actually have
less education than their parents' generation.
Zambia loses 'vulture fund' case
http://news.bbc.co.uk/, February 15, 2007
A High Court judge has ruled that Zambia
must pay a substantial sum to a so-called "vulture fund".
British Virgin Islands-based Donegal International
paid less than $4m (£2m) for a debt the African nation owed,
but sued Zambia for a $42m repayment.
It said its bill was the result of interest
and costs, but the judge has indicated that Zambia should pay
The ruling has angered anti-debt campaigners,
who say it will undermine Zambia's plans for poverty reduction.
The judge ruled against Zambia's application
to dismiss Donegal's claim, but at the same time proposed to end
a freeze of Zambian assets secured by the fund.
Donegal, however, will have a chance to
argue the case for a continued freeze of Zambian assets.
According to BBC economics reporter Andrew
Walker, people familiar with the case believe that the judge will
order Zambia to pay Donegal between $10m and $20m, less than half
what Donegal sought.
Lawyers for Zambia, however, said the
judgement was a victory for Zambia.
Janet Legrand of DLA Piper called the
ruling "fantastic news for both the government of Zambia
and its people".
The fight against Donegal's claim had
been "entirely vindicated and [marked] a significant milestone
in the efforts of [the Zambian government] to fight corruption
and maintain a stable economic course".
Vulture funds - as defined by the International
Monetary Fund and UK Chancellor Gordon Brown among others - are
companies which buy up the debt of poor nations cheaply when it
is about to be written off, then sue for the full value of the
debt plus interest.
There are concerns that such funds are
wiping out the benefits which international debt relief was supposed
to bring to poor countries.
A Zambian presidential adviser and consultant
to Oxfam, Martin Kalunga-Banda, said $42m was equal to all the
debt relief it received last year.
He told the BBC that this would take a
serious toll on education in Zambia.
"It also means the treatment, the
Medicare, the medicines that would have been available to in excess
of 100,000 people in the country will not be available,"
Mr Kalunga-Banda added that while the
repayment might be legal, it arose from debts accrued when the
country was under "an undemocratic system".
"The consequences of the debt are
impacting on the people of Zambia," he said.
"The Zambians at that time did not
even have even the capacity to know this was happening and that
is probably what brings in this issue of unfairness."
In 1979, the Romanian government lent
Zambia money to buy Romanian tractors.
Zambia was unable to keep up the payments
and in 1999, Romania and Zambia negotiated to liquidate the debt
But before the deal could be finalised,
Donegal International, which is part owned by US-based Debt Advisory
International (DAI) stepped in and bought the debt from Romania
for less than $4m.
DAI founder Michael Sheehan was confronted
by the BBC's Newsnight programme before the court ruling, but
said only: "No comment. I'm in litigation. It's not my debt."
In 2002, Gordon Brown told the United
Nations that the vulture funds were perverse and immoral.
"We particularly condemn the perversity
where vulture funds purchase debt at a reduced price and make
a profit from suing the debtor country to recover the full amount
owed - a morally outrageous outcome."
Jubilee Debt campaigner Caroline Pearce
said that vulture funds "made a mockery" of the work
done by governments to write off the debts of the poorest - a
key theme of 2005's Live8 concert.
"Profiteering doesn't get any more
cynical than this," Ms Pearce said.
"Zambia has been planning to spend
the money released from debt cancellation on much-needed nurses,
teachers and infrastructure.
"This is what debt cancellation is
intended for, not to line the pockets of businessmen based in
`Vulture Funds' Descend On Dying Third
by Dennis Small
Executive Intelligence Review, October
Argentine Finance Minister Roberto Lavagna
used the high-profile forum of the annual meeting of the International
Monetary Fund (IMF) and World Bank in Dubai, United Arab Emirates,
to unveil on Sept. 22 Argentina's long-awaited proposal to restructure
some $94.3 billion in public debt, on which the government had
defaulted in December 2001. Lavagna's proposed "solution"
to the world's longest-running and biggest public debt default,
was to write off 75% of the debt's face value, and service the
remaining 25% somewhere down the line.
Howls of outraged protest exploded from
spokesmen for Argentina's international creditors, especially
the speculators widely referred to as "vulture funds,"
which now hold most of the defaulted bonds. "This is not
a serious offer," blustered Christian Stracke, head of emerging
market research at CreditSights. "Scandalous, offensive,
morally unacceptable," fumed Italian bondholder and lawyer
Mauro Sandri, without a trace of irony.
Then came the threats of legal action.
"There is no way Argentina will avoid going to court with
this offer," warned Stracke. London's Financial Times reported
that "frustrated Japanese investors are trying to seize government
land in Argentina's Patagonia, and German investors are trying
to appropriate Argentine-embassy assets to recoup losses."
Rumors even began to swirl that the Argentine Presidential jet
would shortly be seized.
In fact, one vulture holding defaulted
Argentine bonds has already succeeded in winning just such a judgment.
On Sept. 12, a New York court ruled in favor of Kenneth Dart,
of Dart Container Corp., granting him a $700 million judgment.
Dart will have the right to start seizing Argentine assets at
the end of October.
Finance Minister Lavagna told a TV interviewer:
"In this particular case, it's a vulture fund for $700 million....
These funds that buy the bonds do it for no other reason than
to sue governments." And Argentine President Néstor
Kirchner told his advisors, according to the daily Clarín,
that most of the defaulted Argentine bonds have in fact been bought
up by the vulture funds, and that they paid an average 20 cents
on the dollar for them.
In other words, their fulminations notwithstanding,
the vultures stand to make a killing, even with Argentina paying
on only 25% of face value-let alone if they are able to collect
LaRouche: This Is Fascism
Informed of the Argentine developments,
U.S. Presidential pre-candidate Lyndon LaRouche denounced the
vulture funds-which typify a very large part of the global financial
system today-as being "fascists, just like those who put
Hitler in power. These bastards," LaRouche elaborated, "care
even less than President Bush for the stability of the system.
Now you're looking at fascism in the face. And if you want to
characterize it, you would say about the vulture funds' reaction,
this gives you the mentality of the same kind of fascists who
sacrificed the human race, including all those who died eventually
in Auschwitz. This is why people died in Auschwitz: because these
vulture funds had to have a government which would do the kind
of job they demand."
As for the New York court finding in favor
of Dart, LaRouche noted that it clearly goes beyond the court's
jurisdiction and competence, to assess the value of debts owed
by a sovereign state. This stinks of Teddy Roosevelt's "Gunboat
Diplomacy" to collect the debt, LaRouche concluded.
The Argentina case is in fact typical
of the entire global financial bubble: None of the debt can actually
be paid, and the only real policy issue is whether to put people's
welfare before the debt-as LaRouche demands-or to try desperately
to maintain the illusion that the debt is somehow still performing,
no matter what the human cost. In that latter camp, the vultures
are gaining ground against those who are still trying to maintain
"stability," and revive the corpse of the world financial
system, if need be by swallowing sizeable debt write-downs. The
vultures prefer to descend on the body now, and be first to pick
over the bones. For them, it's every vulture for himself, and
the devil take the hindmost.
Argentina, of course, had a choice: to
go the LaRouche route, or to become an economic cadaver. The country
reached that fork in the road back in December 2001, when interim
President Adolfo Rodríguez Saa announced to a cheering
Congress that he would stand up to the country's creditors, and
declared a foreign debt moratorium on the spot. But Rodríguez
Saa was unable to rally sufficient support, domestically and internationally,
for this courageous approach, and Argentina's frightened political
class and other institutions allowed him to be toppled on Jan.
1, 2002. This set Argentina on the course of submission to vulture
economics that it remains wedded to, to this day.
Argentina Still Can't Pay
Rhetoric aside, President Kirchner has,
in fact, never seriously considered breaking with the IMF. On
Sept. 10, his government struck an 11th hour deal with the Fund,
under which Argentina agreed to pay $2.9 billion it owed the IMF.
That amount had come due on Sept. 9, and for one day, Kirchner
went into technical default against the IMF, in search of more
"lenient" terms under which Argentina was to be raped
by its creditors.
"We were in default for more than
24 hours," Kirchner reportedly told his closest advisors
during a plane ride to New York on Sept. 22. "I could have
fallen, but had that happened, the whole IMF would have fallen
with me," he blustered.
Kirchner was referring to the widely known
fact that a default against the IMF or the World Bank, as opposed
to a mere private lender, is capable of bringing down the entire
international financial system. Such a default could prove contagious
with other countries, including neighboring Brazil, which has
a public debt about twice the size of Argentina's. As an Argentine
Finance Ministry source told La Nación newspaper, the possibility
of an eventual Brazilian debt default "is on a lot of people's
minds." Any such sovereign default against the IMF would
likely lead to a downgrading of its credit rating, and that could
mean the effective bankruptcy of the IMF itself, and of the entire
On Sept. 10, Kirchner chose to defend
that system, and struck a deal with the IMF, which, he was told,
was a prerequisite for negotiating a write-down of the $94.3 billion
in privately held government bonds. The IMF, in turn, was pressured
by the Bush Administration to be "lenient" with Argentina,
since the stability of the entire global system was considered
a higher priority than collecting every penny-at least for now.
As an unnamed Bush Administration source soberly told the daily
Clarín: "Nobody wanted Argentina to again go into
default with an international institution."
The IMF thus agreed to Argentina producing
a 2004 Primary Budget Surplus, or PBS (with which to pay the public
debt) of "only" 3% of GDP-whereas the country's more
rapacious creditors had been demanding Brazil-style levels of
5%. The international financial media then ridiculously characterized
the deal by saying that "the IMF blinked" in the face
of Kirchner's "tough" negotiating stance. A manic George
Bush further stroked the Argentine President's ego at a Sept.
23 reception at the United Nations, by greeting him from across
the room in a loud voice: "Here comes the man who conquered
The vulture funds, for their part, were
furious at how "lenient" the IMF had been with Argentina.
As a Bloomberg wire reported, the Italian Mauro Sandri and other
vulture bondholders "said they were outraged after Argentina
reached an accord with the IMF two weeks ago, that ensures the
government pays back multinational lenders while forcing losses
IMF spokesman Thomas Dawson defended their
deal with Argentina by arguing that it "will lead to a sustainable
debt position"-which is a lie. As one Buenos Aires economist
told the Financial Times: "It's doubtful Argentina can even
service its performing debt with that [a 3% PBS], let alone defaulted
The reality is that Argentina is not going
to be able to service its public debt, even after the 75% write-down.
On top of the $94.3 billion in defaulted bonds-now to be written
down to some $24 billion face value-Argentina has another $85
billion in supposedly performing public debt. Of that, about $70
billion is classified as "Senior debt," meaning that
it is paid first, before the renegotiated defaulted debt. This
"Senior debt" includes some $25 billion in new government
bonds, that were issued after the December 2001 default.
So, even with massive write-offs, Argentina
is staring down the barrel of a gun at well over $100 billion
in public debt that it has to pay-an impossibility, given the
ongoing destruction of its physical economy.
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