Participants follow through a conference on Debt Relief in Nairobi, November 11 2010. Last week in UK, the House of Commons passed a legislation to make The Debt Relief (Developing Countries) Act 2010 permanent. File
Last week, two events took place that will redefine our engagement with vulture fund entities. In UK, the House of Commons passed a legislation to make The Debt Relief (Developing Countries) Act 2010 permanent.
The Act could save poor countries an estimated 145 million pounds (Sh 20.4 billion) over six years. The import of this law is geared towards stopping creditors, including the so-called vulture funds from using the UK courts to extract harsh and inequitable payments from poor countries for debts that the companies may in some cases have bought for a fraction of the cost.
Closer home in Africa, The Pan African Lawyers Association (PALU) meeting in Cape Town for a Southern African Regional Seminar on International Commercial Negotiation and Litigation launched the African Legal Support Credit Facility to help the African Governments deal with the damages brought about by vulture funds, badly negotiated contracts and official corruption.
Vulture funds is a name given to a company that buys debts owed by poor countries for a pittance, and then front up to courts around the world seeking to enforce the full amount of the debt plus interest.
These companies are very secretive, owned by individuals and large financial institutions and most of them are based in tax havens. In most cases, the mission of these companies is to pursue one debt and then shut down.
Agreement
A host of developing countries majority in the Sub-Saharan Africa are facing the vulture fund litigation. According to IMF’s 2007 survey, 11 out of 24 Highly Indebted Poor Countries were facing litigation from over 46 different commercial creditors. African countries facing vulture fund litigation include the Democratic Republic of Congo, Zambia, Uganda, Ethiopia, Burkina Faso, Madagascar and Mozambique.
Rulings have been delivered in Zambia and the Democratic Republic of Congo cases. In 1979, the Zambian Government entered into an agreement with the Romanian government for the purchase of agricultural machinery and vehicles valued at $15 million. It was unable to pay its external debts and became eligible for the process to qualify for debt relief. Negotiations began with creditors on honouring partial payments of old bad debts.
In 1999, as the Zambian government was negotiating the clearing of the debt they owed the Romanian government, a company by the name Donegal International swooped in and bought the debt then valued at approximately $30 million that accrued interest for a knockdown of $3.3 million. Zambia was then later sued in a UK court for the full amount plus compound interest. Donegal demanded a whooping $ 55 million in total. Judgement was delivered in favour of Donegal and the court awarded them $15.5 million.
African governments should also take advantage of the PALU initiative to create the necessary capacity in commercial transactions and fighting off commercial credit litigation. Mr. Orwochi is a Researcher with the Kenya Debt Relief Network.
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