Vulture Fund Threat to Third World

Greg Palast / Amy Goodman

February 2007

 

Greg Palast reports on Vultures for BBC Newsnight

Report by Meirion Jones, BBC Newsnight

 

February 14, 2007 - On Thursday 15 February a high court judge in London will rule whether a vulture fund can extract more than $40m from Zambia for a debt which it bought for less than $4m._There are concerns that such funds are wiping out the benefits which international debt relief was supposed to bring to poor countries._Martin Kalunga-Banda, Zambian presidential adviser and a consultant to Oxfam told Newsnight, "That $40m is equal to the value of all the debt relief we received last year."_Vulture funds - as defined by the International Monetary Fund and Gordon Brown amongst others - are companies which buy up the debt of poor nations cheaply when it is about to be written off and then sue for the full value of the debt plus interest - which might be ten times what they paid for it.

Mockery

Caroline Pearce from the Jubilee Debt campaign told Newsnight it makes a mockery of all the work done by governments to write off the debts of the poorest.

"Profiteering doesn't get any more cynical than this. 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 rich countries."

Debt Advisory International (DAI) manages a number of vulture funds which buy up the debts of highly indebted poor countries cheaply and then sue for the original value of the debt plus interest. Zambia - where the average wage is just over a dollar a day - is one of the highly indebted poor countries which the world's governments agreed needed debt relief.

Tractors

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 for $3m.

Before the deal could be finalised one of DAI's vulture funds stepped in and bought the debt from Romania for less than $4m. They are now suing the Zambian government for the original debt plus interest which they calculate at over $40m and they expect to win.

Like the other vulture funds DAI refuse to do interviews but reporter Greg Palast caught up with the company founder Michael Sheehan outside his home in Virginia.

Greg Palast: "I just want to ask you Mr Sheehan - why are you squeezing the poor nation of Zambia for $40 million - doesn't that make you a vulture? Michael Sheehan: "No comment I'm in litigation. It's not my debt." Greg Palast: Aren't you just profiteering from the work of good people who are trying to save lives by cutting the debt of these poor nations? Michael Sheehan: Well there was a proposal for investment. That's all I can talk about right now._Five years ago 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". But the vulture funds are still operating.

'We don't do interviews'

The London case is just one of many which are running around the world._Newsnight went to New York to try to interview Paul Singer - the reclusive billionaire who virtually invented vulture funds.

In 1996 his company they paid $11m for some discounted Peruvian debt and then threatened to bankrupt the country unless they paid $58m. They got their $58m.

Now they're suing Congo Brazzaville for $400m for a debt they bought for $10m.

We didn't get our interview. His spokesman told us, "We have nothing to hide; we just don't do interviews".

US courts

The vulture funds raise most of their money through legal actions in US courts. Those actions against foreign governments can be stayed by the word of the US President and that is where lobbying and political influence becomes important.

Debt Advisory International are very generous to their lobbyists in Washington. They have been paying $240,000 a year to the lobby firm Greenberg Traurig - although recently they jumped ship to another firm after Greenberg Traurig's top lobbyist was put in jail.

Paul Singer has more direct political connections. He was the biggest donor to George Bush and the Republican cause in New York City - giving $1.7m since Bush started his first presidential campaign.

Rudy Guiliani is the favourite to be the next Republican presidential candidate and a leaked memo from his campaign shows that Paul Singer has pledged to raise $15m for Guiliani's campaign.

Tactics

The vulture funds have teams of lawyers combing the world for assets which can be seized to settle their claims. There have also been claims of dubious tactics.

Back in Britain the Zambian case has seen much legal discussion about allegations of bribery. The Zambian legal team - led by William Blair QC - Tony Blair's brother, has argued that a $2m bribe was offered to the former Zambian President to make it easier for the vulture funds to claim their money.

They showed the court an email disclosed in the Zambia case saying that a payment to the "President's favourite charity" had allowed them to do a more favourable deal.

Jubilee Debt Campaign told Newsnight that they are calling on Gordon Brown to turn his moral outrage about vulture funds into action_When we caught up with Michael Sheehan outside his house in Virginia he told us it was not a bribe but a charitable donation._He told us, "We offered to donate debt to a low income housing initiative which was a charitable initiative which did end up building several thousand houses" before adding "you're contorting the facts, you're on my property and I would ask you to step off"._The Jubilee Debt Campaign told Newsnight that they are calling on Gordon Brown to turn his moral outrage about vulture funds into action if he becomes Prime Minister and change the law to make the Zambian case the last to appear in a British court.

 

Meirion Jones produced Greg Palast's investigation into Vulture Funds

 

*****

 

Debt Relief Groups Attack Vultures After our BBC Exposé

Democracy Now!, February 20th, 2007

In response to Greg Palast's report last week on BBC and Democracy Now, the debt-relief and economic justice group Jubilee USA is launching a new effort today calling on Debt Advisory International to drop its efforts to collect money from the Zambian government. [includes rush transcript]

We turn now to our continuing coverage of "vulture funds." Vulture funds are Western companies profiting off buying up countries" debts and then forcing those countries to pay off the debt at a far higher price.Last week BBC investigative journalist Greg Palast exposed on Democracy Now! how one company is trying to collect $40 million dollars from the government of Zambia after buying one of its debts for $4 million dollars. Zambia claims the company, Debt Advisory International, even tried to bribe government officials by offering to make a donation to: "the president's favorite charity." Palast questioned the company's owner, Michael Francis Sheehan, about the allegation.

0. Excerpt of Greg Palast's BBC report on "Vulture Funds"_
0.
An excerpt of a report from investigative journalist Greg Palast. Well just hours after we aired that story a British court ruled on the case. Zambia was ordered to pay Sheehan's company $20 million dollars on its original $4 million dollar debt. The Zambian government says the money will have to come directly from its budget for health and education.Well, an international campaign is emerging to prevent Debt Advisory International from collecting. One day after the ruling, House Judiciary Chair John Conyers appeared on Democracy Now! The Michigan Congressmember said he raised the issue with Present Bush after hearing Palast's report on our broadcast.

0. Rep. John Conyers_

Democratic Congressmember John Conyers. In addition to Congress, pressure is also coming from the grassroots. The debt-relief and economic justice group Jubilee USA Network is launching a new effort today calling on Debt Advisory International to drop its efforts to collect money from the Zambian government.

0. Kristin Sundell, outreach coordinator for the Jubilee USA Network.

AMY GOODMAN: We turn now to our continuing coverage of vulture funds. Vulture funds are Western companies profiting off buying up countries' debts and then forcing those countries to pay off the debt at a far higher price.

Last week on BBC, investigative journalist Greg Palast exposed on the attempts of one company trying to collect $40 million dollars from the government of Zambia after buying one of its debts for $4 million dollars. Zambia claims the company, Debt Advisory International, even tried to bribe government officials by offering to make a donation to "the president's favorite charity." Palast questioned the company's owner, Michael Francis Sheehan, about the allegation. We ran it on Democracy Now!

0. GREG PALAST: Mr. Sheehan says it wasn't a bribe. They were only trying to help the Zambian people.MICHAEL SHEEHAN: We offered to donate debt to a low-income housing initiative, which was a charitable initiative, which did end up building over several thousand houses for the poor. You're contorting the facts. You're on my property, and I would ask you to step off.GREG PALAST: We showed this to the current president's advisor. He was not impressed.

0. MARTIN KALUNGA-BANDA: When you are talking about any amount, $40 million or thereabout, to be paid to service some unfair debt, you are talking about in excess of 300,000 children being prevented from going to school.
0.
AMY GOODMAN: An excerpt of the BBC Newsnight report from investigative journalist Greg Palast that we ran on Democracy Now! last Thursday. Hours after we aired the story, a British court ruled on the case. Zambia was ordered to pay Sheehan's company $20 million dollars on its original $4 million dollar debt. The Zambian government says the money will have to come directly from its budget for health and education.

Well, an international campaign is emerging to prevent Debt Advisory International from collecting. One day after the ruling, House Judiciary Chair John Conyers appeared on Democracy Now! The Michigan Congress member said he raised the issue with Present Bush on Thursday after hearing Palast's report on our broadcast.

0. REP. JOHN CONYERS: But it was my job, I felt, to raise the whole question of this bond speculation that goes on at the expense of poor debtor countries, in which their debt is bought up and then they're sued for the full amount. It's bought up at pennies on the dollar, and then they're sued. And I wanted to thank you for revealing this to us, because it allowed me to ask President Bush two questions: one, about Paul Singer and Michael Sheehan; and two, whether he would be willing to stop this incredible misuse of our government's charity toward funding aid to our poorer nations.
0.
AMY GOODMAN: Democratic Congressmember John Conyers. Paul Singer, by the way, is one of the chief Republican fundraisers in this country for both, well, presidential hopeful Rudy Giuliani, as well as President Bush. In addition to Congress, pressure is also coming from the grassroots. The debt-relief and economic justice group, Jubilee USA, is launching a new effort today, calling on Debt Advisory International to drop its efforts to collect money from the Zambian government.

For more, we go back to Washington, D.C., where we're joined by Jubilee USA director Kristin Sundell. Welcome to Democracy Now!

KRISTIN SUNDELL: Thank you, Amy. It's good to be with you.

AMY GOODMAN: Can you talk about what you're doing with this information?

KRISTIN SUNDELL: Yes. Well, today we are calling on people in the United States to call Debt Advisory International, to call their Washington, D.C. office at (202) 463-2188, and to tell Michael Sheehan, who is the owner of Debt Advisory International and Donegal International, not to take $20 million of the money that was freed up by debt cancellation for the people of Zambia.

AMY GOODMAN: Kristin, what effect does this have on Zambia? Why are you so concerned about this?

KRISTIN SUNDELL: Well, the money that was freed up through debt cancellation for the people of Zambia was the result of ten years of campaigning by people in the global south, in the global north, working together for debt cancellation. And I recently returned from Zambia, where I was a member of a delegation from Jubilee USA to see some of the impacts of debt cancellation there. And we visited hospitals, where user fees have just recently been abolished with the proceeds from debt cancellation. We were told about plans to hire thousands of additional teachers with money freed by debt cancellation. And if Michael Sheehan collects $20 million, that will take fully half of the money that was freed up this year by debt cancellation and would certainly prevent the Zambian government from implementing these plans.

AMY GOODMAN: How exactly does it happen? How does a Western US company get their hands on this debt, and a British court rules on their behalf?

KRISTIN SUNDELL: Well, this dates back to 1999, when Donegal International, a vulture fund, bought up a portion of Zambia's debt at the bargain-basement price of $3.3 million and then has been holding onto this. And now that Zambia is eligible for debt cancellation, under a deal that was reached at the G8 in 2005, it's now trying to collect this money, and it originally was trying to collect up to $55 million. The judge ruled that it could collect a maximum of $20 million, and we'll find out on March 9th exactly how much that they are able to collect from the government of Zambia.

AMY GOODMAN: How typical is this?

KRISTIN SUNDELL: Well, this is something that is just coming to the attention of Jubilee USA and debt campaigners here in the United States. I know that this is also something that's happened in Peru. It's something that's happened in the Congo, as well. And so, we are very concerned, and people around the world who have been working on this issue for the last ten years are very concerned, because the money freed up from debt cancellation is meant to address extreme poverty in the countries, not to go line the pockets of people who are taking advantage, like the vulture funds, and buying up debt and then trying to collect on it later.

AMY GOODMAN: Are you coordinating with the House Judiciary Chair John Conyers, who says he's calling for an investigation?

KRISTIN SUNDELL: We are also communicating with the office of Representative Conyers, and we're going to be investigating also, exploring with him what further can be done preemptively, in addition to the efforts that are going on today to put pressure on Michael Sheehan. And I should also say, if people want to fax or email his office today, they can also do that via the Jubilee USA website, which is jubileeusa.org, beginning at 9:00 a.m. Eastern this morning.

AMY GOODMAN: Kristin Sundell, I want to thank you for being with us, outreach coordinator for Jubilee USA Network.

KRISTIN SUNDELL: Thanks, Amy.

AMY GOODMAN: Thank you for joining us from Washington, D.C.


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