Wednesday, April 25, 2007

Vultures , indeed

Zambia is to pay $15.5 million (£7.7 million) to a British Virgin Isles-registered firm to settle a case at London's High Court. The two sides had agreed the sum after allowing for interest and payments already made - significantly lower than Donegal had wanted, but still a substantial profit for the firm.
Donegal International - described by critics as a "vulture fund" - had taken the country to court seeking payment of a debt, and late payment penalties.
The firm had been seeking $55 million in total - after buying a debt of $3.2 million that Zambia originally owed to Romania. The original debt arose from a $15m loan made by Romania in 1979, mainly for Zambia to buy farming equipment. However, Zambia's economy ran into trouble and the country fell behind with payments.
The outstanding debt was bought by Donegal in 1999 at a deeply discounted price and it later sued to recoup the full amount plus penalties.

“Vulture fund” companies buy up the debt of poor countries at cheap prices, and then demand payments much higher than the original amount of the debt, often taking poor countries to court when they cannot afford to repay . Vulture fund is a term that’s used for bond speculators who take the bonds, the cheap debt of the third world, that may sell ten cents on the dollar, because no one expects to ever collect on these debts, they buy up the debts really cheap, and then they use political muscle, bribery or lawsuits to try to squeeze til the pips squeak , as they say .
Anti-poverty campaigners say such companies are unethical; and divert resources away from badly needed spending on health and education in very poor countries. Some international finance officials have also voiced fears that recent official debt relief for the poorest countries might encourage more legal claims as countries that no longer have to repay the World Bank, for example, may be more able to pay private creditors who go to court.

Loan-sharking -grand scale , but that is capitalism for you .

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