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 - 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 his evidence.”
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 predatory practices.”
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.