Vulture funds - preying on the wastelands?

Capitalism is under scrutiny as the recent Newsnight and Guardian investigation into the practices of ‘vulture’ companies has highlighted the moral bankruptcy of the system.

The facts appearing from the investigation show sections of the financial sector in direct conflict with the developed world’s public commitment to solving the issue of poverty in African nations.

It is estimated that $1bn has already been obtained by such companies, and 26 are currently in court aiming to gain $1.3bn between them. For all our talk of helping to develop these nations by writing-off sovereign debt, companies in the West are profiteering from some of the world’s poorest nations using practices that are illegal in many parts of the world.

The Democratic Republic of Congo (DRC), the world’s second poorest nation is being sued by FG Hemisphere for $100m. This debt, possibly purchased illegally, stems from a debt of only $3.3m owed by the central African state to a Bosnian power company. If the legality is set aside, the issue of morality takes centre stage.

Vulture companies, as they are known on Wall Street, make their money by buying sovereign debt from nations in trouble, speculating on an increase in liquidity following a resolution to the crisis.

When the debt was first owed to the Bosnian company, the DRC was ruled under the kleptocratic administration of Mobuto Sese Seko. Although the debt has become nationalised and now rests with the present DRC state, it was a private loan sold to a ruler who had already seen his debt frequently written off by the IMF, World Bank and the UK for his anti-communist stance during the Cold War. Following Africa’s longest war in its territory, the DRC is in no position to pay this back.

The DRC defaulted on its debt in 2007 and FG Hemisphere is now using the courts of Jersey, a British dependency tax haven, to sue for $100m. However, even though the west has come to terms with the fact that the unjust and simply unpayable loans given to African nations following decolonisation need to be cancelled, the voluntary nature of these schemes means that companies are free to ignore them.

The DRC is a nation wracked by war and disease and $100m is a lot of money for the fragile state. If the West wants to help such a nation stand upon its own two feet we need to keep the pressure up on companies and groups that act irresponsibly and immorally. During the credit crunch we realised that banks had been giving out loans to people who simply were in no position to pay them back. A similar thing occurred when the West lent money to Mobuto.

This is a moral issue and one that we can’t allow to go away. If we are serious about developing these nations, then we must make sure that our work is not undermined by the morally bankrupt actions of companies like FG Hemisphere which feast upon the carcasses of failing states.