Wednesday, 14th February, 2007
- 14 Feb 07, 09:32 PM
Greg Palast investigates the vulture fund companies taking third world countries to court to recover debts.We ask what happened to debt write offs and Make Poverty History? .
Plus, the future of courts martial for soldiers serving in Iraq; how a lack of cosmic rays may be causing global warming - we talk to the author of a new book proposing the theory (); and Oasis songwriter Noel Gallagher celebrates his band's Brit Award for lifetime acheivement by talking to Newsnight. You can watch an full version of the interview after the programme .
Jeremy presents on 麻豆约拍 Two and the web at the usual time - your comments are appreciated...
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Mr Paxman
Greg Palast's piece on vulture funds and debt relief -- replete with gumshoe-style mock drama -- was very weak. Sadly, your follow-up studio interview failed to redeem the situation.
It seems that the voters in creditor countries have been sold a lie. Our elected leaders, pandering to self-righteous rock stars and their legions of 'concerned' fans, have made grandiose statements about relief and cancellation of poor countries' debts. We the taxpayers have taken the financial hit via write-downs, thinking we are party to an act of generous national charity.
Then, creditor governments have simply turned around and quietly SOLD the debt to vulture funds at a written down price (The lure of cash today proving more attractive to Treasuries than the prospect of recovering even the written-down value at some uncertain future date).
Unfortunately, this means that the debtor countries have been left holding the original liability. The buyer of the debt now 'owns' the repayment stream. (Presumably, what has been sold is the original loan instrument, against which the buyer of the debt sues. Otherwise, what is the vulture funds' legal claim?)
Naturally, vulture funds are not contrained by the political sensibilities of not suing the government of a poor country. And the original creditor governments can wash their hands and say: "Nothin' to do with me." It's like something straight out of 'Yes, Minister.'
None of this was properly explored by Newsnight. There will always be a market for buying and selling debt. Nothing wrong with that in principle. But elected governments should surely be held to account for their hypocrisy.
Then there was your interviwee's bemoaning of the money "taken out of" poor countries for debt repayment: as if no money had been put in originally. (And there was no hint of a question about where the loaned capital actually went!)
Arguably, developed nations should not be lending to very poor countries at all. We should be making grants, and tying them to performance so the money benefits the poor instead of disappearing into financial black holes and benefiting such people as the corrupt elite of Africa, the "Wabenzi" passing by the poor in their cavalcades of bullet-proof Mercedes.
But, of course, we can't suggest performance-linked grants instead of loans, can we? That was the idea of some guy with the initials G.W.B.
Come on Mr Paxman, sharpen up a bit!
Stephen Wilson
London
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OK - I admit I am 69. But it seems to me that you keep leaving obvious questions unanswered in your reports.
Question: Why does a country which has proved it's philanthropic stance to an indebted country, KNOWINGLY sell the debt to a Vulture?
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What a pleasant surprise to see the brilliant Greg Palast on Newsnight. As usual, he shines a torch on the ugly face of capitalism. What can be more outrageous than the thought that the unborn in the poorest countries on earth face a lifetime of taxes and charges to pay for corporate exploitation of international law by vulture venture funds?
At a micro level, similar practices operate in the UK. We see blitz advertising targeted at the poorest people in the UK offering easy credit with huge interest rates, charges and penalties. This is twinned with a factoring, recovery and bailiff process that increases these debts and forces many into homelessness and abject poverty.
The use by companies of legal terms and conditions to mis-sell, mislead and earn high profits is an ugly feature of UK society. The less educated a person is, the more likely they will fall unwittingly into bigger debt and despair.
Last night's programme focused on the relative poverty of UK children, as compared with most developed OECD countries.
The root weakness that permits the above seems to be a legal framework that is loaded in favour of the vested interests and corporates, at the expense of the taxpayer, general consumer and poorest in general.
No doubt the High Court will follow generations of precedent and find in favour of the company and against the future taxpayers of Zambia.
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From the report it was the Romanian government which sold on Zambia's debt, not the UK government. So we haven't been sold a lie, it's just that Gordon Brown hasn't followed through on his criticism of these Vulture Funds.
The real problem seems to me not to be the relatively small amounts of money involved here (although I'm sure they're keenly felt in Zambia), but that there's simply no proper legal framework for dealing with international debts.
If I want to borrow money in this country, I have to prove that I'm credit-worthy, and the company lending to me has to lend at a responsible rate. But internationally, you can lend as irresponsibly as you like - to Saddam Hussein, for example, or for projects that are just to subsidise your own industries - and there are no comebacks, other than debt campaigners I guess.
Until we come up with a decent way of deciding whether countries can afford to repay their debts, and whether those debts are legitimate in the first place, it's seems like it's going to be pretty hard for countries to escape the debt trap once and for all.
Come on Gordon, sort it out! (I don't want to have to listen to Bob Geldof sing ever again...)
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Dear Newsnight
Surely it would be now unwise to free the countries targeted by the vultures of debt merely to allow the countries to be shafted by the organisations in the Greg Palast report? Better perhaps to give the same amount of money to the countries in ways that safeguard it against these wicked people?
Isnt this obvious????? So what reason could people like Gordon Brown give for not doing this? Could Newsnight ask him please before the money goes.
regarding those organisations and individuals who have already done this, why not get the law enforcement agencies to trawl through every activity and action they have ever done.
If they have led blameless lives as they have made their fortunes then they have nothing to fear, but if not perhaps although it might not be possible to send them to the clink on this action perhaps it would be possible for some other reason .Didn鈥檛 they use the tactic in the 1920s against someone?
best wishes ,thanks for the excellent report
Bob Goodall
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What strikes me upon watching this report is the inherited power, abused by companies mentioned in this report, to make a foreign nation almost bankrupt with little or no hassle at all from the US. Well, up until now of course. When the US government listened to Zambia, and took note of the media spotlight, Debt Relief was cut from $7.2 billion to $500 million. Obviously, the $3 million, which again, was a cut from a much larger debt to Romania, the debt then purchased by DAI, with a value of $40 million, is much less in contrast. Still, it poses a blatant ethical issue. In 1979 Zambia just wanted to buy tractors from Romania. To do this, they lent $3 million from Romania. Unfortunately not being able to keep up the payments of that $3 million, a crisis evolved.
Zambia鈥檚 goal was to increase the strength of its agriculture and to have a chance competing in the grain market. Only to be eventually preyed upon by that proud Bald Eagle which so easily morphed into a menacing vulture. It鈥檚 sickening that DIA, safely nested in a democracy, which seems content with heroic symbolism, could do this in the first place and for so long.
Within the framework of the US constitution, Mr Bush could just stop a vulture fund from extracting this money with a signature. But is this likely when men like Paul Singer, of Elliott Capital Advisors, who is well connected and donated almost $2 million to the republicans?
It is with sincere hope and expectation, that the Zambian case will be the last of its kind to enter a British court. That justice prevails over money and vulnerable nations will no longer be a sweet shop or a pawn.
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WOW -Jeremy on Valentine's day (20/10)! What a wonderful present for the viewers :-). Excellent interviews tonight(I wouldn't expect anything less).
BTW - what's wrong with Bob Geldof singing?
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Greg Palast rocks. His expose of the racially driven gerrymandering in Florida during the 2000 Presidential election was one of the most important scoops of recent years. The Vulture Funds piece was another compelling piece of reporting. I wish I was half the journalist he is.
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I think the reasons for global warming are extremely important and I would like to see more in-depth debate by the experts on this.
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Last night鈥檚 Newsnight article on questions surrounding companies that buy and sell national debt betrayed its bias by the far-from-impartial moniker 鈥淰ulture Funds鈥. It was a disgraceful piece of polemic dressed up as journalism.
Third world debt is an emotive issue, and the debt business is always viewed in rather emotional terms. But to talk, as Newsnight did, of companies turning $5m dollar investments into $40m demands on Third World countries is disingenuous. The original debt would have been worth $40m whether or not it was sold on to a third party. The Third Word nation (in this case Zambia) did not lose out by seeing their debt sold on, except in as much as their original creditor may otherwise have despaired so utterly that the debt would never have been settled. The creditor (Romania, not exactly rolling in wealth and luxury itself) did not lose out, either, but rather judged that at the time it sold the debt, it needed the 拢5m more than it needed the hope of gaining the full value of the debt after a long, bitter and possibly hopeless battle. And the 鈥淰ulture fund鈥 did not rip off the debtor, but instead met Romania鈥檚 need for a quick injection of cash and continued to pursue Zambia for an already existing debt.
The question remains, is it moral at all to seek to collect the debt when the average Zambian lives on a dollar a day? Sadly, the income of the average Zambian is beside the point, for the average Zambian is unlikely to see that $40m whether the debt is paid or relieved. Having visited Lusaka, I recall being told the story of how the president was unhappy with the size of the two swimming pools at State House, and so installed a third, grander one. It struck me that it would have been hard to find room for so many pools, as much of the grounds of this urban presidential palace were taken up by the president鈥檚 private safari park. It is also worth noting that Zambia鈥檚 defence expenditure has nearly doubled in less than a decade, from $68m in 1998 to $105m in 2005. While I am not usually enamoured of the 鈥淒efence money could be better spent elsewhere鈥 argument, this and other discretionary expenditure does put paid to the suggestion that Zambia was unable to pay the debt, which has only mounted to $40m in 2007 because it has not be serviced for many years.
If we in the West believe that Third World countries should not be obliged to service debts their government鈥檚 incurred because there are better things for them to spend the money on, we should pay off their debts. Debts owed to other governments are easily forgiven, and have been. Debts to international organisations can also be relieved, but unless Western governments make up the shortfall, these organisations will not have money to lend to other needy nations.
But the debts resulting from private lending, or where private lenders have bought debt from other organisations, are now private property. Just as we would not countenance a government seizing a person鈥檚 house to build a road without adequately compensating them, so we should expect governments to compensate creditors 鈥 yes, even 鈥渧ulture funds鈥 鈥 if they require them to forgive the debt. If government does not act, we may ask that the creditors show charity of their own volition, but we must be wary of tarnishing our request with a prurient distaste for the legitimate means with which they make their living.
My own prurient distaste for the way that Newsnight, et al, make their living, may be plain to see, but in my naivety I had expected a more elevated tone to its reporting than I was subjected to this evening.
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Greg Palast's report was a joke and he behaved like a clown.
this is a vitally important issue, and demands proper coverage and serious analysis and presentation.
no wonder paxman looked embarrassed and only went through the motions in the interview ... the editor responsible needs to have a serious talk with themselves, and make a second, more serious and intelligent attempt at this.
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Interesting report and a tad insightful!
I have read comments before this one and I note I am the only Zambian living in Zambia commenting.
Diverting a bit, I note that the author/producer did not do much research at least not from the country facts. For instance looking at the picture of the impoverished child I am meant to wonder whether this is a picture of a Zambian child. Nonetheless the effect is felt.
The average wage in Zambia is certainly not US$1. Where were these "facts" obtained from. A poor country it is but well endowed with several natural resources and pregnant with massive opportunities.
Perhaps it would add a new twist to the debate if the following site were to be visited to read the recently announced budget speech by the Minister of Finance: www.zra.org.zm.
Last time I checked our national debt dropped from an incredible US$3bn to around US$500,000. The prospects are good enough to prompt Chinese president Hu Juntao to stay in Zambia longest during his African tour.
How did Zambia find itself in this precarious situation of debts in the first place? Well if people have chosen to read our history they will note that it was the first Southern African state to attain Independence from guess who - the British on 24 October 1994. What use was "freedom" without free neighbours eeh? So we pumped massive funds in the "liberation struggle". Whilst the west supported apatheid in South Africa we fought it at great cost. The region is now free. Ofcourse some of the funds were plundered and several cases are before the courts of law.
Moving forward I agree with one of the comments which questions the wisdom of lending to a country in "trouble". It is interesting to note that Zambian clocks 43 years of absolute peace this October, and this hardly makes news for an African country. We have attained consecutive GDP growth of 5% in the past three years and inflation is at a single digit of 9% in 30 years whilst our neighbour Zimbabwe has attained the highest inflation figure in the world of 1500%. The macro-economic target of the Government in this year's budget is to reduce inflation to a year end figure of 5%, reduce Goverment domestic borrowing to 1.25 of GDP and increase gross foreign reserves to 2.5months of import cover.
Countries such as Britain can help meet the shortfall in the implementation of our 5th national developmenbt plan budget, continue support to our 5 year Financial Sector Development Plan (FSDP) www.boz.zm as DFID and others are currently doing. This initiative is spear-headed by Central Bank.
One of the milestones under the FSDP thus far is the setup of a credit reference bureau and Government's consideration of a soverign credit rating. Countries such as yours can help us in the initial preparatory stages to acquire a rating from such Agencies as S&P. Moodys and Fitch.
Support us when we want to improve our agriculture, health and education systems dont ask us to introduce taxes for these sectors. Support us when we develop programmes for our local authorities to use the capital market to raise funds for infrastructure development.
We have a 13 year old stock exchange which we want to play a central role in the turn around of the economy. Capacity building support is what we need not loans. We are crawling no more, we are walking but ready to run!!
Let your companies come and set-up business here, ofcourse make your own due-diligence.
We are a former coloney of yours and yet we receive more support from the Chinese and the Cubans - how is this?
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Its unfortunate situation that third world nations like Zambia find herself in.
national 'leaders' want to get money to fulfil the promises made during campaigns and would to go to any length to get that money. They normally negotiate from a weak financial position and their legal teams may not be up to scratch. A situation where creditor countries(who are supposed to be 'friendly countries') go on to sell debt to third parties should not be allowed.
Its wrong to use an excuse of mismanagement of this funds by national leaders. Take an example of debt that was incurred 20yrs ago. Politicians that made those commitment may no longer exist.
Thats where lobbying should come in. Laws should be passed to stop supposedly legally binding contracts that deprive the helpless poor of the little that is there.
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MEIRION SAYS...
I produced the Greg Palast piece last night and the first thing to say is that the judge today found for the vulture fund but dismissed some of their claims for being too penal. None the less Goldfinger - Mr Sheehan's operation - will probably get $15 million back on a $3 million investment. The judge made a point of describing Mr Sheehan as "dishonest" and accused him of misleading courts around the world with false testimony. I don't think we'll be making any apologies to him. We'll put a link up to the full judgment on the Newsnight site tomorrow.
* Tom Papworth - I hope you read that judgment because I think when you have, you will understand why most of your criticisms are invalid. We didn't come up with the term vulture fund. It is used by the IMF, Gordon Brown and all those who have been seeking to relieve the debt burden of poor countries. The UK government used it again in their statemnt to Newsnight last night. What term would you prefer us to use - Benefactors? You make a good point about deefence spending and corruption is of course important. When you read that judgment you will see plenty of evidence there suggesting the vultures used bribes to get their way. The man who was President when the deal was done is now on trial for graft by the new Zambian government. I think when you read the facts you will come to a different conclusion about whether vulturing is a legitimate way to make a living. If not - can you please come on Newsnight the next time we need someone to defend the vultures. We couldn't find anyone yesterday anywhere in the world.
* Stephen Wilson - sorry you thought the piece was weak. I usually get complaints that my films are too strong. That's certainly what the vultures were saying. In answer to your question the original debt in the Zambian case was a $15 million loan from Romania in 1979 to buy Romanian tractors which turned out to be junk.
* Brian K Tembo - yes it was a Zambian child filmed in Zambia and the World Bank say Zambian average daily wage is about $1.30 or just over a dollar as we said - very roughly.
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All these things, all these dreams, shuttered for a whole lot of money... it hurts your heart just to think of it. I'm Zambian. im hurt. I angered. I have always said you can never trust anyone to do anything for you. I'm filled with a passion that is going to fuel me as i do my best to fight for my country. hell my people cant even afford to know this...
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I do not really know what vulture funds are, and cannot defend or criticise them. This is my main complaint about the piece on Wednesday's show (perhaps I am a little late on commenting now): after watching Greg Palast's article I am no more informed than I was before, which was not very, on how these events came about. The debt sequence was summed up as "somehow this 3 million becomes 42 million" (I am paraphrasing) and then everyone moved on. This is the crux of the whole story. If it is simply vulture funds making up numbers then it is of course wrong. If it is the interest on a debt then it seems reasonable, if perhaps not very nice (alas, this is the way of the world).
The problem is that having watched this piece, there is no information given as to whether the claim is dishonest. All that happens is Greg Palast says "these people are making a profit. The money is coming from Zambia. Therefore this is wrong" and proceeds to run around the globe asking people if they are ashamed of themselves. At no point is the viewer given enough information about the mechanics of the financial deal to form an opinion on what happened.
I'm not surprised vultures complained the piece was too strong, it is lazy propoganda. It is too strong in the sense that it spends the whole article saying "vulture are evil, because look, I said so!", not in terms of its factual content, which was weak verging on non existent.
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I apprecite the coverage of this whole issue by the 麻豆约拍.
However, I would be glad if the 麻豆约拍 can now cover a positive side of our country such as the mighty and only attractive falls in Africa if not in the whole world. Infact Zambia has more positives than negatives to report on.
Thank you.
Mumba from Zambia.
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