Financial firms in the United States are ripping off African countries and taking advantage of her indebtedness, according to a coalition of civil society group. These financial institutions invest their capital into buying heavily indebted countries’ debts by helping to pay their debt and end up charging exorbitant fees in interest or confiscate their assets if they flout the agreement.
According to the group of fifty advocacy institutions which discovered the “unscrupulous loan transfer” called VULTURE funds, Highly Indebted Countries’ debt are purchased at pennies to dollar and the financial firms “aggressively pursue their claims through the seizure of assets, litigation and political pressure, seeking repayments that are far in excess of the amount that they paid for the debt,” the group say.
For instance, FG Hemisphere Fund based in the United States was successful in its court case against the Democratic Republic of Congo for US$105million for a US$30million loan borrowed in 1980 by the government of Mobutu Sese Seko. The DRC was ordered to pay nearly US$80,000 a week by a US judge.
“The DRC is being forced to siphon these desperately needed resources from initiatives like healthcare, education, combating HIV/AIDS, and access to clean water to its impoverished citizens to pay off wealthy corporations such as FG Hemisphere,” said Melinda St. Louis, deputy director of the Jubilee USA Network.
“This runs totally counter to the progress made by the U.S. and the international community on debt cancellation, through the World Bank’s Highly Indebted Poor Country (HIPC) effort,” St. Louis added.
Renowned experts have been campaigning hard against financial aid to Africa and have argued it does more harm than good. Dembisa Moyo in her controvercial book: Dead Aid, warned that aid damages and impoverishes Africa’s economies.
Michael Stulman, associate director of policy and communications at Africa Action said: “Since 1996 donor countries – including the U.S. – have committed 90 billion dollars in bilateral and multilateral debt relief to over 30 countries. VULTURE funds profit from this debt relief.”
In another case, a US judge ordered the Zambian government to pay Donegal International 15 million dollars on a debt that Donegal obtained for three million dollars. This represent 60 percent of the debt relief Zambia received in 2007.
“When vulture funds sue for such exorbitant amounts it’s clearly taking away money that should be invested in health, education, infrastructure and other social problems and goes to line the pockets of already wealthy investors,” said Stulman.
Only few African countries are beginning to realise the seriousness and the impact financial aid has on their countries.
President Paul Kagame of Rwanda whose country’s development agenda is gradually yielding dividends said: “The cycle of aid and poverty is durable as long as poor nations are focused on receiving aid, they will not work to improve their economies… Often, aid has left recipient populations unstable, distracted and more dependent; it can even sever the relationship between democratically elected leadership and the populace.”
Even the United Nations agreed that the management of foreign debts is not fair and transparent enough. In May, the UN Human Rights Council’s Independent Expert on foreign debt and human rights, Cephas Lumin said:
“Rigorous, transparent and participatory debt audits which examine the impact of debt on the full enjoyment of human rights can be an important step in this process. In order to adequately and fairly address the current debt situation in low- and middle-income developing countries, the shared responsibility of debtors and creditors and the obligation of international cooperation must be fully acknowledged.”
The fifty advocacy group which exposed the VULTURE funds are now pressing the US Congress to pass a resolution to stop the financial firms from using US courts to make their gains, allow transparency in their relationship with Highly Indebted Countries and reduce their profits.