Africa easy prey for vulture funds
May 13, 2007 - 9:00 pm
We live in a country where we’re surrounded by comfort and affluence. Most Americans have no personal experience with extreme poverty, so it’s difficult for us to comprehend life in many countries on the African continent, where the average income is less than $1,000 each year — sometimes less than $500 a year. Although good leadership, hope and promise are abundant in these countries, poverty is an unfortunate reality.
Many African nations did not gain independence until the mid-20th century, and the end of colonialism left many countries on an unstable political and economic footing. As these nations now seek to foster development and provide basic public services for their citizens, many have found themselves in impossible cycles of debt that has grown so large that it cannot be dealt with.
To their credit, many world leaders and international organizations like the World Bank have agreed to institute policies of debt reduction toward these poor countries, eliminating part or all of their debt. As African nations demonstrate their commitment to democratic governance and the rule of law, the World Bank and others in turn reduce the amount of money owed them.
But there is always someone who is looking to make a dollar, whether by honest or dishonest means. And when someone makes a dishonest dollar, someone else usually gets hurt.
Sadly, many of the poorest African nations, the ones facing this unsustainable debt, are getting hurt as unscrupulous investors are trying to take advantage of this situation to make their dishonest dollar. These investors run what are called "vulture funds."
Vulture funds make profits through a simple strategy. They purchase the debt that poor countries owe another nation for a price far lower than the actual debt value and then file a lawsuit against the poor country for the amount of the debt plus exorbitant interest.
This scenario was played out in a case against Zambia. Zambia owed Romania $30 million for equipment it had purchased. Recognizing Zambia’s extreme financial hardships, Romania agreed to settle the debt for around $3 million.
But in 1999, before the final arrangements could be made, a vulture fund purchased the debt from Romania for nearly $4 million. When Zambia couldn’t make payments on the debt to the vulture fund, the fund operators filed suit, demanding $55 million. The case was settled in early 2007 with Zambia paying $15 million to the fund.
Like Zambia, many African countries have fought through litigation with vulture funds, including Cameroon, the Republic of Congo and Uganda.
In February, Rep. John Conyers, D-Mich., and members of the Congressional Black Caucus visited President Bush to discuss actions that can prevent vulture funds from winning more money from countries like Zambia. I congratulate them on working to draw attention to this important issue.
When I was in Congress, it was a privilege for me to be among the men and women working to foster development in emerging economies around the world through policy and interaction with world leaders. Although I may not be able to cast a vote on legislation any longer, I am still concerned with the underdeveloped nations of Africa. The African continent, in spite of its hardships, holds so much promise.
President Bush and his foreign policy team, including Condoleezza Rice and Jendayi Frazer, have established a policy of encouraging democracy wherever it can be found in the world, and I believe we should pursue this goal.
Democratic reforms, whether in Iraq, Afghanistan, or parts of Africa, empower the people of a country and give them the opportunity to make a better life for themselves. By extorting money from countries like Zambia, vulture funds take away the finances that would provide development opportunities in many poor nations.
I am also concerned with the impact that the impoverishment of countries like Zambia and the Republic of Congo has on Africa’s ability to be a strong ally for the United States.
Africa is a central ground in our continued battle to prevent the spread of terrorism. When these nations cannot provide for the basic needs of their own people, they become fertile ground for terrorists who are searching for a place to call home. As we promote development and democracy through policies like debt reduction, we build strong allies.
I have felt the weight of public opinion and have seen how quickly it can change possible action. Vulture funds are no different. While there are policy solutions that can help eliminate this problem, we can all help prevent vulture funds from operating by speaking out and educating others.
Whether we are working for change that will help our next door neighbor or a family in Africa that we’ve never met, we can make a difference. We do have a voice, and we must use it.
J.C. Watts is chairman of J.C. Watts Companies, a business consulting group. He is former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. His e-mail address is JCWatts01@jcwatts.com. He writes twice monthly for the Review-Journal.J.C. WATTSMORE COLUMNS