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Annex 4: Zambia’s Experiences with Vulture Funds Zambia’s involvement with vulture funds is not new. For instance, it has involvement with Camdex International, an international commercial firm, stemming from 1988 when Zambia and Kuwait entered into a Deposit Agreement for road construction (Park et al, 2003). Some time after the agreement was entered into, in the early 1990s, Zambia, which had already experienced a history of debt repayment difficulties, began to default on scheduled payments on the Kuwaiti credit. In responses, the Central Bank of Kuwait, which was legally responsible for the loan on the Kuwaiti side, assigned all the debts due under the 1988 Deposit Agreement to Camdex International. Camdex International thereafter initiated a litigation process against the Bank of Zambia, which was at the time legally charged with managing the debt repayments on behalf of Zambia.
The Bank of Zambia appealed against Camdex International’s litigation claims.
In the Court of Appeal in Camdex International vs. Bank of Zambia, it was noted that written notice of the assignment was given to the Bank of Zambia, which did not dispute its debt to the Central Bank of Kuwait, or the amount due, but contested the validity and enforceability of the assignment under English law in circumstances where Camdex International knew, or ought to have known, at the date of the assignment that the underlying debts (in which Camdex International had no pre-existing interest) would have to be recovered by means of litigation.
The Court held that this did not make the assignment invalid or unenforceable. If a debt was bona fide, it did not become unassignable merely because the debtor chose to dispute it. In the absence of bad faith, suing on an assigned debt was not contrary to public policy, even if the assignor retained an interest. The Bank of Zambia’s petition for leave to appeal to the House of Lords was dismissed (Dickinson, 2004).
Unfortunately for the Zambian people, who ultimately bore the full burden of the debt, the case of bad faith in the original contraction of the Deposit Agreement was never pursued. Essentially, what this means is that some unscrupulous persons in a strategic positions in Zambia signed for a loan from Kuwait, Zambia failed to pay back due to a host of factors32 and so Kuwait minimized its losses by selling the debt to Camdex International. The firm then sued Zambia in the English courts and won.
That odious debts were being contracted did not come into question. Most leads on this case suggest that no one could find the documents to show who agreed to the loan in the first place. It is actually claimed that no one knows who agreed to the loan. So while Kuwait and then Camdex International recovered their debt in full, the original 32 Some of these included: limited growth prospects due to a persistent economic downturn; poor performance of the loan with limited developmental impacts to the extent that the Zambian government became increasingly reluctant to honour the debt.
loan funds seem to have disappeared into thin air without anyone ever being held accountable for contracting the loan and managing the project funds.
More recently, litigation against Zambia was put into process in the English Court by a Vulture Fund, which saw the Zambian authorities mounting a defence to protect Zambia citizens from once again bearing the brunt of an unscrupulous debt whose origins and repayment dynamics are unclear. This time, more meaningful outcomes were realized due to the government’s efforts and also the important email campaign on the vulture fund litigation against Zambia by Jubilee Zambia and Oxfam. This and the moral incorrectness of the vulture fund operations resulted in the following response
from the British government:
Clearly, some members of the international community sympathize with Zambia and other least developed countries, given such experiences with Vulture Funds. As an internal solution for Zambia, a debt management strategy is therefore imperative for protecting the country and its citizens from the unscrupulous operations of vulture fund s and from incurring odious debt burdens in the future.
We share your sense of outrage about the activities of vulture funds and the problems they cause for countries that have received debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.
Zambia worked very hard to complete the HIPC Initiative and received significant debt relief under HIPC and the Multilateral Debt Relief Initiative (MDRI), reducing its external debt from $7.1 billion in 2004 to $0.5 billion at the end of
2006. It has used some of its savings from debt relief to abolish health fees in rural areas. As a result, thousands of people are receiving free healthcare. The behaviour of vulture funds undermines these successes and diverts much-needed resources away from the fight against poverty.
We congratulate the Government of Zambia on the strong defence it mounted in this legal case. This is the first defence in a case of this kind that has ever been even partially successful, and its impact will be felt across the world. Vulture funds cannot continue to expect to profit from the world’s poorest countries.
We are determined to limit the damage done by such funds. The UK will therefore:
• call on the World Bank to make the IDA Debt Reduction Facility available to HIPC countries before they reach Decision Point, in order to help countries to eliminate their commercial debts at the earliest possible opportunity and thereby reduce the likelihood of debts being sold on to aggressive creditors;
85Zambia: Debt Strategies to Meet the Millennium Development Goals
• stand ready to scale up our contribution to the Debt Reduction Facility in support of this policy change;
• take forward talks with leading commercial creditors on a voluntary code of conduct that will set out the actions that responsible creditors should take to help reduce the risk of litigation, including the requirement to participate in collective action to reduce unsustainable debts;
• work with our G8 partners to develop a Charter on Responsible Lending that includes a commitment to protect developing countries from vulture fund activity;
• work to ensure that HIPCs have access to the legal assistance they need to defend themselves against litigation, including by supporting proposals at the African Development Bank to develop a Legal Assistance Facility to help countries facing legal action gain access to technical and legal support;
• continue to strengthen debt management capacity amongst HIPCs.
We continue to raise this issue in international fora. At the G8 Finance Ministers meeting on 18th May Ministers expressed their concern about the actions of some litigating creditors against Heavily Indebted Poor Countries and agreed to work together to identify measures to tackle this problem, based on the work of the Paris Club. We will continue to work with our international partners on this issue.
I hope this is helpful.
GORDON BROWNHILARY BENN Source: http://www.hm-treasury.gov.uk/documents/international_issues/international _development/development_ vulturefund 86 Zambia: Debt Strategies to Meet the Millennium Development Goals
1000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 United Nations Development Programme Zambia Country Office P.O. Box 31966 Lusaka, Zambia tel: +260 211 250 800 email: email@example.com