Debt relief campaigners are unhappy that Zambia has been ordered by the High Court to pay back a debt to a private company.
The story appears in summary in the Telegraph, but I have also had a look at the case reports.
It all began in 1979 when Zambia borrowed £15m from Romania to buy agricultural equipment. (Nowadays it’s hard to imagine Romania as a lender country, but that was a very long time ago, obviously.)
In 1999, Romania sold on the debt to Donegal International, a private company, for £2m. In 2003, Donegal International and Zambia sat down and worked out an agreement as to how Zambia would pay them.
Zambia agreed to make 36 monthly payments. They agreed that if Zambia defaulted on any monthly payment, Donegal could, within 21 days of the default, terminate the agreement and sue to recover the outstanding amounts.
That is precisely what happened, and both parties found themselves before the High Court. Zambia claimed that they should not have to repay at all, but after considering all the legal arguments, the judge decided that Zambia should pay. However, he ruled that the amount of interest stipulated in the contract was punitive, so they will not have to pay that. Small comfort for Zambia.
Critics are up in arms. This case is being described as having exposed a loophole whereby private companies can enforce payment of debts from poor countries which are currently benefiting from debt cancellation.
I do not see what all the fuss is about. This debt was obviously not written off by Romania, as they would then not have been able to sell it on. To the extent that this is described as a ‘loophole’, I disagree. If a private company chooses to take the high risk of buying debts against poor African countries, then as long as it acts within the law, I do not see the problem. True, Zambia is a poor country, and much has been made of how that money could usefully have been spent alleviating the poverty of the Zambian people, but I would submit that that is not the problem of Donegal International.
There are sound economic reasons against debt forgiveness. While desirable for the debtor nation, it often does not relieve the suffering of the ordinary citizens of that nation. So many times people blindly advocate debt forgiveness without stopping to consider the long term effects on the debtor nation. This is grossly irresponsible.
At the moment, critics of the court judgment have restricted themselves to heaping abuse on Donegal, for instance calling them a ‘vulture fund’. I do not believe that emotional blackmail should be used against a private company conducting its business within the limits of the law, but that is a sign of our times, and I have learned to live with that. However, what I would really not want to see is a clamour for legislation to make it illegal for British companies to buy debts in this way. It cannot be too long before someone starts advocating that.