Liberia has reached a deal with 2 “vulture funds” who had taken it to court to repay debts incurred more than 30 years ago. According to a report on the BBC, Liberia is to pay just over 3% of the $43 million (£27 million) that they claimed it owed.
The companies are Hamsah Investment and Wall Capital, reportedly registered in the Caribbean although Hamsah is linked by the BBC to the boss of a US hedge fund. They had taken Liberia to court in New York and London, rather than join other creditors in accepting a debt write-off, although the final deal agreed seems close to the 3 cents in the dollar agreed with other creditors.
The BBC story says it is thought Liberia borrowed $6.5m (£4.1m) from the US-based Chemical Bank in 1978 and that debt may have been resold a number of times, but it says details of the debts are not clear. Another investor interviewed in an very watchable BBC film clip said he had bought debts from a bank that was not even aware that it had them. It is also not clear how the amount had soared to $43 million.
The 2009 London ruling ordered Liberia to pay $20m (£12m) – then equivalent to about 5% of the national budget. Liberia is still very poor and trying to rebuild after a 14-year brutal civil war ended in 2003. It is estimated that 250,000 people – one in 12 of the population – died. According to a report in the UK Guardian newspaper last year, average life expectancy is just 45, according to the World Bank. The money the two firms are claiming amounts to half the country’s health and education budget.
Liberia’s Finance Minister, Augustine Ngafuan, was reported as saying Liberia now had the structures in place to ensure that it did not rack up debts it could not afford to repay. At first Liberia wanted to challenge the court orders to repay the debt, but now seems to believe a settlement would be cheaper.
“Vulture funds” buy up the defaulted debts of poor countries and then demand swift repayment. Nick Dearden, of Jubilee Debt Campaign (www.jubileedebtcampaign.org.uk), was reported as telling the BBC’s Network Africa programme such funds worked by “harassing” poor, indebted countries: “They try to extract money from anyone trading with or investing in the country in question so, in the end, the country feels it doesn’t have much option.” He added that: “Liberia got a pretty big discount on the debt”.
Mr Ngafuan said: “We had to take extraordinary measures to ensure that monies coming to Liberia were not seized. It was a tough year.”
In September, the BBC reported that the 19-nation Paris Club of lenders pardoned $1.2bn (£764m) worth of debt owed by Liberia. At the end of June 2007, the country’s external debt was about $4.4bn and debt servicing took up a lot of the budget.
Mr Ngafuan said: “Since 2006, our government has not borrowed a dime from any country… In fact, we ran what is called a cash-based balance budget, meaning that Liberia lives within its means.”
On cancelling the debt, the Paris Club said it welcomed “Liberia’s determination to continue to implement a comprehensive poverty reduction strategy and an ambitious economic programme providing the basis for sustainable economic growth”.
The British Parliament passed a law in April that vulture funds should not be able to use UK courts again but there is a campaign underway at the Jubilee Debt Campaign that this should be extended beyond 1 year.