Aid to developing countries has increased dramatically over the last few years – but it is less well known that developing countries often haemorrhage as much money as they receive in aid, or more, says a leading UK churches' development agency - highlighting the problem of so-called 'vulture funds'.
Christian Aid is focusing on ways of plugging these financial leaks, because it says that doing so would give countries much more money to spend on reducing poverty, and also give them more independence in how they spend it.
One way countries lose money is through debt claims from private finance companies – the vulture funds that have recently been much discussed in the news. Vulture funds truly deserve their name, says the agency; they swoop in on the worlds' poorest countries in order to make a cynical buck out of their debts.
These companies buy countries’ debt for much less than its value, at a point when the country is in the economic doldrums and the original creditor just wants to escape the situation.
They then try, in various ways, to reclaim much more money when the country is in better shape – sometimes by suing the country. They might do this even when the country is one of the poorest in the world, and even when the international community has said that its debts should be cancelled.
The recent furore over Zambia is a classic case, claims Christian Aid. A vulture fund registered in the British Virgin Islands – Donegal International – bought a portion of Zambia’s debt extremely cheaply several years ago, and then recently claimed more than 15-times the price it paid to ‘cover’ repayments, interest and costs.
A judgement in London on 15 February 2007 rejected Donegal’s full claim, but awarded part of the money nonetheless.
This is despite the fact that Zambia has qualified for full international debt relief, and the sum being discussed for Zambia to repay could well be half the amount Zambia is due to receive from debt cancellation this year. That means fewer new nurses and teachers, in a country where one in six adults is living with HIV.
Christian Aid believes this is outrageous and immoral. Donegal International should renounce any claim to Zambia's money and Gordon Brown should use his international influence to press for a new, fair and transparent system of international debt arbitration that prevents this kind of thing happening ever again.
Jubilee Debt Campaign, which brings together development and church groups, is now organising a campaign calling on the UK Chancellor to stop the vultures preying on the vulnerable once and for all.