Giving carrion-eaters a bad name

A "vulture fund" takes its pound of flesh from Zambia. Wrong, uncaring and unjustifiably greedy. But not illegal.

Published February 15, 2007 10:16PM (EST)

In 1979, Zambia borrowed money from Romania to buy tractors and other agricultural services. Zambia ended up unable to pay the debt, and ultimately the two countries agreed to write it off for $3 million. But just before the deal was signed, an outfit called Donegal International swooped in, bought the debt from Romania for $4 million, and then turned around and sued Zambia for the original loan plus interest and other fees, which it calculated to be some $42 million.

British papers and NGOs that focus on debt relief are reporting today that a U.K. High Court judge has ruled that Zambia must indeed pay Donegal International some portion of that debt -- not as much as Donegal wants, but also not near as little as what Zambia and Romania were going to settle for. The judge, Andrew Smith, made it quite clear that he found Donegal's actions reprehensible, but not, alas, illegal. (Thanks to HTWW reader, Rachel Cardone, for the tip.)

Donegal International is a breed of investor known as a "vulture fund" -- though such an association is a foul slur upon a bird that never deserved such calumny. Surely, no living creature other than a human being could conceive of and carry through so insidious a business plan as buying up the debts of destitute African nations at bargain rates and then turning around and suing those same nations for vastly inflated sums. quoted Justice Smith's pithy summary of the problem:

"The proceedings arouse strong feelings. Zambia is a poor country and sees itself as being vulnerable to 'vulture funds'."

As if a reminder to himself he notes: "I am concerned, of course, with the legal questions that are raised by the applications before me and not with questions of morality or humanity."

Greg Palast's documentary report on vulture funds for the BBC can be seen here. But in the meantime, consider this: Environmentalists often talk about how unregulated markets fail to internalize the true costs of a product -- as in, the cost of the pollution created during the manufacturing process, or the cost of disposing of the product after it is no longer useful. In the case of Zambia vs. Donegal International, we see another thing that markets don't properly account for: the human capacity for injustice.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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