Vultures unlikely allies in anti-graft cause
Wednesday, 25 July 2007
Alan Beattie
THE sometimes secretive activities of those who make a business of suing bankrupt governments of developing countries are rarely associated with campaigns for transparency and openness.
Development campaigners such as Oxfam and the Jubilee Debt Campaign inveigh against so-called vulture funds that buy up defaulted sovereign debt cheaply and use high-powered lawyers and novel legal avenues to sue for full repayment. But when the government in question is mired in allegations of mismanagement and corruption, the issues can become blurred.
Such is the situation with the central African state of Congo-Brazzaville, rich in oil but one of the poorest nations on earth, where concern over a barrage of litigation from investors is tempered by criticism of mismanagement of oil revenues and the high-spending habits of the president's family.
Global Witness, the pro-transparency non-governmental organisation, has used documents obtained during debt litigation to argue that International Monetary Fund and World Bank debt relief for Congo-Brazzaville might have been misguided.
Their views resemble points made by Kensington International, a sovereign debt litigator suing Congo-Brazzaville in London, Hong Kong and New York. In New York it is seeking triple damages under an anti-racketeering law. If successful it would net a return of more than $300m (€217m, £150m) for debt it bought for much less than its face value of $100m. Jay Newman, a portfolio manager with Kensington, argued in the Wall Street Journal in 2005 that it was wrong to give Congo-Brazzaville debt relief under the IMF-World Bank heavily indebted poor countries (HIPC) scheme.
"Kensington in no way opposes HIPC in appropriate cases, but believes that, in every instance, HIPC must be evaluated in the context of corruption and transparency," a Kensington spokesman told the Financial Times. "Countries in which official corruption is rampant are unlikely to benefit from debt relief."
The IMF and World Bank granted partial debt relief to Congo-Brazzaville in March last year, though saying it "must address serious concerns about governance and financial transparency in order to qualify for irrevocable debt relief", including reforming SNPC, the state-owned oil company.
Litigation in Hong Kong revealed credit card statements showing that Denis Christel Sassou-Nguesso, son of Congo-Brazzaville's president, had spent more than $50,000 on Louis Vuitton and other luxury goods. Mr Sassou-Nguesso is a senior executive at SNPC. SNPC did not respond to a request for comment.
John Richards, attorney with Trout Cacheris, the law firm representing Congo-Brazzaville in New York, said issues of personal spending were a distraction and that litigators were focusing on debt relief to cloak their own interests and put pressure on the government concerned. "These gratuitous arguments about corruption have nothing to do with the real issue."
Rules of the Paris Club, the international grouping of official creditors, say governments receiving debt write-offs must seek equivalent reductions from their private creditors.
Global Witness declined to comment on the litigation, but said there was an "overriding public interest" in having information about spending habits in the public domain so that Congolese could decide for themselves. "Congolese citizens supported by Global Witness were saying that this was not the right moment for debt relief, given ample evidence of mismanagement of public revenues and lack of transparency," said Sarah Wykes of the oil campaign at the charity.
Stephen Rand of the Jubilee Debt Campaign, which campaigns for sovereign debt relief and supported the Congo-Brazzaville write-off, accepted that such issues could be matters of fine judgment but said: "Debt relief should never be used as a weapon of economic coercion by creditors."
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— FT Syndication Service
THE sometimes secretive activities of those who make a business of suing bankrupt governments of developing countries are rarely associated with campaigns for transparency and openness.
Development campaigners such as Oxfam and the Jubilee Debt Campaign inveigh against so-called vulture funds that buy up defaulted sovereign debt cheaply and use high-powered lawyers and novel legal avenues to sue for full repayment. But when the government in question is mired in allegations of mismanagement and corruption, the issues can become blurred.
Such is the situation with the central African state of Congo-Brazzaville, rich in oil but one of the poorest nations on earth, where concern over a barrage of litigation from investors is tempered by criticism of mismanagement of oil revenues and the high-spending habits of the president's family.
Global Witness, the pro-transparency non-governmental organisation, has used documents obtained during debt litigation to argue that International Monetary Fund and World Bank debt relief for Congo-Brazzaville might have been misguided.
Their views resemble points made by Kensington International, a sovereign debt litigator suing Congo-Brazzaville in London, Hong Kong and New York. In New York it is seeking triple damages under an anti-racketeering law. If successful it would net a return of more than $300m (€217m, £150m) for debt it bought for much less than its face value of $100m. Jay Newman, a portfolio manager with Kensington, argued in the Wall Street Journal in 2005 that it was wrong to give Congo-Brazzaville debt relief under the IMF-World Bank heavily indebted poor countries (HIPC) scheme.
"Kensington in no way opposes HIPC in appropriate cases, but believes that, in every instance, HIPC must be evaluated in the context of corruption and transparency," a Kensington spokesman told the Financial Times. "Countries in which official corruption is rampant are unlikely to benefit from debt relief."
The IMF and World Bank granted partial debt relief to Congo-Brazzaville in March last year, though saying it "must address serious concerns about governance and financial transparency in order to qualify for irrevocable debt relief", including reforming SNPC, the state-owned oil company.
Litigation in Hong Kong revealed credit card statements showing that Denis Christel Sassou-Nguesso, son of Congo-Brazzaville's president, had spent more than $50,000 on Louis Vuitton and other luxury goods. Mr Sassou-Nguesso is a senior executive at SNPC. SNPC did not respond to a request for comment.
John Richards, attorney with Trout Cacheris, the law firm representing Congo-Brazzaville in New York, said issues of personal spending were a distraction and that litigators were focusing on debt relief to cloak their own interests and put pressure on the government concerned. "These gratuitous arguments about corruption have nothing to do with the real issue."
Rules of the Paris Club, the international grouping of official creditors, say governments receiving debt write-offs must seek equivalent reductions from their private creditors.
Global Witness declined to comment on the litigation, but said there was an "overriding public interest" in having information about spending habits in the public domain so that Congolese could decide for themselves. "Congolese citizens supported by Global Witness were saying that this was not the right moment for debt relief, given ample evidence of mismanagement of public revenues and lack of transparency," said Sarah Wykes of the oil campaign at the charity.
Stephen Rand of the Jubilee Debt Campaign, which campaigns for sovereign debt relief and supported the Congo-Brazzaville write-off, accepted that such issues could be matters of fine judgment but said: "Debt relief should never be used as a weapon of economic coercion by creditors."
.........................................
— FT Syndication Service