Skip to main contentSkip to navigationSkip to navigation
Residents of Kitchanga
'The anti-vulture funds campaign diverts attention from the primary cause of poverty in the DRC – government corruption.' Photograph: Phil Moore/AFP/Getty Images
'The anti-vulture funds campaign diverts attention from the primary cause of poverty in the DRC – government corruption.' Photograph: Phil Moore/AFP/Getty Images

Congo's victory against a 'vulture fund' is hollow

This article is more than 11 years old
The privy council's decision to block FG Hemisphere from collecting debt from the DRC will not benefit the country's people

The judicial committee of the UK privy council, acting as the final court of appeal for the Jersey legal system, has ruled against "vulture fund" FG Hemisphere (FGH) in the latter's attempt to collect an old debt owed by the Democratic Republic of Congo (DRC). The Guardian has followed this case closely for some time and many people will see the DRC government's success as unalloyed good news. In fact, the victory is pyrrhic. First, because the people of the DRC will see no benefit. Second, because the campaign against vulture funds both directs the eye away from the primary cause of poverty in states such as the DRC – government corruption – and presents a misleadingly optimistic perspective on unconditional debt cancellation.

Campaigners have always maintained that if FGH is unable to collect the debt then the money will go instead to public works in the DRC. This is simply not true. The doctrine of "sovereign immunity" applies across the world and it is therefore not possible for any creditor, "vulture" or otherwise, to access funds that have a sovereign purpose – that is, public expenditure. Creditors can only target cash being used to trade.

In this case, the trading company is Gécamines – the "formerly" state-owned mining company. Central to the privy council's ruling was its view that Gécamines could no longer be considered a state asset, so its own assets could not be seized to pay a DRC debt. If Gécamines assets are not the DRC's, then they can certainly not be used to fund DRC public expenditure.

It's worth considering, too, why the case took place in Jersey.

FGH petitioned the Jersey administration to freeze a $200m payment from GTL, a Jersey-based company, to Gécamines. Yet GTL was formed in Lubumbashi, in the DRC, to commercially exploit a Gécamines venture and Gécamines itself has a substantial share in GTL. And why is GTL offshore?

There is strong evidence that senior DRC politicians have a significant personal interest in former state mining companies. No one who understands the DRC, not even anti-vulture campaigners, think that money is "going home" under any circumstances. Even more important is the fact that vulture funds are being used by powerful politicians and businessmen in Africa as an "Aunt Sally" to draw the eyes of the concerned away from the large-scale corruption that is the primary cause of poverty in places such as the DRC. Last year, I identified $5.5bn (that's billions, not millions) in recent, highly questionable minerals deals that saw some individuals became fabulously wealthy, but where the people of the DRC saw no benefit at all.

The DRC government continues to blindly deny all charges, but refuses to provide any credible explanations. This scale of corruption dwarfs the legal claims pursued by companies such as FGH, yet only one NGO, the admirable Global Witness, has shown any interest in pursing the matter.

This is because the larger, still-dominant narrative at play is that it's wrong to blame developing nations for their own ills. Yet it's clear that the governments of some developing nations, such as tiny Rwanda, which borders the DRC, have made remarkable advances by putting the people first. These exemplars make the best use of development aid and use sovereign debt cancellation to phenomenal structural effect – from genocide in 1994 to projected middle-income in 2020. They justify the UK taxpayer's altruism. The DRC government, on the other hand, does the opposite – it leads people to question the value of development aid and debt reduction, especially in the current domestic economic environment.

In the end, governments must raise cash both on the markets and from other governments. If we allow developing nations to eschew their debts unconditionally then we make it harder for them to raise cash from legitimate lenders in the first place. People might not like the idea of secondary debt (vulture funds buy debt from primary lenders), but would any lender lend unless they had scope to sell on bad debt in the event of a default? And politicians from successful African states all stress the importance of attaching strong developmental conditions to debt cancellation; they equally recognise that a refusal to honour commercial debt is often lethal to the cause of inward investment.

There's an intelligent debate to be had, for sure, about the merits of qualified debt cancellation. But the harsh reality is that anti-vulture campaigners, which include middle-income countries such as Argentina (or even Greece) among those who should benefit from unconditional debt cancellation, are well-intentioned but horribly misdirected. The debate around development needs to grow up. It needs to move on from, for some, a self-affirming rejection of the values of "money men" to a realistic discussion about how developing states such as the DRC can harness their enormous natural resources by giving their many potential investors confidence that they are not going to be ripped off by corrupt rulers.

More on this story

More on this story

  • When vulture funds circle, who will make debt repayments fairer?

  • UN urged to swoop on vulture funds

  • Angola deal to repay debt to Russia exposes EU tax havens

  • Africa's wealth is being devoured by tyrants and vultures

  • Vultures feed when economies are turned into rotting carcasses

Most viewed

Most viewed