Wednesday, 8 December 1999

Debt and Development: Ghana - a case study

By Stuart Simpson, p. 3.

A decrease in funding or demands for cash will immediately wipe out any benefit from savings on debt service payments, just as any increase in funding will provide a great deal more money to spend than is released by debt forgiveness. The real benefits to be gained from debt relief arise from the ability of developing countries to issue new debt.

The recent case of a vulture fund demanding Zambia honour a debt originally issued by Romania may have the effect of wiping out much of the current year’s cash benefit Zambia has received from debt relief. Donegal International bought the debt off Romania for $3.2m and successfully sued for payment by Zambia in the UK courts, finally settling for an amount of $15.5m [...]

This resulted in much moral hand wringing in the media, aid agencies and among governments. Donegal International were criticised for making obscene profits by exploiting one of the world’s poorest countries. None of the moral condemnation changes the fact that the benefit Zambia derived from lower service payments has vanished overnight.

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