Asshole of the Day

Zambia had a debt of $15m owed to Romania, which it could not pay. They were in the process of negotiating a discharge of the debt for a one-time payment of about $3mil, forgiving the rest. Sheehan's firm, Donegal International, a venture (read: vulture) capital fund based in the British Virgin Islands, bought the debt from Romania for around $4mil, and then promptly sued the government of Malawi for between $42 and $55mil (reports vary), the total original debt + interest + "penalties." Needless to say this is a crippling proportion of Zambia's annual budget. The original Romanian debt was incurred in 1979.

A month or so ago a British court declined to toss the suit, but didn't award Donegal the full amount, either. Zambia will have to pay somewhere between $10 and $15mil.

Yep, that's an asshole alright.

So far as I understand it, this is a fairly common practice these days -- buying up developing-world debt at cut-rate prices (just like an intra-national collection agency), then litigating for the full amount. They surely don't expect to get the full amount; just enough extra to make it worth their while. I really can't imagine this will bring great profit to anyone, or be a trend for very long, because ... well, I'm no economist, but for all the usual reasons it's not the best long-term plan to rely on getting things from entities that don't have them to give (especially on a sovereign, international level, where it's not like you're going to get an order to garnish a country's GDP).

(Hence buying small debts in the handfull-of-millions area -- i.e., the sort even an impoverished nation could easily cover, if need be.)