It was an impressive achievement, but Newsnight managed to plumb new depths last night. Its main article, devoted to questions surrounding companies that buy and sell national debt, repeatedly described them by the far-from-impartial moniker “Vulture Funds” and made no effort to give a balanced view. Rather, there was a disgraceful piece of polemic dressed up as journalism (I prefer my polemic naked). A less charitable viewer of Newsnight might say “business as usual, then”.
Third world debt is an emotive issue. Now that the West has largely put famine and pestilence behind is, we find it abhorrent that people should continue to suffer in conditions that we consider to be mediaeval, and we are understandably eager to do something about it. Thus we pick through Third World budgets, and particularly those that transfer money to the affluent West, and ask whether this expenditure would be better diverted to alleviating poverty. The money that Third World countries spend on servicing debt has become a totemic issue for many.
Meanwhile, for a very separate group of people, debt is a business, without which individuals, companies and countries would be unable to spend large sums of money that yield long-term benefits. If I could not borrow money I would forever be paying rent to a landlord instead of buying my own house; if our government could not borrow money it would not be able to build as many railways or hospitals; and if Third World countries could not borrow money they could not build the roads and ports they desperately need to trade their way out of poverty.
Sadly, the debt business is always viewed in rather emotional terms. “Never a borrower nor a git be,” as the witty wag, Stephen Fry, once said. Those who loan money are easily demonised, as Europe’s relationship with the Jews during the Middle Ages demonstrates. In fact, the trade in debt is not nearly the necrophagic business that anti-capitalists would like to pretend. In the event that a creditor is struggling to recover lent capital, it is entirely reasonable that they may accept a smaller sum to clear the business up quickly, and that a speculator might agree to take on the risk in the hope of recovering the full debt in the long run, and so make a profit over the knock-down price they paid.
To talk, as Newsnight did, of companies turning $5m dollar investments into $40m demands on Third World countries is disingenuous. The original debt would have been worth $40m whether or not it was sold on to a third party, but the original creditor had so despaired of ever seeing a return on their loan that they sold it on at a bargain price. The Third Word nation (in this case Zambia) did not lose out by seeing their debt sold on, except in as much as their original creditor may otherwise have despaired so utterly that the debt would never have been settled. The creditor (Romania, not exactly rolling in wealth and luxury itself) did not lose out, either, but rather judged that at the time it sold the debt, it needed the £5m more than it needed the hope of gaining the full value of the debt after a long, bitter and possibly hopeless battle. And the “Vulture fund” did not rip off the debtor, but instead met Romania’s need for a quick injection of cash and continued to pursue Zambia for an already existing debt.
The question remains, is it moral at all to seek to collect the debt when the average Zambian lives on a dollar a day? Sadly, the income of the average Zambian is beside the point, for the average Zambian is unlikely to see that $40m whether the debt is paid or relieved. Having visited Lusaka, I recall being told the story of how the president was unhappy with the size of the two swimming pools at State House, and so installed a third, grander one. It struck me that it would have been hard to find room for so many pools, as much of the grounds of this urban presidential palace were taken up by the president’s private safari park. It is also worth noting that Zambia’s defence expenditure has nearly doubled in less than a decade, from $68m in 1998 to $105m in 2005. While I am not usually enamoured of the “Defence money could be better spent elsewhere” argument, this and other discretionary expenditure does put paid to the suggestion that Zambia was unable to pay the debt, which has only mounted to $40m in 2007 because it has not be serviced for many years.
If we in the West believe that Third World countries should not be obliged to service debts their government’s incurred because there are better things for them to spend the money on, we should pay off their debts. Debts owed to other governments are easily forgiven, and have been. Debts to international organisations can also be relieved, but unless Western governments make up the shortfall, these organisations will not have money to lend to other needy nations.
But the debts resulting from private lending, or where private lenders have bought debt from other organisations, are now private property. Just as we would not countenance a government seizing a person’s house to build a road without adequately compensating them, so we should expect governments to compensate creditors – yes, even “vulture funds” – if they require them to forgive the debt. If government does not act, we may ask that the creditors show charity of their own volition, but we must be wary of tarnishing our request with a prurient distaste for the legitimate means with which they make their living.
My own prurient distaste for the way that Newsnight, et al, make their living, may be plain to see, but in my naivety I had expected a more elevated tone to its reporting than I was subjected to this evening.