Unlikely Ally Against Congo Republic Graft

from The New York Times

By LYDIA POLGREEN

BRAZZAVILLE, the Congo Republic — The main teaching hospital here is in such disrepair that many patients have to pay freelance porters for piggyback rides up and down the stairs to get X-rays. It costs $2 a flight, each way.

But why is the hospital, like so much of the Congo Republic, so tattered when the country sells billions of dollars of oil each year?

The government says it is still recovering from a devastating war and faces a new problem: Western investors, sensing a chance to rake in millions, are suing to recover old debts that they bought for pennies on the dollar.

Such investors, running what critics derisively call vulture funds, have been widely denounced by the World Bank and the International Monetary Fund for forcing poor countries to fend off costly lawsuits rather than build classrooms and clinics.

But in the Congo Republic, where a deep-seated culture of graft has squandered so much of the nation’s wealth, those investors have become unexpected allies of anticorruption campaigners, who say such lawsuits may be the only way of holding the country accountable for how it spends its money.

“We ask ourselves, why is our country like this?” said Dr. Bebene Bondzouzi-Ndamba, a neurologist at the hospital. “Why are we so rich and yet so poor?”

Her questions have come into sharp relief in the fight between the Congo Republic and an affiliate of an American hedge fund, Elliott Associates. For an undisclosed price, the company bought about $31 million in debt that the country took on in the 1980s but later defaulted on. Now it is suing in American, European and Asian courts to collect the principal plus interest and penalties — more than $100 million in all. So far, it has collected $39 million.

Advocates of canceling third world debt recoil at such cases, with some calling for a code of conduct among lenders to prevent them from selling unpaid debts to investors.

“I deplore the activities of so-called vulture funds that seek to profit from the debts owed by the poorest countries,” Gordon Brown said in May, the month before he became prime minister of Britain. “I am determined to limit the damage done by such funds.”

But organizations that fight corruption argue that those investors are exposing in court the corrupt networks of government officials, providing a much-needed check on mineral-rich states. Beyond that, anticorruption campaigners, like the groups Global Witness and the Publish What You Pay Coalition, contend that when nations win debt relief without becoming more accountable, they will simply repeat old mistakes and end up deep in debt once again.

“If it were not for these vulture funds, we would not know any facts about the way our country’s wealth is being taken away,” said Brice Mackosso, a campaigner for greater transparency in the Congo Republic’s government. “We don’t agree with their ultimate aims, but they are the only ones capable of exposing the truth.”

Critics argue that virtually all countries use their debt relief savings to help the poor, and that so-called vulture funds achieve outsize returns from long-forgotten debts at the expense of the world’s poorest people.

Cutting Both Ways

While investor lawsuits may expose nefarious dealings, they may also make governments more secretive to avoid asset seizures. “It can cut both ways,” said Mark Thomas, a senior economist at the World Bank. “It can be a cause of revealing nontransparent practices, but it can also be a cause of those nontransparent practices in the first place.”

Debts are bought and sold all the time, and Western courts have awarded hundreds of millions of dollars in judgments to debt investors. Peru is the best-known example: In 2000, Elliott Associates, whose founder, Paul E. Singer, is a top Republican donor and a backer of Rudolph W. Giuliani’s presidential campaign, won a $58 million judgment on debt it had bought in 1996 for $20 million.

Now African countries are in the sights of debt investors. In 1979, Zambia borrowed $15 million from Romania to buy agricultural equipment. Twenty years later, the two governments agreed to settle the old debt for about $3 million. But a hedge fund, Donegal International, bought it first and sued for about $55 million. This year, a British court ruled that Zambia must pay Donegal $15 million.

The plight of Zambia, a poor country stricken by AIDS, raised awareness of so-called vulture investing in Africa, and debt relief campaigners, celebrities and some members of the Bush administration have taken up the issue.

Most creditors go along with debt reduction or write-off deals, and the Congo Republic has qualified under international programs for a reduction of much of the $8.5 million in debt it owed as of December 2004.

Government officials here point to a slew of new projects under construction, like a hydroelectric dam, hundreds of miles of new roads and an emergency power plant as evidence that they are rebuilding the country. A June report from the I.M.F. noted that at least some progress has been made to address “corruption and weak governance.”

Still, half the nation’s population lacks access to clean water, according to Unicef. The lifetime risk of dying in childbirth for women in the Congo Republic is 1 in 26, one of the world’s highest rates. Life expectancy is just 53 years, down from 55 in 1990.

That deprivation exists despite the significant amount of oil the country produces relative to its 3.8 million people — 250,000 barrels a day.

The litigation surrounding the country has unearthed a complex web of questionable practices that may have stripped untold millions of that oil money from the nation’s treasury since 1997.

Defense From Creditors

In interviews, officials here said the purpose of their complex transactions — which, according to court documents, included discounted prices for well-connected companies — was to avoid what it viewed as overzealous creditors.

“We are in a war, and we have to defend ourselves,” said Alain Akouala, the Congo Republic’s information minister.

But the group Global Witness has seized on court records to tease out these connections between government officials, private companies and a French bank that set up oil transactions.

The litigation has also exposed the free-spending habits of government officials. According to hotel bills, the country’s president, Denis Sassou-Nguesso, paid $8,500 a night for a triplex suite at the New York Palace Hotel during a visit to the United Nations in 2005. His hotel bills in the United States in 2005 and 2006 added up to hundreds of thousands of dollars.

Officials here said that Mr. Sassou-Nguesso was simply staying in the same type of hotels as other heads of state.

Another embarrassing find was the credit card bills of one of the president’s sons, Denis Christel Sassou-Nguesso, who runs the marketing arm of the Congo Republic’s state oil business, Cotrade. They showed large purchases from shops like Christian Dior, Louis Vuitton and Gucci, and a paper trail suggesting that companies receiving state oil business had paid for the purchases, Global Witness said.

The world of luxury implied by those credit card bills is emblematic of the vast gap between the country’s elite and its impoverished masses.

The Congo Republic’s main teaching hospital may be in terrible shape, but its director, Ignace Ngakala, works in a plush office outfitted with a large, lacquered wood desk and a high-backed leather chair. His office, he said, was recently renovated along with the delivery room in the maternity ward and a meeting room for medical conferences, complete with a state-of-the-art sound system. In his parking space sat a late-model Volkswagen sport utility vehicle that sells for about $50,000 in the United States.

“We are coming from war,” he said, explaining why the elevator in one of the hospital buildings was not fixed. “We are in the middle of a progressive renovation.”

Mr. Sassou-Nguesso, the president, first ruled the country as a Marxist-Leninist dictator, from 1979 to 1992, then seized power again in 1997. A brutal civil war followed, devastating the country. He was elected president in 2002, but the vote was deeply flawed because his main rivals were excluded, international observers say.

Mr. Sassou-Nguesso’s government has jettisoned its Communist past in favor of petro-capitalism. But aides say that the image of a free-spending kleptocrat is false, noting that here in the capital the president stays in the same modest home he has lived in since he was an army lieutenant.

But in Pointe-Noire, the center of the Congo Republic’s booming oil industry, Mr. Sassou-Nguesso lives in a sprawling oceanfront mansion. At a reception there in October, government ministers drank single-malt Scotch by the swimming pool, while Mr. Sassou-Nguesso sipped Champagne from a cut-crystal glass.

In an interview, Mr. Sassou-Nguesso said his government was committed to transparency and posts oil revenues on a Web site. It also submits to independent audits, as requested by the International Monetary Fund.

Both Sides Point Fingers

He criticized as immoral the private creditors seeking to gain from the Congo Republic’s misery, and rejected the notion that debt investors could play a positive role in exposing corruption. “Vulture funds cannot give us lessons,” he said.

In a statement, Elliott Associates said it could not be blamed for the Congo Republic’s problems. “The poor in developing countries are poor because the political and economic systems in their countries have failed them,” the statement said.

According to Justice Department records, the Congo Republic’s government has spent $3.3 million this year and last to hire lobbyists and lawyers to press its cause in Congress and in the news media, including the firms of Washington heavyweights like Plato Cacheris and Bob Livingston.

Their efforts have borne some fruit in the form of Congressional hearings on the impact of debt investors, and news articles about Mr. Singer’s contributions to Mr. Giuliani’s presidential campaign.

Caught in the middle of this fight are schoolchildren, like 10-year-old Laurent Mbemba in Pointe-Noire. His school has 3,583 students. Its three latrines are broken. Many teachers have not been paid in years — they get by on donations from parents.

Rain pours in thundering sheets onto the tin roof, dribbling through rust holes onto the children beneath. The classrooms are so packed — as many as 200 a class — that many children sit on the cement floor, notebooks perched on their narrow thighs.

“There aren’t enough desks for everyone,” Laurent said.

The school’s principal, Martial Itsouhou, said the school received virtually no assistance from the government.