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East-West Debt is an international
company active in asset trading, debt recovery and debt collection
of overdue claims on high risk countries. The company has set
up a network of specialists, with many years of overseas experience
in the recovery of claims, especially in Africa, the Middle East,
Eastern Europe, Latin America and South-east Asia.
Russian
debt
Germany and Russia are
talking about swapping the outstanding DEM 50bn debt into equity in Russian
companies currently held by the state. Up till now Germany was reluctant
towards forgiveness for Russia, arguing that Russia is perfectly capable of
paying the full amount.
Germany controls about
40 per cent of the
Paris Club debt lent to the former Soviet Union. Russia is pushing hard for
forgiveness of its borrowings from the Paris Club of sovereign nations.
However, Russia is facing foreign opposition due to its strong economic
performance and its failure to agree a new programme with the IMF.
Nevertheless, the proposals might give opportunities to foreign
investors.
Iraq-UN talks
Although Iraq has said
repeatedly that the UN weapons inspection teams would never return, the UN
are trying to open a dialogue to break the impasse.
Arms inspectors
have not been permitted to return to Baghdad since December 1998, when they
left on the eve of a U.S.-British bombing raid.
The UN hope that Iraq
will agree to review the situation.
Lloyd's of London
covers debt of vulnerable countries
Small countries that have the risk
to get stricken by typhoons, earthquakes, mudslide, flood or volcanic
eruption can buy policies at Lloyd's to cover the cost of servicing their
external debt. Under a new insurance scheme 42 small states will be able to
obtain insurance at a fixed and affordable price. Their outstanding loans
can continue to be serviced after a natural disaster. The insurance, which
will cover an agreed period, usually 36 months, can be bought by lenders and
borrowers. The basic cover will be charged at a flat rate of 1 per cent per
year, based on the sum insured.
The new policy was developed by the CDMA (Commonwealth
Disaster Management Agency). Small states are defined as having a population
of less than 1.5m. Most of them are member of the British Commonwealth.
Larger Commonwealth members such as Mozambique and Bangladesh, may become
eligible once the scheme is off the ground.
The scheme would also
improve the creditworthiness of small states, while not interfering with a
country's eligibility for emergency aid.
Iraqi debt
Many companies and banks are still
holding uninsured trade debts on Iraq, due to exports or loans originating
from before 1990.
Please be aware that these claims on Iraq may
become time-barred.
East-West Debt is particularly interested in
purchasing or collecting your Iraqi claims guaranteed by the Rasheed Bank
and the Central Bank of Iraq.
Please contact us for more details.
The arbitration clause
In reviewing hundreds of international
contracts over the years, one of the most common questions we get from
clients is: 'What about the arbitration clause? Is it OK?' Clients are often
surprised when we tell them that the arbitration clause (or absence thereof)
can be one of the most important parts of the contract. Why is this
so?
Advantages of arbitration
Proponents of arbitration tout
its benefits, including:
* Cost - A well drafted agreement with an
arbitration clause can arguably reduce costs of resolving a dispute;
*
Speed - Arbitration is generally quicker than traditional litigation;
*
Confidentiality - Arbitration proceedings are ordinarily
confidential;
* Procedural informality - Arbitration proceedings are
less formal than traditional litigation; and
* Finality - Typically,
there are few appeals from arbitration; therefore, there is a greater degree
of finality.
Disadvantages of arbitration
Critics of
arbitration are quick to point out its weaknesses:
* Difficult to
resolve the entire dispute - In arbitration, the arbitrators have no legal
jurisdiction to bring into the arbitration proceeding all parties to the
dispute; therefore, it can be difficult to resolve the entire
dispute;
* Discovery - There is no right to traditional discovery.
Therefore, most discovery is voluntary
between the
parties, and
this usually does not work
well;
*
No right of appeal - Typically, there is either no right of appeal or only a
limited right of appeal from an arbitration award;
* Application of the
law - Arbitrators are not compelled to strictly follow "the
law";
Arbitration generates additional litigation - There is often
litigation over the meaning of poorly drafted arbitration
clauses.
Typical provisions of an arbitration clause
A well
drafted arbitration clause provides for the basic elements of
arbitration:
* Place of arbitration - Where will the arbitration
occur?
* Substantive law - What substantive law will apply to the
proceeding?
* Governing arbitration rules - Which set of arbitration
rules will govern (e.g., the rules of the London Court of International
Arbitration, International Chamber of Commerce or the American Arbitration
Association)?
* Language - What language will be used in the
arbitration proceedings?
* The arbitrators - What will be the number
and qualifications of the arbitrators?
Are arbitration clauses
enforceable?
Generally, most courts will enforce arbitration awards,
and under international treaties, it is possible to enforce a foreign
arbitration award in many countries. Thus, for planning purposes, one must
presume that arbitration provisions are
enforceable.
In conclusion, it has been our experience that,
while arbitration clauses certainly have a place in international business,
our clients have been harmed by them more than they have been helped. One
reason this has occurred is that, in many cases, companies agree to
one-sided or poorly drafted arbitration clauses. These poorly drafted
clauses cause problems when there is a dispute among the parties.
Article by James C. Nobles, Jr.
of Nobles &
Associates,
attorneys at law,
Atlanta, Georgia, USA
Tel: +1
404 365 9600
Fax: +1 404 365 8600
e-mail:
jnobles@jnobles.com
East-West
Debt News is mailed controlled circulation to financial
professionals within multinationals and banks all over the world. We
are welcoming contributions on subjects of interest to our readers: reply here.
Iraq
to World Court
Baghdad plans to sue the United States, Great Britain
and Kuwait in the World Court for human and material losses caused by the
ten year embargo on Iraq. Iraq says the air embargo has resulted in the
death of 6,286 people, not all of them Iraqis. It will claim damages for
losses caused by blocked contracts for the purchase of essential goods and
equipment. Kuwait has been named in the suit because it has long advocated
the blocking of contracts for buying necessary equipment for the repair of
Iraq's telecommunications network.
Kazakhstan to launch
insurance
The Kazakh government is introducing an innovative form of
insurance that would compensate foreign companies for their losses as a
result of the political instability and corruption.
The insurance will
be covered by a loan of USD 50m of the World Bank and another USD 200m from
commercial insurers. The World Bank will place the loan into an escrow
account in exchange for an up-front commission by the Kazakh authorities.
Funds would
only be released as necessary for reimbursement of
companies.
The programme is a response to consultations with foreign
and local businesses operating in Kazakhstan. Businesses have important
concerns about the absence of laws, the arbitrary way in which they are
applied and discriminatory actions by the authorities when investments have
been made. The scheme can help the government to limit corruption and
administrative failures.
Similar schemes are under way in Ukraine,
Albania and Bosnia.
Angola repays to Russia
Angola and
Russia are working on an agreement for the repayment of the outstanding
Soviet-era military debt of some USD 4bn. Angola will use diamonds and oil
to repay Russia and Russia will continue working in Angola, developing new
diamond deposits and reconstructing a power station for the mines. Presently
Angolan rough diamonds represent an annual volume of USD 1bn.
IMF
aid for Argentina
Argentina's problems to meet its obligations on its
USD 123.5bn foreign debt has scared off investors. That forced Argentina to
turn to the IMF for help in meeting USD 15bn in foreign debt payments in
2001 and in financing a USD 6.5bn budget deficit.
The last two years
Argentina's economy was hit by external factors. The default of Russia's
debt raised the financial costs of Argentina. The devaluation in Brazil,
Argentina's principal trading partner, and the fact that the peso is linked
to the US dollar, caused a loss of competitiveness. Moreover the prices of
Argentina's commodities dropped.
A package of IMF aid of
USD 40bn
has to pull Argentina back from a crisis. To restore the Argentine economy
the government has to reduce future credit shortages, eliminate its budget
deficit by 2005 and reform the social security and pension
systems.
International factors aiding this programme would be a drop in
the value of the dollar and the level of international interest rates and
investors should buy Argentine
bonds. On the other hand, when
the
government fails to get co-operation from the Congress and cannot
implement the measures, investors might refrain and interest rates will not
come down. When
this happens, Argentina again will have
problems meeting its foreign debt payments.
Aid package for
Indonesia
Indonesia is struggling under a public and private sector
debt which totals USD 28bn. The Consultative Group for Indonesia, chaired by
the World Bank, pledged USD 4,8bn in aid for 2001 and a further USD 530m in
technical assistance grants. With USD 1.585bn, Japan is Indonesia's largest
aid donor. Japan depends on Indonesia for much of its liquid natural gas and
other resources. The loan is to be spent on increasing the production of
basic foods, such as rice, building infrastructure to ensure stable water
supplies and investing in IT training. The Indonesian government, in return,
pledged to make efforts at improving the economy and corporate reforms and
restoring order in West Timor.
Peru's debt
Peru's foreign
debt stands at
USD 19bn, some 35 per cent of GDP. USD 8.4bn is owed to
the Paris Club of foreign government creditors, USD 5.6bn to multilateral
organisations and
USD 3.9bn to commercial banks. Peru's debt servicing
is around USD 2bn a year. At present Peru lacks the cash to meet its foreign
debt obligation in 2001. However the government pledged to be rigorous with
its payments in order not to loose the confidence of international
organisations, as Peru needs an increase of credit lines. Therefore, it has
been drawing up plans to avoid Peru defaulting on its debts. The plans
include replacing current debt paper with longer term issues to reduce the
amount the country has to pay to service its debt.
New IMF emergency loan for Turkey
After the earthquake in August
1999 Turkey received a USD 330m emergency loan of the IMF on condition that
Turkey completed structural reforms and established macro-economic targets
and policies for 2000-2001. December 2000 the IMF came with the scale of a
new USD 7.5bn emergency loan for Turkey, intended for restoring investor
confidence and saving vital economic reforms.
Turkey in return promised
to deal with the troubled banking system, that brought about the recent
crisis. The government took over Demirbank, the country's ninth largest
private bank. It also agreed to guarantee the banks' creditors, with the
intention to restore confidence in the banking system and to avoid
devaluation. The reform package for Turkey includes liberalisation and
privatisation of Türk Telekom, Turkish Airlines and the electricity
sector.
The Turkish government authorised the Treasury to transfer some
USD 7bn bonds to Ziraat and Halk, the first and second biggest
banks of Turkey. Notwithstanding these state-owned banks incurred some
USD 20bn in losses, arising from subsidised loans to farmers, but most from
giving loans to politicians. The bond injection will increase the ability of
Ziraat and Halk to borrow Turkish lira from the Central Bank and the
interbank market.
The IMF requested the Turkish government to privatise
the state banks. It passed legislation binding itself to a commitment to do
so by mid 2005 at the latest.
Libya seeks foreign
investment
During the 'International Conference on Development &
Investment in the Great Jamahiriya' held in November 2000 in Tripoli,
businessmen, bankers, consultants were invited to participate in the
development
of Libya's run-down infrastructure. Quaddafi emphasised
that there is nothing in the Libyan economic system which opposes private
business, foreign investment or
Libyan public or private partnership
with overseas companies. He said the USA and France still need to normalise
relations with Libya before business links could be established with
them.
The third five-year plan sets targets for investment and non-oil
economic growth of USD35bn in 2001-2005. A rail network, linking Libya with
Chad and Niger, telecommunications, tourism, non-oil minerals, fisheries and
roads are the main targets for foreign participation. Creating more jobs is
a priority.
Inflation is under 10 per cent and in 1999 there was a
trade surplus of USD 3bn. Libya is self sufficient in cement, iron and
steel. Non-oil industry counts for 12 per cent of GDP. The past five years
there was no increase of public debt. Seventy per cent of state revenues are
used for development. Foreign investment and joint ventures are encouraged
when the projects provide goods for Libya and for export to
Africa.
European and Asian companies compete to partake in the
investment, while US companies have to stay aside due to the 'Iran Libya
Sanctions Act' (ILSA). The 'Libyan Sanctions Regulations' prevent US
companies from dealing with Libya.
East-West Debt has made every effort to ensure the accuracy of this publication.
Neither the company nor any contributor can accept any responsibility for -including but not limited to- errors, omissions, opinions or advice given. This publication is not a substitute for professional advice and all information is for guidance only.
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