Global Policy Forum

By Nick Mathiason

Bill Grimsey, the Big Food Group's genial chief executive, returned from holiday last weekend. He must have wished he had stayed away longer. As Grimsey made his way to his Hertfordshire home, his troubled company was at the centre of a new controversy which threatened to turn his food group into a consumer pariah. Big Food Group, which owns the Iceland food chain, was doggedly chasing a 26-year-old debt through a binding World Bank dispute resolution panel.

Nothing wrong with that, except the debtor was Guyana. The South American country, with a population of just 698,000, is fighting an Aids epidemic. The tiny poverty-stricken nation qualifies for 90 per cent Heavily Indebted Poor Country (HIPC) debt relief from the international finance community. Gordon Brown has written off Guyana's debt to Britain, put at tens of millions of pounds. Worse, Guyana had paid back half the £12m it owed BFG. But interest in the 12 years since it defaulted inflated the outstanding sum beyond the original debt.

The fact that the Big Food Group was ready to chase down its money was infuriating protest groups. 'This was a mean and ill-judged action,' said Dave Timms of the World Development Movement. 'Guyana is to receive debt relief from the British taxpayer. That BFG should benefit from any extra money in that country would have been scandalous.'

For Guyana, the stakes were high. The sum owed represented a tenth of the Government's income. Medical and other social services were at risk and the action had cast a shadow over future financial planning, said Guyanan President Bharrat Jagdeo. 'We were very concerned that, should an award be made in favour of the Big Food Group, then this would have tremendous consequences on our budget and our ability to provide many of our existing social services because we would have had to pay a lot to this group,' the President said last week. As things stand, despite debt relief, Guyana uses about 40 per cent of its revenue to service its foreign debts.

Big Food Group used a bilateral trade treaty with Britain to force Guyana into arbitration. But once the story - revealed in The Observer last week - was making headlines, the nightmare vision of protesters outside BFG stores forced directors to act. Last Monday, at a hastily fixed meeting, the directors made a spectacular climbdown. 'We have reviewed this matter carefully and believe the interests of both our company and those of the people of Guyana are best served by not proceeding,' a statement said.

If ever there was an example of a company capitulating in the face of campaigners taking their protests to the media this was it, although the company said it had been planning its climbdown for months. Privately it is thought that BFG is angry. It is understood that it believes it was bullied into capitulation and that an important property rights principle was at stake.

BFG was chasing compensation for a sugar business Guyana nationalised in 1976. That was originally owned by Booker, the cash-and-carry firm that merged with Iceland in 2000. Booker had made provisions for the Guyanese debt and hoped to be paid a chunk of cash after privatisation of the sugar business. But privatisation never came and BFG went legal. The company said it was never going to take money off Guyana. If it had won its case at the World Bank, it argued, it would have demanded that the Guyanese government invest in schools and hospitals.

There are suggestions that the inability to recover historic debts will dissuade the private sector from investing in countries desperate for capital flows. But Vikram Nehru, manager of the World Bank HIPC unit, disagrees. He said that, since the HIPC programme has begun poor nations have been able to invest in infrastructure and capital flows have increased. He said that the World Bank is concerned that private-sector businesses will continue to press HIPC countries for historic debt. 'It's a problem when there is litigation or non-participation,' he said. '[HIPC] is a voluntary arrangement. It's not legally binding. It's based on principles of burden sharing. We are very concerned when people start litigation. For good reasons, HIPC are the poorest countries in the world. They have the poorest resources to defend themselves.'

The BFG case is not unique. There are 21 other known cases of litigation by commercial creditors against the world's poorest countries. A World Bank report last September showed some 11 HIPC countries face action for claims of $346m. But that figure could nearly double because in previous cases final judgments have inflated original figures as interest and legal fees are piled on top. The arbitration of cases is made in New York, Paris or London, jurisdictions in which creditor rights are very strong. Countries facing continuing action include Uganda, Sierra Leone, Nicaragua and Ethiopia.

There is serious concern that opportunistic vulture funds are buying up debts to HIPC countries on the secondary market. Since final settlements dwarf original claims, this provides a profitable if controversial niche. Of the 21 known actions, two are from vulture funds, one based in former Yugoslavia, the other in the United States. The fear is that more funds realise that HIPC countries now have more money to invest and aggressively chase companies known to have historic debts.

Campaigners believe there are more companies about to open litigation. But for now campaigners are celebrating. Desiree Howells, a Guyanian living in London, said: 'It is great news for the poor in Guyana, for the many people with Aids, for the thousands who are unemployed, for the elderly who can hardly survive on their pensions.'

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