The £12m claim is equivalent to 10% of the impoverished South American state's annual income, according to campaigners at the World Development Movement. It is less than 0.3% of Big Food Group's £5.5bn turnover last year.

The company's dogged pursuit of compensation for funds invested in the country's sugar industry has prompted comparisons with Nestlé, the Swiss food conglomerate that attracted disdain for its attempts to recoup funds from the Ethiopian government. Nestlé too dropped its claim in the face of public outrage.

Big Food Group said yesterday: "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."

Big Food Group lawyers had been due to pursue the claim through an arbitration hearing at the international court for the settlement of investment disputes later this month. Writing off the debt will not affect the company's results as provisions had been made some time ago, a company spokesman said.

The claim related to the Booker wholesale business, acquired by Big Food Group three years ago, which had invested heavily in the sugar industry in Guyana before it was nationalised in 1976. The government paid back half the £13m owed to Booker over the next 12 years before defaulting on its payments.

A Big Food Group spokesman denied that the decision to scrap the compensation claim was taken because of negative publicity since the weekend. "We would not make this kind of decision in a day. I can assure you it has taken some months."