Global interest rates are rising. Poor countries are finding it tough to pay back money borrowed from banks in anticipation of a commodity windfall that never materialised. Stir in some dirty dealing that has seen funds stolen and what do you have? That’s right: the makings of another debt crisis.
Banks have been lending to third world countries and doing some pretty sloppy accounting:
A prime example is the one made in London five years ago between Credit Suisse and Russia’s VTB bank to lend $2bn to two companies in Mozambique backed by the government in Maputo.
The money was supposed to be for a tuna fishing fleet and for a navy to protect the boats operating in Mozambique’s territorial waters. Credit Suisse and VTB trousered $200m between them in fees, but the loans were never revealed to the Mozambique parliament, the IMF, the financial markets or the Mozambique people.
A report into the deal by the corporate investigations company Kroll concluded that the two companies were inadequately managed and had generated no meaningful revenue. At least a quarter of the money is unaccounted for, with some suspicion that it was spent on military equipment. Jamie Drummond, the director of the development campaign group One says that it is not clear the money ever turned up in Mozambique after being sent to two offshore companies in Abu Dhabi. For sure, though, not a single tuna has been landed. Mozambique has paid a heavy price for defaulting on the debt, which has been sold on to vulture funds. The IMF, miffed at being lied to, has suspended its programme and the loss of financial support has meant public services are being cut.
It's a replay of the home mortgage crisis of a decade ago. We should have learned that such sloppy practices snowball and the ripples are felt world wide. Apparently, we -- or more precisely, our bankers -- haven't learned that lesson.
Fasten your seat belts.
Image: moneytalks.net
