their investment in developing countries subsidizing them and providing a risk-free bonus for the commercial banks that have lent the investment capital. And with no quid pro quo at all that the favoured business employ the peoples of the subsidizing government, invest in its country or fulfil any national interest.
The story of the ECAs is also a story of barefaced hypocrisy.
The rich world censures the poor for its high levels of military expenditure, yet continues to provide the funds so that it can buy its arms. The Europeans deify multilateralism and sign up to a range of environmental conventions – Kyoto, the Convention on Biodiversity, and so forth – supposedly to protect the environment and slow down climate change, yet Europe’s ECAs finance the very fossil fuels and energy intensive projects that will lock in higher emissions in the developing world (thus recreating there the same environmentally unsound development path these countries themselves followed). While in the US, the justification for rejecting Kyoto is supposedly in part because the Protocol does not require emissions limits for developing countries, countries in which American ECAs are financing the building of environmentally unfriendly power plants. The developed world unapologetically uses its ECAs to subsidize its exporters, yet demands in the name of ‘free trade’ that developing countries do not protect their producers in any way at all. And, in the name of investment, saddles the developing world with yet more repayment of debt and debt at the higher rates of the commercial banks rather than the lower rates of the bilateral or multilateral loans.
The case of export agencies rams home the Janus-faced nature of the West. A developed world that espouses concern for human rights, transparency and environmental issues on the one hand, yet on the other bankrolls projects that are at complete odds with any such concern. A developed world wedded to multilateralism which it defines in a way that serves the narrowest of corporate interests.
So it is that the world’s poorest countries sink further and further into debt whilst Western corporations grow fat from government-backed projects that fuel conflicts, harm the environment and have built-in kickbacks. Rather than being a tool for development, ECA funds often serve to feed the vicious cycle of corruption, underdevelopment, conflict, and debt.
CHAPTER FOUR Pushers and Junkies
‘Imagine a bank manager you didn’t know came knocking on your door, begging you to borrow some funds.’
Crossbones and bananas
He must have been good-looking when he was younger, although now with his paunch and perma-tan, it’s hard to imagine. But clearly there was a time when he was a player: the waterbed and hot tub are still there – I know because he pointed them out, as he showed me around his spectacular, though crumbling, apartment. Stained-glass windows shipped in by the Rothschilds, wooden panels, galleried living room and everywhere his own amazing photos of Africa, the continent in which he spent the best days of his life.
In 1969, the year man landed on the moon, Richard Nixon took office as President and Charles Manson murdered Sharon Tate, Karl Ziegler was 26, and just out of business school when he went off to Kenya with First Chicago to head up the bank’s syndicated loans division.
The biggest loan he made was to Nigeria in 1975, a jumbo loan of $1.4 billion. It was the biggest loan, in fact, that had ever been made to that country. $400 million of it went to the Wari Steel rolling mill (that part of the loan supported by Hermes, the German Export Credit Agency) and the rest undesignated, a generalpurpose loan to support Nigeria’s balance of payments. Nigeria, he told me, was a good risk at that time. It was one of the world’s major oil exporters and the oil price was high.
It was a good risk, true, in the sense that it wasn’t likely to default, but it was not exactly the most salubrious of countries to lend to. Especially at the very time that Ziegler was working on the deal. Because right then the country was embroiled in a huge and highly visible scandal. A number of public officials and private contractors had imported over a million tons of cement at hugely inflated prices using central bank funds with the difference between the market price and the price they paid to be shared as a kickback between them. But rather than arriving in instalments, the shipments arrived en masse. With hundreds of cement ships waiting to offload their cargo in a harbour which, at the best of times, could only unload ten ships a week, the shipments began to solidify in the hulls, rendering many ships useless, fit only to be scuttled. 1.5 million tons of cement were left in vessels for 15 months waiting to be unloaded, cement of such a poor quality that years later many of the buildings constructed with it had to be demolished. Building after building made with that material was simply collapsing.
Ziegler may not have known at the time about the inadequacy of the concrete, but he was well aware of the corruption that brought about the cement scandal. But back then cement wasn’t the issue. ‘My job was to sell money,’ he told me. And his $1.4 billion deal was all about that: selling money, and making money, too. As the lead bank in the syndicate, First Chicago would make 0.25 per cent of the $1.4 billion up front – $3.5 million. And if all went to plan, it wouldn’t carry the risk. That would be passed on to other banks in the syndicate. ‘To some schmuck in Des Moines, or some smaller bank in the North’, to quote Ziegler:
Doing the deal was, he explains to me now, what it was all about. ‘First Chicago came along and we won, and I felt eternally grateful for that,’ he told me. I asked him about the corruption. ‘It worried some of us more than others,’ he replied, but ‘it was great kudos…The important thing was to win the mandate…[And when we did]…I was on a high. It was enormously exciting…We were young guys with the world at our feet.’
I pressed him on the corruption issue, and he smiled wryly, perhaps because he now heads a centre whose mission it is to fight corruption and stamp it out. ‘As long as the country’s flag wasn’t black with a skull and crossbones on it or with a yellow banana on it,’ Karl tells me, ‘it was eligible for a loan.’
Ziegler’s experience wasn’t unique. Throughout most of the 1970s, a host of banks – large banks (Chase, Citicorp, First Chicago, JP Morgan, Lloyds, Union Bank of Switzerland, the Banks of Montreal, Tokyo, Japan, and the French Banque National de Paris) and small rural American banks, too – lined up indiscriminately to push their loans to developing countries. It wasn’t only the Cold War players and other developed world governments getting in on the lending game.
With memories stretching back to the widespread defaults on Latin American bonds in the 1930s, commercial banks had, on the whole, stayed away from lending to the developing world since World War II. But, in 1973, the banks returned to those shores with a bang. Eurodollar syndicated loans to Latin America jumped from $2 billion in 1972 to over $22 billion in 1982: 1,600 banks were involved in loans to Mexico alone. Commercial lending to Africa was significantly more limited, never reaching the poorest sub-Saharan countries, but, by 1982, it accounted for 35 per cent of regional debt.
Many countries which had already seen their bilateral debts rise earlier in the Cold War now saw their financial obligations really explode. Argentina saw its debt rise by 544 per cent, for example, between 1976 and 1983. And while, in 1970, the combined external public debt of Algeria, Argentina, Bolivia, Brazil, Bulgaria, Congo, the Ivory Coast, Ecuador, Mexico, Morocco, Nicaragua, Peru, Poland, Syria and Venezuela was $18 billion (10 per cent of their GNP), by 1987, once the commercial banks had entered the picture, these countries owed $402 billion (almost 50 per cent of their
