Ethics and debt

1
Ethics and debt

• Oscar Ugarteche
• Instituto de Investigaciones Económicas
• Universidad Nacional Autónoma de México

2
Nominal and Real Prime Interest Rates
3
The Ladder Effect
4
Different Rescheduling Patterns
5
Legal does not mean legitimate

• Finally, the debt accumulated during the 1980s
  due to this way of handling the external problem
  caused by the undue and unique rise in interest
  rates is legal. How legitimate is it?

6
Lessons to be learnt

• What is designed by man can be changed by man.
• The existing financial design threw into severe
  hardship two continents inducing a depression in
  the 1980s in Africa and Latin America.
• The interest rate induced economic crisis of
  1981/82 could have been handled differently

7
About Inefficient Loans

• Bilateral export guarantees are an export
  promotion scheme unrelated to the development of
  the recipient country.
• There are cases of problematic loans like the
  Bataan nuclear power plant in the Philippines,
  Karachipampa tin smelter in Bolivia and the
  Norwegian Boat Campaign.

8
About loans

• Here exist useless projects that result in
  indebtedness for products that do not work
  properly. These are legal loans but illegitimate
• The principle of money back guarantee does not
  operate internationally in development projects
  or international trade.

9
Lessons to be learnt

• Undoubtedly the quality of the loans and projects
  might be bad as long as the public does not
  follow what is happening.
• Transparency is required for both the project and
  the export promotion scheme.
• Until now the only case where there has been a
  loan cancellation by a creditor due to a
  recognition of lending malpractices is the
  Norwegian Government.
• There is no doubt that the Norwegian shipbuilders
  were the ones who profited from that campaign.

10
ABOUT CORRUPTION
The principle of "need to know" in banking
obliges the lender to know who is doing the
operation, how the money is being used and what
the outcome is. This includes multilateral
lenders.