One example came in 2010, when the CBD loaned the Venezuelan government more than $ 20 billion to finance electricity, heavy industry, housing and agriculture projects. In return, Venezuela would pay the bank over 200,000 barrels of oil every day.
But the advance of the banking titan has accounted for nearly 7% of Venezuela’s total GDP and exploited a country that already has poor control over its natural resources, which the report’s authors say is dangerous.
Banks could not be reached for comment.
“Among the countries listed with asset-backed loans representing more than 10% of GDP, we have found that in all cases where debt sustainability issues have arisen, [these loans] have been cited as a major contributor to these issues, ”the report’s authors wrote.
An early example of the practice of resource-backed lending is the Peruvian government borrowing in the mid-19th century from British investors, which it repaid from state revenues from the then fertilizer trade. flourishing.
Since then, it has become a common financing tool for countries struggling to access global financial markets.
Mihalyi says such deals can often make sense, providing the country with much needed funding for critical infrastructure.
“If they select and execute these projects well, they should, in theory, generate positive returns for the country’s economy,” the report says.
However, in many cases, developing countries take out too many loans or do not allocate the money to a specific project. Nowhere is this more evident, say the report’s authors, than when the world’s commodity trading giants get involved in the practice.
Their loans are even more opaque than Chinese banks.
The study cites a specific case in South Sudan, where Swiss commodities trader Trafigura loaned the government $ 75 million to finance its Green Horizon agricultural project and provide general budget support.
In an investigation of the Draft Organized Crime and Corruption Report, the group alleged that these funds were instead used for military spending. The company denies any wrongdoing.
“When multi-million dollar deals are not on the books and oversight institutions are bypassed, the money is either used to line the pockets of politicians or to support military operations,” says JR Mailey, director of investigations at The Sentry, a Washington-based advocacy group. .
The only reason we know all of this, Mihalyi says, is because of the controversy over the loan. Without it, the terms – including interest rates and repayment periods – would never have happened.
“Usually we don’t have details of these loans until there are issues with them,” he says.