Reprinted from www.libertylobby.org, home of The SPOTLIGHT archive
Free Trade Harms Weak States
By James Harrer
In 1997, the Russian government began issuing state bonds, known as GKOs, that came to pay an unprecedented -- and unbelievable -- interest rate of 100 percent.
Goldman Sachs, the giant Wall Street investment bank, home base of then-Treasury Secretary Robert Rubin, rushed into Russia to underwrite these dubious deals and booked huge fees and commissions.
"But when the Yeltsin government decided to default on the bonds, Goldman Sachs turned its back on the investors who ended up holding worthless paper," recalled a former New York Times correspondent in Moscow.
In 1997, the government of Ukraine made an emergency appeal to Michel Camdessus of the International Mone tary Fund (IMF) for a "currency stabilization" loan of $1.5 billion. Al though there were widespread doubts that the Ukrainian economy would prove "stable" anytime soon, the IMF granted the financing.
Behind the scenes, with help from Credit Suisse First Boston (CSFB), a giant U.S.-Swiss bank, the Ukrainian government had found an innovative way to put this money to work.
Some $1 billion of the fresh IMF funds were transferred to CSFB, ostensibly as a "deposit." But under a secret agreement with Ukraine's central bank, the $1 billion was treated as collateral for an equal amount in discreet loans made by CSFB to a group of private Ukrainian banks.
This audacious scam effectively converted an official credit extended to a national government by an international financial institution into private cash, which was made readily available for the personal use of the Ukrainian officials who were in charge of the scheme.
"CSFB collected huge fees and interest payments for its part in this rip-off and the top Ukrainian bureaucrats, who always complained of being underpaid, were suddenly awash in cash," recounted financial writer Galina Ustinova. "The losers, of course, were the American taxpayers who put up the lion's share of the IMF's disappearing handouts and the Ukrainian workers, who never got the $1 billion intended to 'stabilize' their wretched wages."