The Sad Tale of the Tuna Bond Affair

Again tuna is in the news. But instead of a tuna sub, it’s about tuna boats.

And again we have a decision from a court.

The Tuna Bond Affair

Our story starts in 2013 when Mozambique decided to back a tuna fishing company with loans that totaled $850 million. Supposedly for tuna boats, the money was also used for radar and naval vessels.

But not all the money.

It turns out that there was a slew of irregularities. The loans sunk Mozambique into a sea of financial difficulties that included the IMF, the need for new bond loans, and allegations of bribery and kickbacks.

The bribery and kickback side of the scandal was just settled in court with fines for the deal’s investment bankers. As a part of the agreement, Credit Suisse will pay $475 million for “conspiracy to commit wire fraud.” In addition, three men called a “rogue trio” will receive jail sentences.

We could say that the tuna bond affair is a Mozambique scandal. However, classified by the World Bank as a low income nation (at or below $1,046 per capita Gross National Income), Mozambique’s dependence on debt is typical.

Our Bottom Line: Financial Intermediaries

To get its loans, Mozambique and other low income nations need financial intermediaries. The firms that connect those who have the money with the projects that need it, financial intermediaries are the crucial people in the middle. After all Mozambique does not know the investors and the investors do not necessarily know who needs their money. Neither do other low income countries that include Chad and Rwanda, Afghanistan and Mali. It is up to corporate behemoths like Credit Suisse and Goldman Sachs to pair them.

You can see that debt levels are way up:

https://blogs.worldbank.org/opendata/international-debt-statistics-2022-multilateral-institutions-paved-way-highest-level-net

While Mozambique is coping with the fallout from scandal, there is worry also that rising interest rates could upset more of the markets that support low and middle income nations’ debt.

My sources and more: I always look forward to my Saturday walk because of the Slate Money podcast. This week, they alerted me to tuna bonds. Then, for more, FT, here, here, and here had a lot of the story. And finally, The Washington Post completed the picture with its look at developing nation debt threats as did the World Bank and the IMF with their statistics and analysis.