Hot money and the politics of debt.

• Author: Naylor, R.T.

Hot Money and the Politics of Debt.

The most perplexing--and frightening--aspect of the foreign debt crisis is neither the size of the Third World's IOUs nor the banks' mystifying rationale for having shipped all that money out in the first place. Nor is it even the bizarre geopolitics of the Western governments that allowed them to do it. It is rather the little-understood --and, until recently, poorly documented --phenomenon of "flight capital,' the idiom for the electronic sleight-of-hand by which some $200 billion of the $450 billion borrowed from 1975 to 1985 by the 18 largest debtor countries landed in foreign accounts of Third World nationals, unchecked, unregulated, and irretrievable. The more we learn about flight capital, the more it is apparent that what bankrupted most of these countries was their own citizenry absconding with foreign exchange reserves, often abetted by the same creditor banks that later screamed when forced to reschedule debt. For all these reasons, R.T. Naylor could not have chosen a more apt subject for his new book.*

* Hot Money and the Politics of Debt. R.T. Naylor. Simon & Schuster, $18.95.

What Naylor's numbers reveal is theft on a scale unprecedented in history; Nazi Germany's looting of Europe is insignificant by comparison. In Latin America, for example, some $100 billion fled to offshore havens between 1979 and 1983. By 1984 Venezuela alone had external assets of $35 billion--more than its total foreign debt. In Mexico, the scale of corruption and capital exodus is stupefying. Union bosses are alleged to have stolen some $1.5 billion, apparently following the example of government industries, which drained an estimated $15 billion from the national treasury during Lopez Portillo years--roughly equal to what the Shah's entourage pulled out of the Iranian National Oil Company in the 1970s. It gets worse. President Lopez Portillo's advisers estimated that during the three years prior to August 1982, a minimum of $45 billion was drained from the country's dollar reserve-- showing up in the form of $31 billion in U.S. real estate and $14 billion in U.S. bank accounts. Mexico City's $65-a-week police chief--to take just one celebrated example--was found to have funneled enough money out of the country to buy a $2.5 million mansion in the United States.

Where did all the money go? How did it get there? To understand, you must first know how foreign loans move to a country from a multinational bank, and how...