How to Go Broke

ZAIRE

For many of the eleven years that Mobutu Sese Seko, 46, has ruled Zaire, that huge central African country (once known as the Belgian Congo) has dined out on its promise of wealth. The country's enormous, and still largely unexploited, deposits of copper served as a kind of collateral on which Zaire managed to borrow extensively abroad. It now owes $2.9 billion, $800 million of which is due private lenders in the U.S., Europe and Japan. But instead of achieving steady growth, Zaire became a textbook example of how a Third World nation can dig itself into an economic hole. Today the country is all but bankrupt; it has fallen badly behind in repaying its debts. Manhattan's Citibank and other creditor banks have agreed to arrange a new $250 million loan, but first they imposed tough conditions under which Mobutu will in effect be forced to control his country's economy strictly, under the eyes of experts at the International Monetary Fund.

Not Unique. The Zaiirian example is of major interest to the industrial as well as the developing world. "Zaire's folly is not so unique," observes an American businessman in Kinshasa, the capital. Third World countries as a group have piled up a foreign debt that is estimated to be as high as $150 billion; international conferences resound with cries for a moratorium or stretch-out of repayments on a large part of that debt. By mid-1976 U.S. banks alone had some $30 billion in outstanding loans to five nations--Argentina, Brazil, Mexico, Peru and Indonesia--that are considered potential problem debtors. The Zairian debacle increases doubts about how much of the Third World debt will continue to be repaid.

The troubles began five years ago when Mobutu, an autocrat who always carries a traditional tribal chieftain's stick decorated with carved figures of birds and snakes, decreed an ambitious industrialization program. Instead of investing in agriculture--which would have increased food supplies and given many more Zairians jobs--Mobutu put $1 billion, much of it borrowed, into projects aimed at a vast expansion of copper exports. He gambled that increasing demand would keep copper prices rising--and he lost. During the world recession, copper prices plunged by 62%, and Zaire's copper revenues shrank from $934 million in 1974 to less than $600 million in 1975.

As a result, three major projects have languished. A $500 million hydroelectric power transmission line that is supposed to snake over 1,200 miles of forest and bush from the Zaire River (once the Congo) to the copper belt in Shaba (formerly Katanga) is far behind schedule. Construction of a huge addition to the state-owned Gecamines copper mine, financed by the World Bank, the European Investment Bank and the Libyan government, is 18 months late. Work has stopped on the giant new Tenke-Fungurume copper mine, and international backers are handing over $750,000 a month just for maintenance work on the site.

Although Mobutu should have realized that he was making Zaire more vulnerable than ever to world market fluctuations by concentrating so heavily on copper, he was partly a victim of plain bad luck. He could hardly have foreseen the soaring oil prices that helped depress the economies of his copper-buying customers and multiplied Zaire's import bills. But there is more to the Zaire story than that. Mobutu, who styles himself le Guide (the guide), also sank borrowed money--to be repaid out of copper revenues he did not get--into showy prestige projects.

Walkie-Talkies. For example, a six-lane highway leads from Kinshasa 30 miles east to the "presidential domain" at N'Sele. There visitors find not only a gaudy cluster of conference halls and air-conditioned bungalows but also a palace for visiting heads of state in which the baths reportedly have gold-plated fixtures. A 27-story, $50 million world trade center is rising in Kinshasa; Mobutu hopes to make the city the trading crossroads of Africa--although the telephone system is so poor that some government officials use walkie-talkies. Air Zaire has two DC-10s but only one Zairian pilot who can fly them.

Annual debt service on the borrowings from foreign governments and international agencies necessary to finance all these projects has jumped from $34 million in 1970 to $200 million in 1975. Zaire last year suffered a balance of payments deficit estimated at more than $500 million, and its inflation rate is now around 40% annually. The nation this year devalued its currency by 42%, doubling prices for imported items like South African canned foods. Mobutu in 1973 forced out many foreign businessmen and farmers in an attempt at "Zairianization"; now he has asked many to return. Le Guide may also face political trouble. During a parade last month, students carried placards demanding an end to mismanagement--an astonishing development in a country that is virtually a one-man state.

Western bankers agree that Mobutu is not entirely to blame for the country's troubles. Some fault themselves for being too eager to lend to the unsophisticated nation in the expectation of high returns. Says one Western banker: "What was needed here earlier in the '70s was a guy in a green eyeshade saying 'Wait a minute.' Mobutu didn't know he was in trouble. Western institutions weren't telling him he was getting into trouble. Mobutu has learned a lesson, but the West has too--not to come into a country like Zaire greedy to lend money."

Citibank Senior Vice President Irving S. Friedman concedes that Western banks are paying more attention to the potential risks in lending to countries like Zaire, yet he adds, "All developing countries need access to capital." Perhaps so--but from now on they may find the loans much harder to get.

This file is automatically generated by a robot program, so viewer discretion is required.