Goldman Sachs/Credit Suisse 2018 repo loans to Ecuador can easily fall under 'predatory lending' to poor countries. Not to exonerate Moreno government, but:

If you're a private institution, you take out repo loan to finance assets, say government bonds you previously purchased.
you 'sell' your government bonds to GS, agree to repurchase them later.
trick - you remain economic owner of government bond collateral & get interest payments from said government.

because you retain credit risk, your repo lender GS has to do collateral management.
w balance sheets: you, Investor 1, have pledged your Ecuador government bonds as collateral to GS, who's given you USD 90 cash for USD 100 of Ecuador government bonds. Haircut 10%.
Ecuador government bonds stay on your balance sheet (assets) because you remain economic owner.
GS marks Ecuador bonds to market:
- if they fall in price, you, Investor 1, have to provide additional cash and/or Ecuador bonds to bring collateral portfolio back to 100. This is a margin call.
- bonds increase in value, then GS gives you back collateral, you get to borrow more
but GS/CS deal with Ecuador is different:

Ecuador issued USD 1.2bn 'fake' government bonds to pledge to GS/CS.

Fake in that it didnt get the USD1.2 bn, as a government would when it sells bonds to private creditors.
GS/CS repo lent USD 1bn against USD2.4 bn 'fake' Ecuador bonds (60% haircut), at around 6% interest.

things got better for GS/CS: as Ecuador 'real' bonds started to fall in price (COVID19), both called margin on Ecuador.

Ecuador paid in 'hard' cash.
Bloomberg estimated that Ecuador paid Goldman and Credit Suisse USD 700 million in margin throughout February and March 2020. As the pandemic was kicking in.

Numbers from central bank of Ecuador higher.…
Ecuador defaults in April, forced to repurchase its 'fake' bonds in May 2020.

Goldman & CS lent $1bn in 2018, got back $700 mn via margin calls, 'resold' fake bonds for (approx) $800mn to Ecuador in 2020.

nice 50% return for GS/CS over 15 month.…
Ecuadorian MPs warned in Feb. 2019 that loans violated Constitution.
Loans used accounting trick: 'fake' bonds treated as contingent liabilities that did not increase external debt.

Asleep at wheel, IMF under @Lagarde gave Ecuador loan in March 2019.

I am not an expert in odious debt, but at least dont 'oh Ecuador was so much better at negotiating its debt restructuring than Argentina' at me…
And here a translation for those confused by my balance sheets

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More from @DanielaGabor

16 Oct
in repo/shadow banking stories, this on Egypt is quite bonkers: in 2016, to get an IMF loan, Egypt had to increase its international reserves.

HSBC offers a $2 billion structured repo trade, as follows.…
HSBC offered $2 billion in return for $4 bn Eurobond sovereign bond collateral (a 50% haircut) and an undisclosed cash margin.

problem? Egypt had no Eurobonds (dollar debt) to pledge as collateral, shut out of international capital markets
Ministry of Finance issues $4 bn in Eurobonds, which it transfers to central bank to pledge to HSBC.
Lots of busy lawyers trying to untangle this from 'monetary financing' or MMT echoes that would unsettle IMF, an institution that doesnt like overt coordination cb-treasury
Read 8 tweets
15 Oct
my @jacobinmag on what slow progress in debt suspension talks this week tell us about G20's Grand SDG Bargain w private finance: it cements unequal power relationship, which poor countries cant challenge & private creditors have few qualms in exploiting.…
it unpacks the political economy of the DSSI - the debt service suspension initiative - that was negotiated this week at the WB/IMF Annual Meetings, with disappointing results

and connects it to various interventions this week from poor countries at high risk of debt distress

Read 5 tweets
15 Oct
TFW your theoretical construct is validated by Wikileaks.

here 2009 US document 'Update on Banking Reforms in Egypt' detailing how Americanisation of local financial systems literally pushed by US diplomacy

h/t @brokenimageheap…
US-backed financial system MOU (memorandum of understanding) identified several benchmarks that Egypt needed to adopt.
US wanted Egypt to adopt several measures that promote securities market-based finance, including a primary dealer system, the privatisation of insurance companies and the adoption of US/EU style repo market.

Congress didnt fund the repo changes :)
Read 4 tweets
12 Oct
African countries are facing serious COVID19 related debt distress. A short thread on why articles such as below, however well intentioned, play in the hands of (private) creditors.…
basically, African countries are facing three camps in this fight: US-led official donors (including IMF&WB), China and private creditors.
None are a homogeneous block, but let's assume so.
Official donors agreed temporary liquidity relief - no debt service on official bilateral aid to December 2020.
African countries want this extended.
Read 15 tweets
7 Oct
fascinating account of the politics of mega renewable energy project.
missed one angle, that Noor Ouarzazate plan in Morocco was built through a PPP project viewed by the World Bank as excellent example of its Maximising Finance for Development
PPP derisked, a la #WallStreetConsensus, by MDBs and German development finance, and built by European companies - cc @squirrelista @Frauke77487323 @crystalsimeoni
Government of Morocco bears the heaviest burden of derisking - MASEN (state-owned) commits to purchase all power generated at the same price for 25 years and it also takes currency risk…
Read 4 tweets
6 Oct
remember 2008 GFC, when we became experts on shadow banking & regulators finally accepted securitization can create systemic risk instead of better distributing it?
12 years later, European Banking Authority + European Commission quietly dismantling that regulatory regime.
when Lord Hill got Finance portfolio at European Commission as olive branch to Cameron government in 2014, we got #CapitalMarketsUnion - a Trojan horse for private finance lobbies to fight back against FTT and bank structural separation plans of European Parliament
CMU rapidly became market-building strategy: 'we are back to working with, not on, finance' (Lord Hill) to breathe new life into European securitization market through STS initiative: simple, transparent & standardised securitization.
Senior STS tranche = preferential regulation
Read 11 tweets

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