Question

You have just been appointed to be a U.S. Foreign Service Officer (FSO), employed by the United States Agency for International Development (USAID). Your first assignment is working overseas in an embassy where you may give out millions of dollars in foreign aid loans to an important nation.

This nation has two types of loans from the United States government.

Type I loans for $2,000,000,000 and Type II loans for $34,000,000,000. Type I loans are listed by country in congressional reports, while

Type II loans are buried in one line with other country's repayments and defaults. If the U.S. Congress is clearly informed of a loan default, it will not give out any new loans to that country.

The U.S. Ambassador knows that this country is going to default on all loans to the United States government. However, if the country makes a small payment of $1,000,000 on the Type I loan, the U.S. Congressional report will appear as if the country is in good financial condition. This will make him look good.

You have been instructed by the Ambassador to set up an appointment with the Minister of Finance. During the meeting, you are told to tell the Minister to make the $1,000,000 payment on schedule for the Type I loan. If the nation does make the payment the U.S. Embassy will request another $30,000,000,000 appropriation from the U.S. Congress, which the Ambassador knows he can receive.

The Ambassador believes he will be appointed the next U.S. Secretary of State if this plan is accomplished.

Questions:

What should you do to maintain the LOSS RESERVE?

What are the ethical issues involved here regarding non-payment of loan?

What are the financial issues involved here and how does this related to loan defaulter or fraudulent?

What would you do with this information if you were in charge?

Do you really want this Ambassador as the U.S. Secretary of State?

Answer 1

a) The LOSS Reserve should be maintained correctly. Since the financial conditions of the country are not such that it is likely to receieve any payment from them it will be advised to make a full loss reserve of Type I and Type II loan. So the total reseve ought to be 36,000,000,000 $.

b) There is basicaly one ethical issue involved and that is that the US FSO is being asked to do something that is completely illegal and against ethical norms. Window dressing the loan repayment to secure a position of US state secretary is wrong. If the FSO contibbues with this he might also be said to be a part of collusion in the wrong doing of the US Ambassador.

c) The major financial issue is the recovery of the loan that has already been given, The type II loan is almost 17 times the amount of Type I. Obtaining a repayment from the country to the tune of $ 1,000,000 will enable the country to defraud the US by obtaining more loan which it would not repay later hence causing even bigger losses to the US. Without assessing the financial capability of the country to repay the earlier loan amounts no further loan should be given,

d) The FSO should report the ambassador. The FSO should report the correct position of the country and prevent any more loans to be given to the country unless the previous loan amount has been paid back. This person should not be a US Secretary of state because he puts his personal interest ahead of the state which is wrong because they take an oath otherwise. Therefore this ambbassador should be reported and not made the US Secretary of State.