Scam Artists Find Land Of Plenty: Madagascar

A PARADE of foreign con men and modern-day carpetbaggers has defrauded Madagascar, fouling up a sought-after deal with the International Monetary Fund (IMF) and tarnishing the image of this Indian Ocean island-state.

Israeli businessmen and a relative of the prince of Liechtenstein are among the shady characters who have initiated dubious deals with Madagascar's president and prime minister.

Diplomats say it was naivete at best, corruption at worst by the leaders of what is one of the world's poorest countries. The scams have eroded Madagascar's legitimacy while it tries to negotiate new foreign funds and an elusive agreement with the IMF and the World Bank.

"It is difficult to put in place a serious structural adjustment program when they are taken by these clowns and spending money unwisely," says one source close to the negotiations. "It does not exactly inspire confidence."

Prime Minister Francisque Ravony signed a series of promissory bank notes for millions of dollars of development projects that never came to fruition.

Some of the faxed correspondence between the scam artists and the government bordered on the ludicrous. One company misspelled Ireland on its masthead. Another purported to be from "the board of governors of the United Nations of America." And the address of one firm, Tassma, shifted between such cities as Budapest; Geneva; London; and Saddle River, N.J.

The most damaging scandal involved a relative of the prince of Liechtenstein, who set up a subsidiary in Madagascar, FLAMCO, purporting to promote development. One of its directors was the son of the speaker of the parliament. More than $3 million was handed over in May to a Swiss account via a public enterprise, SOMACODIS, which distributes goods. The money was never refunded.

A state-run bank continued to open letters of credit that were never cleared, diplomats said. Meanwhile, FLAMCO ran up an overdraft of $183,000 with a local bank while also selling commodities at tax-free concessionary rates.

The scam became public in June 1994, just as the IMF was preparing to negotiate a structural-adjustment agreement. The accord fell through.

Then there was the so-called International Commercial and Security Exchange, which in 1993 sought 25-year exclusive gold-mining rights in return for multimillion-dollar loans that never materialized. Similar unfulfilled promises were made by the Mutual Security and Guarantee Trust, allegedly operating out of Marbella, Spain, which obtained guarantees signed by the central bank governor worth $100 million.

Another shadowy outfit was the TASSMA European Marketing Group Ltd., which pledged to set up a solar project to electrify Madagascar. Prime Minister Ravony ordered several million dollars of letters of guarantee, authorized by the central bank. Nothing came of it, diplomats said.

Last February, an Israeli firm, Orama Holdings, purporting to represent the Israeli government (later denied by Madagascar-based Israeli diplomats), approached President Albert Zafy offering three frigates and training for 500 special security forces. The Israelis asked for $10 million with an initial transfer of $1 million in May. President Zafy was tempted, saying the security forces would help nab cattle rustlers.

But his rival, Ravony, refused to sign the deal - with the backing of the military, which normally is neutral in disputes between the two men.

Zafy has since tried to get rid of the prime minister. On July 19, Zafy launched and lost a censureship vote in parliament against Ravony. He has now called a referendum for Sept. 17 to rewrite the Constitution to give himself and not parliament the right to name the premier. Last week, Reuters reported that Ravony had agreed to step down regardless of the outcome of the referendum.

Zafy has accused Ravony of corruption. But the prime minister's aides say Zafy and the speaker of parliament twisted his arm to become involved in these projects. Last September, Ravony promised the IMF to clean up the government. In February, he dismissed the central bank governor who was implicated in misdeeds.

Diplomats say the scams are losing momentum, although, according to one, "There's still some stuff on the burner."

Negotiations with the IMF resumed but have hit a new snag with the constitutional crisis and uncertainty over the referendum.