The government was forced to draw down foreign exchange reserves sharply in 1998 to meet foreign debt obligations, putting further pressure on the kwacha and inflation.
The shortage of foreign exchange because of a chronic trade deficit, a large foreign debt, and dwindling foreign aid has constrained economic development.
Instead, they buy anything -- foreign debt, asset-backed securities, stocks, preferreds, and even derivatives -- to boost yields and hedge against price drops if interest rates rise.
The latter eventually initiated a policy of total reimbursement of the foreign debt by imposing austerity steps that impoverished the population and exhausted the economy.
Late 2009 the company restructured its foreign debt via the exchange of eurobonds and obligations on bilateral loans for single investment instruments.
Meanwhile, emerging markets with high external financing needs and high foreign debt in foreign currencies remain vulnerable to such capital market reactions.