IMF in search of Mozambique’s missing US$2-billion

International efforts to help resource-rich Mozambique avoid a massive sovereign debt default are under way following the recent arrival of an International Monetary Fund (IMF) team tasked with resolving a crisis that is crippling the Southern African nation.

The IMF mission is in response to revelations in April that Mozambique secretly took out government-guaranteed loans of more than US$2-billion from international banks for state-owned maritime and security companies. The IMF and G14 have suspended all instalments pending the outcome of the IMF mission, which is being undertaken to get to the bottom of how and where the money was spent.

Ireland has delayed making its €6-million aid contribution for 2016, according to a diplomatic source, who said the Irish government’s next step would only be taken after the IMF mission was finalised. The US$2-billion loans were secretly guaranteed in 2013 and 2014 by the previous government under president Armando Guebuza. They were primarily from Credit Suisse, but also the Russian VTB bank.

Ematum borrowed US$850-million to purchase 24 fishing vessels and six naval patrol boats from France. Proindicus, established to provide maritime security to oil and gas companies, borrowed a further US$622-million. Mozambique Asset Management (MAM), which provides maritime repair and maintenance, borrowed US$535-million. The loans were short-term, so concerns arose among donors that foreign aid may be diverted to help repay the money once it became due.

Default to VTB:

This nervousness over Mozambique’s ability to pay back the loans has already proved well-founded, as on 23 May the current government, which has come clean about the loans, defaulted on a US$178-million repayment to VTB for the loan to MAM.

Furthermore, a coalition of 26 Mozambican civil society groups argued last week that, because US$1.86-billion of the loans were illegal – breaching a law requiring borrowing and guarantees longer than a year to be approved by parliament – they should not be paid.

The coalition has also called on those responsible for the scandal to be held accountable in the courts. IMF Managing Director, Christine Lagarde, told the BBC last month that by concealing the loans, the Guebuza administration was “clearly concealing corruption”. Opposition parties are calling for the former president’s arrest and the Attorney-General has launched a number of investigations.

According to ISS, “the harbour facilities in Maputo and Pemba (Cabo Delgado Province), which MAM was supposed to build, have not materialised. Proindicus has apparently not signed a single contract. Last year Ematum, which was budgeted to catch US$18-million of tuna a year, caught just US$450,000 worth.”

It has since emerged that US$500-million of the loans has been spent on defence equipment rather than maritime, and the cash has been rerouted to the government’s defence budget. The Finance Minister, Adriano Maleiane, recently confirmed that the new fleet of tuna-fishing boats is rusting in Maputo harbour because they need refitting to meet European Union standards.

Mozambique’s cash-strapped government has been hit hard by the crash in commodity prices despite the country’s impressive economic growth rate. This has been reflected in a sharp devaluation of the metical. Reuters’ news agency recently reported that diplomats in Maputo were not optimistic that the IMF mission would be successful.

Currency drop:

When the Fund representatives arrived last week, the metical reportedly dropped 10% to a record low of MT66 against the US dollar. This is likely to fuel inflation, which is already at 18%, and increase discord in a country that is struggling with internal conflict dating back to the brutal civil war that decimated its post-independence. If Mozambique does default, the development would come just a decade after international creditors wrote-off more than US$6-billion of loans to the country under the Heavily Indebted Poor Countries initiative.

Source: Irish Times
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