Collapse of Mozambique's house of cards
Mozambique admitted it cannot pay its debts; last week it was announced poverty and inequality increased; and it was accepted that inflation will hit 30% and devaluation will exceed 100%. The United States announced that LAM has accepted bribes from Brazil. And then the mediators went home in frustration as an unwinnable war continues, with Renamo demanding the impossible and Frelimo refusing to make essential concessions.
The results of the poverty survey announced last week showed that while in 2003, 55% of the rural population was below the poverty line, it had only been reduced to 50% last year. Two decades of lack of development mean that half the rural population is still below the poverty line. And President Nyusi, speaking in Mopeia, admitted that "very little" had been done to support agriculture - confirming what Joao Mosca and others have been saying for more than a decade.
Few people come out of this looking good. Over the past five years, how could so many people inside and outside of government turn a blind eye to corrupt, excessive, prestige projects? Why did it take the United States to announce last week that LAM has accepted bribes? How could the IMF not notice the exorbitant debt? Or was there too much joint interest in encouraging foreign companies to gain a share of the gas money? Inside Frelimo, was the money spread around so widely that no one objected? With brave journalists and campaigners being threatened and attacked, were people too afraid to speak out?
Frelimo has blown an incredible $3 billion. Not just the $2.2 bn in secret debt, but extra money for the Katembe bridge, Nacala airport, the Bank of Mozambique building, and the presidential palace, as well as large state company debts. And last week the cost became clearer with the admission that Maputo will not now have an essential bus rapid transit system because it cannot guarantee the loan. This is being repeated across the economy.
Last week, the house of cards collapsed. This week many people will be trying to explain why they did not see that it was a house of cards and will be trying to defend their positions - in some cases to prevent themselves being dismissed, jailed, or losing contracts, money, or the confidence of their superiors.
And the future is not promising. The economic crisis will bite hard. Ongoing war and inflation and the taint of greed and corruption mean Frelimo could lose the next elections - but to whom, when the opposition has few alternative policies. Low gas prices and high debt hand huge power to international gas companies. Donors and lenders have to face the collapse of what they had billed as a success story. And infighting and recriminations within Frelimo and within the international community will slow the resolutions of the myriad problems.
Last week’s events mean no one can deny the magnitude of the crisis. An IMF report in January warmed that "high levels of inequality hamper government policies to reduce poverty" and "make it difficult to sustain growth". And it warned that the rising inequality "can lead to political instability." Threats of a demonstration on 29 April were met with new armoured cars on the streets of Maputo. A demonstration scheduled for 21 May was banned and an organiser of the march was beaten during an attempted kidnap. Maputo has been quiet since then, despite an escalating cost of living. But how long will ordinary people tolerate rising prices and a bankrupt and ineffective government?
Joseph Hanlon
ALSO IN MOZAMBIQUE 344:
Creditors promise rough ride
on debt renegotiation
In a week of rapid action, Mozambique released its debt report Monday October 24 and presented it to creditors on Tuesday and appealed for renegotiation of debt held by banks and other investors. The Financial Times (FT 25, 27 Oct) reported that borrowers gave the proposal a "thumbs down" and that the price of the tuna bonds had dropped from 81.2 US cents to $1 of face value of the bonds on Monday down to 60 US cents on Wednesday.
Bondholders told the FT that Mozambique's plan to get a deal with private creditors by the end of the year before negotiations with the IMF in January was "unrealistic" and that "complex negotiations are expected". Government told bondholders Tuesday that it has appointed Lazard and White & Case to advise on restructuring and asked creditors to form negotiating committees.
Prime Minister Rosario confirmed to parliament Wednesday that the government has asked creditors to restructure the debt.
The Jubilee Debt Campaign said Friday "We suspect some of Mozambique’s private external debts have already been bought by vulture funds, and they are owed under English law." Under a 2010 UK law, countries are protected from vulture funds, but only for loans granted before 2004.
http://www.mpd.gov.mz/images/Presentation_by_the_Ministry_of_Economy_and_Finance_-_25_October_2016.pdf
https://www.ft.com/content/7eee7ef0-9c5d-11e6-a6e4-8b8e77dd083a
https://www.theguardian.com/global-development/2016/oct/27/mozambique-debt-crisis-first-sign-global-financial-shockwave
Essential audit moves forward
New IMF representative Ari Aisen confirmed 25 October that there must be an independent external audit of Mozambique's secret debt. Then the debt must be made sustainable. Third, he stressed that "certain priority public spending must be protected so that the social situation of the most vulnerable people does not deteriorate." (O Pais 26 Oct)
In a press conference on 27 October, Gerry Rice of the IMF Communications Department confirmed that the IMF cannot lend money to Mozambique while it is in "debt distress". Rice said "we cannot disburse funds in a situation where we think the debt is not sustainable." He also underlined the demand for an audit which "would be conducted in an independent way by a reputable international auditing company" and that "we expect the terms of reference for this audit to be completed soon." Rice also confirmed that the IMF will continue discussions with Mozambique while the audit is under way and will not wait until the audit is complete.
Prime Minister Carlos Agostinho do Rosario told Parliament 26 October that the Attorney General’s Office will soon launch a tender for an independent international auditor to audit the three secret loans.
Comment: All IMF statements demand an independent external audit, and some have demanded that it be made public. But the IMF has also agreed that the audit can be carried out under the Attorney General's office. And it is interesting that the IMF has never demanded prosecutions once the audit is done. Is there an implicit deal to follow the pattern of Banco Austral nearly two decades ago, where there was a forensic audit but there were no prosecutions and members of the Frelimo elite were never sanctioned? jh
Half of Mozambicans
are still below the poverty line
Poverty is decreasing, but only very slowly, while inequality is increasing, according to a new analysis by the Ministry of Economy and Finance presented on 26 October. The analysis is based on four national family expenditure surveys, carried out every six years.
We have done a detailed analysis of the surveys, and a special supplement is attached, and available on bit.ly/MozPoverty
Although the percentage of people living in poverty has fallen in the past 18 years from 69% to below 50%, population has been growing faster, so the actual number living in poverty has risen from 11 million to 12 million. The report also notes that although there have been significant falls in urban poverty, rural poverty is declining only slowly - from 55% in 2002/03 to 50% in 2014/15.
MOZAMBIQUE 344
News reports & clippings
31 October 2016
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Editor: Joseph Hanlon ( j.hanlon@open.ac.uk)
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