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No secret debt
payments next year
- or any time soon

Tax and development - What can we learn from the Finnish experience?

Tax and development - What can we learn from the Finnish experience?

Image by UNU-WIDER

And he said that there will be no payments until negotiations with creditors are concluded and the Attorney General's office has completed its actions related to the debt. This could be a several years away, which means no debt payments any time soon. (O Pais, Zitamar 30 Nov; @Verdade 24 Nov; Savana 1 Dec)

Comment: The past two weeks have reinforced the view that all parties - creditors and government - are acting in ways that suggest they want the debt issue deferred, to be dealt with by the new government in 2020. The Ematum bond holders continue to demand to be treated preferentially over the MAM and ProIndicus syndicated loan holders. Government has rejected this demand, and knowing this, bondholders seem to be intentionally delaying negotiations. Similarly, Finance Minister Adriano Maleiane pointed out to a parliamentary budget commission on 20 November that "we are lucky" that the syndicated loan holders had done nothing to go to court to try to enforce guarantees (which Mozambique says are invalid). In effect, Maleiane was saying that there would be no payments until the creditors force action.

Why are creditors so willing to delay? In part, they feel they will get a better deal in the early 2020s when the government will be under less pressure and the gas is coming on line. Also, creditors and bondholders can keep these loans as assets on their books at near to their face value - probably higher than any renegotiated value. Better to let sleeping dogs lie.

Finally there is the issue of misconduct by the lenders, and the longer the delay, the more likely that will be forgotten. Credit Suisse has significant responsibility because it organised the $2 bn credit and has been accused of misleading lenders and facilitating corruption, and is being investigated by criminal and financial authorities in the US, UK, and Switzerland - but this is just part of broader misconduct which has made the bank unprofitable. Credit Suisse boss Tidjane Thiam on 30 November promised shareholders that he is cleaning up the bank and that it will be profitable for 2019. He will hope investigations drag on for years and he does not want to deal with Mozambique any time in the near future. Syndicated loan holders would need to bring legal action against Mozambique in London, and following a High Court decision on Ukraine debt, there is a strong chance they could lose - so they are in no hurry. And of course the Mozambique government always prefers the do-nothing option. So expect lots of words but no payments or negotiation for at least two years.  jh

When no one has clean hands, who do you punish? is a London School of Economics blog by Joseph Hanlon, arguing that poor Mozambicans are being punished for the actions of a greedy elite and a major Swiss/British bank. The blog asks who should be punished: Is it the tempter, Credit Suisse, or is it the greedy group around Guebuza who succumbed to temptation, or is it the people of Mozambique who elected Guebuza as president? http://blogs.lse.ac.uk/internationaldevelopment/2017/11/30/when-no-one-has-clean-hands-who-do-you-punish/


The Kroll report has still not been published by the Attorney General, even though it was required to be published in September, the Mozambican Debt Group pointed out at a conference in Maputo last week. (O Pais Económico 1 Dec) The leaked Kroll report is still on my website along with other debt documents: tinyurl.com/mozamb

"Esse aeroporto de Nacala é muito grande mesmo, bem trabalhado. Só falta aviões."
Mozambique is not repaying its debt to Brazil for the empty Nacala airport, reports the BBC Brazilian service in a detailed article. http://www.bbc.com/portuguese/brasil-42074053 The project was promoted and constructed by the Brazilian company Odebrecht, which has admitted it paid a $900,000 bribe to Mozambicans to gain agreement and 0.1% of the value of the contract to an official of the Brazilian president's foreign trade office to gain approval of the $125 mn loan by BNDES, the Brazilian Development Bank, the BBC reports. So far, there are only two flights a week landing at the airport - LAM flights from Maputo using Brazilian Embraer planes, also bought because of a bribe. The BBC quotes a taxi driver, Carlos José , saying "it's a grand airport, really well built. It's only lacking planes."

Negotiations have resumed on the Moamba-Major dam. The $320 mn project was to have been funded by Brazil's development bank, BNDS, but this was stopped in 2016 after contractor Andrade Gutierrez and the dam were caught up in the Brazilian corruption scandal. (O Pais Económico 1 Dec) The dam will supply water to Maputo and Matola.

The debt crisis is not slowing foreign investment. Vale and Mitsui have organised $2.73 bn in refinancing for the railway to Nacala and coal terminal there, initially built and funded by Vale. $2 bn comes from Japanese banks, $400 mn from South African banks, and $300 mn from the African Development Bank; the World Bank's International Finance Corporation changed its mind and decided not to participate, probably reflecting pressure on the World Bank not to fund coal on climate grounds. Meanwhile, Dutch brewer Heineken is starting construction on a new brewery north of Maputo, having won a three-year partial tax concession. (Zitamar 1 Dec)

Plans for the Tete-Zambézia railway moved forward with the agreement that it should go to Chitima, Moatize, Tete. The 639 km railway will carry coal from Tete to a new offshore port at Macuse, 50 km north of Quelimane, and will cost $2.7 bn. Transport Minister Carlos Mesquita said construction would start in late 2019. The railway will be 60% owned by the Italian Thai Development Company. (AIM En 28 Nov)

Vale has doubled coal production, from 6 mn tonnes in 2016 to an expected 13 mn tonnes this year. All coal is now shipped to Nacala-a-Velha by rail, via Malawi. Currently there are five trains a day, each carrying 120 wagons of coal; the trip from Moatize to Nacala-a-Velha takes 30 hours. Each train carries 7,560 tonnes of coal. (AIM En 21 Nov)

Parliament agreed to cut wages to only 41 times the minimum wage. Parliament agreed to cut its 2018 budget by 5.6% compared to 2017, after having initially proposed at 43% increase. Government said in this austerity era, it simply did not have the money to pay the increase. Members of parliament will receive MT 163,794 ($2,685 US dollars) a month in wages and allowances, a cut of 16% instead of the proposed increase of 31%. This is 41 times the minimum wage in the public administration of MT 3,996 ($66) a month.

An IMF mission will be in Mozambique until 13 December, but it is only to evaluate the state of Mozambique's economy (called an Article IV consultation) and not to discuss a new programme, which still awaits more information on the secret debt.

Business Association CTA cuts own subsidy: The Confederation of Economic Associations of Mozambique (CTA) has been receiving a subsidy of $122,000 per year since 2006, but decided that at a time it is urging the government to spend less, it will not longer take the government subsidy. (O Pais, Lusa 29 Nov)

Government will sell 7.5% of the Cahora Bassa dam company HCB on the Mozambican stock exchange, it was announced 28 November. The state owns 92.5% and will sell 7.5%; the remaining 7,5% is held by REN (National Electricity Networks) of Portugal. HCB last year paid off the loan that was used to buy most of the Portuguese share in 2012. HCB will invest $500 mn over the next six year. (AIM, Lusa, O Pais 28 Nov)

The number of new teachers is being drastically cut, from 8306 this year to only 2213 next year, because of the economic crisis and the cut of aid to the government budget, triggered by revelation of the $2 bn secret debt. Finance Minister Adriano Maleiane admitted to parliament that this will mean larger classes. (@Verdade, 23 Nov)

"Under and over-invoicing in both exports and imports” is cutting government revenue, Minister of Industry and Commerce Max Tonela warned. Tighter regulations will be imposed, he said. (Noticias, O Pais 20 Nov).

Government domestic debt exceeded MT 100 bn ($1.6 bn) for the first time in September. Half is treasury bills and bonds, and the other half other Bank of Mozambique debt. (@Verdade 20 Nov).

Ematum workers went on strike 20 November, saying that had not been paid for the previous four months. (O Pais, AIM En 21 Nov) The workers also say that for the past two years, Ematum has not paid contributions to the National Social Security Institute (INSS), even though they have been deducted from the workers’ wages. The workers say they have little to do except guard the premises, since the Ematum boats no longer put out to sea.

MOZAMBIQUE 393

News reports & clippings
4 December 2017
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Editor: Joseph Hanlon ( j.hanlon@open.ac.uk)
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