London court case suggests Mozambique

A recent court case in London on Ukraine debt raised issues very similar to those of the secret Mozambican debt, and suggest that Mozambique could make the case that at least part of the debt is illegitimate and should not be repaid. The ruling was made in the High Court on 29 March by Sir William Blair, brother of former prime minister Tony Blair. It is extremely complex and the full text of the ruling is on https://www.judiciary.gov.uk/judgments/law-debenture-v-ukraine/. The case involves Ukraine's refusal to pay a $3 bn Eurobond organised by the Russian bank VTB, in which Russia bought all the bonds. The bonds, as with Mozambique, are covered by English law. In an identical situation to Mozambique, Ukraine argued that the Finance Minister agreed the loan without it being approved by parliament as required by the constitution. Mr Justice Blair noted that there are no precedents and this seems to be the first case of its kind. Mr Justice Blair ruled against Ukraine, saying that a state has the capacity to borrow, "the Minister of Finance plainly had usual authority to enter into the transaction on behalf of Ukraine", and that the lenders had no reason to suspect that the loan was improper.On the surface, this would seem to go against a possible Mozambican case. 

But Mr Justice Blair also says that "it is important to emphasise that this result does not imply that a failure to follow domestic rules as to borrowing by a state such as those identified in the case of Ukraine is legally irrelevant as a matter of English law. Such failure may of course be relevant." Furthermore, the decision was based on the conditions of the Ukraine loan which were explicitly opposite to those of Mozambique. The loan was to the government and was approved by the cabinet, there has been many similar loans, the government of Ukraine received the money and it was included in foreign currency accounts of the Treasury as posted on its website, interest payments were made, and it was never stated that the loan was improper.The opposite of these conditions apply to Mozambique. The loans were to private companies and not the state, were not approved by the Council of Ministers, none of the money entered Mozambique, it was never included in any state accounts, and all statements by public authorities (parliament, Tribunal Administrativo) said the loan was illegal and unconstitutional. The secrecy of the loan meant that lender had no public statements to believe in the legality and should have done their own investigation.Thus, even though Ukraine lost its case, Mozambique could use this case and Mr Justice Blair's statement that failure to follow domestic rules is relevant, to make the case that at least the MAM and ProIndicus syndicated loans are illegitimate and should not be paid.As with the Ukraine case, it is up to the lender to bring a legal action in London, and it appears that there is a significant chance that the lenders would lose. This could give a major boost to Mozambique in any renegotiation of the loans. ( jh)

IMF Staff Concludes Visit to Mozambique

July 19, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

·    Performance in some sectors of the economy has improved since the latter part of 2016.

·        Growth declined to 3.8 percent in 2016 and is now projected to edge up to 4.7 percent in 2017.

·       Publication of the detailed summary of the Kroll audit report is welcomed; more needs to be done to fill the information gaps on the use of loan proceeds.

An International Monetary Fund (IMF) staff team led by Michel Lazare visited Mozambique from July 10-19, 2017 to discuss with the authorities measures needed to follow up on the recent audit report of EMATUM, Proindicus, and MAM public sector companies. The team also assessed recent economic developments and discussed monetary and fiscal policies in the context of the 2018 budget.

At the end of the visit, Mr. Lazare issued the following statement:

“Performance in some sectors of the economy has improved since the latter part of 2016. The decisive October 2016 monetary policy tightening helped rebalance the foreign exchange market and resulted in the metical appreciating by about 30 percent vis-à-vis the US dollar since end-September 2016. This monetary stance contributed also to a decline in inflation from a year-on-year peak of 26 percent in November 2016 to about 18 percent in June, despite a large increase in fuel prices in March. Moreover, higher international coal prices and a marked increase in coal export volumes helped narrow the trade and current account deficits of the balance of payments, supporting a large accumulation of international reserves, which at end-June covered about 6 months of non-megaproject imports. On the fiscal front, the government took important steps by removing wheat and fuel subsidies and reinstating the old automatic fuel price mechanism in March.

“However, the overall outlook remains challenging. Growth declined to 3.8 percent in 2016 and is now projected to edge up to 4.7 percent in 2017, mainly on account of a surge in coal production and exports. Inflation remains elevated but is expected to decline further. Despite budget cuts in investment and in the purchase of goods and services, increased spending on wages and salaries continues to put pressure on the budget, contributing to a large accumulation of domestic arrears. Total public debt, mostly denominated in foreign currency, remains in distress and the government missed external debt payments.

“Macroeconomic policy discussions centered on the urgent need to further consolidate public finances. The team emphasized that a strong commitment to fiscal adjustment is an essential element to ensure policy sustainability, foster a decline in inflation and interest rates, limit further increases in public debt, while at the same time facilitate debt restructuring. The team stressed that the 2018 budget should decisively reduce the fiscal deficit. It should focus on eliminating tax exemptions (including for VAT), containing the expansion of the wage bill, and prioritizing the implementation of only the most critical public investments while avoiding the further accumulation of arrears. Protecting critical social programs and reinforcing the social safety net should cushion the impact of these measures on the most vulnerable segments of the population. Urgent action is also needed to strengthen the financial position of loss-making companies and limit the fiscal risks they represent.

“On the monetary side, the team welcomed the recent introduction of the new monetary policy regime centering on the use of a new policy rate (MIMO) as the central bank’s main instrument of monetary policy. The team acknowledged the strong commitment of the central bank to reduce inflation. To address financial sector vulnerabilities, the team urged the central bank to remain vigilant to risks, ensure adequate liquidity provision to the economy, and continue to step up supervision and enforcement of prudential regulations.

“The team welcomed the publication of the detailed summary of the Kroll audit report by the Public Prosecutor’s Office as an important step towards greater transparency regarding the borrowing undertaken by the Ematum, Proindicus, and MAM public companies. However, as highlighted in a June 24 press statement 17/243, while the report summary provides useful information on how the loans were contracted and on assets purchased by the companies, critical information gaps remain unaddressed regarding the use of loans proceeds. The team urged the government to take steps to fill the information gaps and to enhance its action plan to strengthen transparency, improve governance, and ensure accountability.

“The team met with Prime Minister Carlos do Rosario, Minister of the Economy and Finance Adriano Maleiane, Bank of Mozambique Governor Rogerio Zandamela, Public Prosecutor Beatriz Buchili, senior government officials, representatives from the Parliament, private sector, and the donor community.

“The team thanks the authorities for their continued hospitality.”

IMF Communications Department

Optimistic prediction for 2018

Standard Bank's chief economist in Maputo, Fausio Mussa, in a 4 July presentation, predicted that the Metical will remain at MT 60 = $1 this year but improve to MT 50 = $1 by the end of next year. Inflation will average 18.3% this year but fall to 11.9% in 2018 - still well above 2012-5 average of 3.3%. Mussa argued that "monetary policy tightening was severe enough" to restore macro-economic stability in Mozambique, but at a price of a sharp cut in imports (from $10.6 bn In 2015 to $8.0 bn in 2016) and a "collapse in economic activity not always reflected in GDP statistics". He hopes for "a private sector led recovery but prospects [are] highly contingent to progress in natural gas" and on an IMF programme to improve confidence and release increased donor assistance - which, with IMF and donor disappointment over obstruction of the Kroll report, now seems unlikely. The drop In donor grants is dramatic, to one fifth the level of five years ago - aid grants were $1 bn in 2013 but are forecast to fall to just $216 mn this year. The gap has been filled by borrowing, with foreign debt nearly doubled from $5.8 bn in 2013 to a forecast $10.8 bn this year. (Detailed graphs are in the attached pdf version of this newsletter.)

IMF wants to replace Mozambican justice

One of the factors that will make it difficult to negotiate between Maputo and that Bretton Woods international financial institution is that Kroll's unconvincing report on so-called "hidden debts".  Norway's ambassador to Maputo, Anne Lene Dale, says the ongoing negotiations between the International Monetary Fund (IMF) and the Mozambican government will be "very difficult", contrary to what many may imagine.

"I think the negotiations between Mozambique and the IMF will be very difficult. The IMF will demand the reform of State structures, an important factor in clarifying the relationship between the state and the private sector, "said the diplomat, adding that the negotiation process between the parties will be crucial for Other donors, especially on the issue of budget support. Emphasizing that his country (Norway) will continue to maintain close contact with other donors to discuss the implementation of Kroll's report on the debts of EMAUMUM, Proindicus and Mozambic Asset Management (MAM). Two billion US dollars.

It should be noted that the front-to-front between the Executive of Filipe Nyusi and the IMF has the expected outcome for this Wednesday (19 July).One of the factors that will make negotiations between Maputo and Bretton Woods an international financial institution difficult is that Kroll's little-known report on so-called "hidden debts" has found that many more billions of US dollars, Americans also in loans will have disappeared, but even worse is that the subject is kept secret.According to the conclusion of the 57-page summary of the Kroll report on the biggest financial scandal in the history of Mozambique, it points out that the illegal loans taken in the last term of the Government of Armando Guebuza (2009 to 2014) constitute 20% Of the country's total lending, which is currently at more than 110% of gross domestic product (GDP).

Independent international auditing was one of the calls of the International Monetary Fund to resume cooperation with the Government of Mozambique.The same applies to other donors who have frozen their direct support of the Mozambican State Budget (OE) since April 2016, following the boom in the country's public debt scandal.

But Helge Ronning, a media expert and professor at the University of Oslo in Norway, says the Kroll-led audience will not be enough to convince donors because it has not been able to collect a range of key information. Ronning, who has been on a tour of Mozambique between 1996 and 1998 and 2004/6, says that Kroll's report is "disturbing" because he does not understand how one of the most capable and reputed companies in the field of audi ¬toria could not get to the bottom of who did what? And what was actually done with the money?

In his turn, the director of the Public Integrity Center (CIP), Adriano Nuvunga, believes that the current President, Filipe Nyusi, "will not risk much" in persecuting those responsible for these mega-loans, even if What you want to do. (Edson Arante)

Anadarko supports School Games

US oil giant Anadarko is to spend about 1.5 million meticais [around US$24,863 at current exchange rates] supporting the 13th Festival of School Games, which starts tomorrow, Friday, in Xai-Xai city, Gaza province.A statement from the Ministry of Youth and Sports says that the agreement formalising the support was signed in Maputo by the Deputy Minister of Youth and Sports, Ana Flávia Azinheira, and by the Director of Anadarko, in Mozambique, John Bretz.Speaking at the time, the Deputy Minister Azinheira stressed the importance of school games, which this year will take place under the motto “School Sports, Conserving Nature”, combining the search for talent and the environmental protection agenda.The event would also help athletes prepare for the the Community of Portuguese-speaking Countries (CPLP) games, she added.“This support will help us achieve our main goal, which is to bring value to school games. We want to identify talented individuals and refer them to a training programme,” Azinheira said.

According to the deputy minister, the agreement signed with Anadarko is the beginning of a partnership that could be extended to other institutions.“We are sure we will find more partners, because this is a project all companies can identify with because it involves society, children and communities”, she noted, adding that the games would also serve as an opportunity to spread an anti-poaching message.Anadarko Mozambique director John Bretz said that the support was part of the company’s efforts to contribute to sustainable development in Mozambique.“We are proud to support this initiative, which enhances Mozambican sports and the country, and which introduces in this edition awareness about the protection of nature, which is of great importance for the sustainable development of Mozambique and the world,” Bretz said.“Being aware of its importance, Anadarko has been supporting various initiatives in the environmental area,” Bretz said, citing as an example the support given to Gorongosa National Park and the Niassa Reserve.The 2017 edition of the School Sports Games, to be opened by President Nyusi, will involve students from all provinces of the country competing in various modalities including football, handball, volleyball, basketball, athletics, gymnastics and traditional games.

SENTENCES OF 10 TO 16 YEARS

The Maputo City Court on Thursday sentenced eight of the nine people charged with stealing 36 million meticais (about 1.2 million US dollars, at the exchange rate of the time) from the Army Command, between 2010 and 2015, to prison terms of between 10 and 16 years.

They must also compensate the state to the tune of 40 millon meticais.

Judge Salomao Manhica handed down the longest jail terms, 16 years, to Ernesto Rufino and Abdul Ismael. Rufino and Ismael were the key figures in the theft. They worked in the wages sector of the Army Command. They put the names of friends and relatives on the wages sheets so that every month money to which they were not entitled would be deposited in their accounts. Rufino and Ismael used the disreputable defence that they were only carrying out orders. They claimed the corrupt scheme had been designed by the immediate superior, Alberto Martinho, who kept 60 per cent of the stolen money for himself.

But Martinho died in 2014, and the corrupt scheme continued after that date. In any case, army officers have the right and the duty not to obey illegal orders given by their superiors.

Guilhermina Pedro and Hussene Ismael (the brother of Abdul Ismael) were sentenced to 15 years, Anibal Joaquim and Monica Simiao to 11 years, Sonia Cossa to 11 years and six months, and Elsa Antonio to ten years.These were mostly relatives and lovers of Rufino and Ismael who allowed the stolen money to be deposited in their accounts. Their defence was that they did not know where the money that mysteriously appeared in their accounts had come from. The prosecution regarded this as no justification at all – for there is nothing normal about citizens handing over control of their personal bank accounts, and their bank credit or debit cards, to others.The court acquitted one of the accused, Sara Agostinho, because there was no convincing evidence that she had personally benefitted from the stolen money.

MALIANO DETAINED WITH 64 THOUSAND USD

A Malian national was detained Thursday at Maputo International Airport, when he planned to illegally board 64,000 US dollars, bound for Bangkok, the capital of Thailand.The value, not stated to the competent authorities, was hidden in the middle of his luggage.According to Stélio Langa, head of the police station at Maputo International Airport, quoted by "Notícias" today, the citizen will be investigated to ascertain the legitimacy and provenance of the money, because there was no statement about it.The individual, known by the surname Saka, is a trader and has lived in Maputo for more than five years.He was barred from traveling until the outcome of the investigations. Before the authorities, he explained that he was going to Bangkok to shop and should climb Addis Ababa, Ethiopia.

“HIDDEN DEBTS”

The Mozambican Catholic Church has added its voice to those demanding that the debts of the security-related companies Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management) be declard unconstitutional.The debts, for a total of just over two billion US dollars were contracted from the European banks Credit Suisse and VTB of Russia in 2013 and 2014. The government of the day, headed by President Armando Guebuza, issued illicit guarantees, which smashed the ceiling on loan guarantees laid down in the 2013 and 2014 budget laws, and also violated the Mozambican constitution which states that only the country’s parliament, the assembly of the Republic, can authorise such debts.A statement issued on Tuesday by the Catholic Episcopal Commission on Justice and Peace, cited in the independent daily “O Pais”, denounces the debts of the three companies as “contracted in a unilateral, illegal and illegitimate way”.   The message from the Episcopal Commission, signed by the Bishop of Pemba, Luis Fernando Lisboa, also demands that those who contracted the debts should be held responsible for their actions, as should those who obstructed the audit into Ematum, Proindicus and MAM carried out by the company Kroll Associates.

“We are surprised that the auditors indicate that they did not receive full collaboration from all those involved in the investigation, putting the brakes on the process, and even refusing to hand over some necessary documents”, said the statement.In the executive summary of the audit report, released on 24 June, Kroll said the three companies “only provided “limited financial data, including incomplete trial balances and bank statements for certain periods, and incomplete supporting documentation, such as loan facility agreements and supplier contracts. As a result, it became apparent that a significant amount of the information originally envisaged to be held by the Mozambique Companies in Mozambique was not available”.

Kroll said it was denied access “to full and complete documentation, including internal confidential documents of the parties involved, nor has it met with all key personnel of the parties involved. The main challenge in completing the Independent Audit was the lack of documentation available from the Mozambique Companies. Kroll spent a considerable amount of time requesting and liaising with representatives of the Mozambique Companies to obtain documentation and information that was, in some cases, either ultimately incomplete or not provided at all.”

This obstruction was proudly confirmed by the chairperson of all three companies, Antonio do Rosario, who is a senior official in the State Intelligence and Security Service (SISE). In a message he circulated in late June he boasted that he had thrown the auditors out of his office “because they wanted details of questions about state security.”

“We do not give in to pressure and we are not afraid,” added Rosario. He treated Kroll as if it were a foreign intrusion – but in reality Kroll was hired by the Mozambican Attorney-General’s Office (PGR), which is investigating the loans and their guarantees. Obstructing Kroll is obstructing the work of the PGR, and Rosario thus laid himself open to arrest on charges of disobedience and obstruction of justice.The statement from the Episcopal Conference also demanded that the government should not pay the debts. “We cannot permit the Mozambican people to bear the responsibility of paying with misery, blood and death the debts that were contracted in their name, in an illegal and unconstitutional manner”.In its message the Commission adds that nobody can be obliged to obey the discipline of any political party, when such obedience contradicts their own conscience. “We cannot place a party or its leaders above justice, the love of God or the love between brothers”, it declared.

NO BASIS FOR CLAIM THAT AL-SHABAAB

The scare story that three men arrested last month in the northern Mozambican city of Pemba are members of the Somali terrorist group Al-Shabaab, seems to have no basis in fact.At his weekly Maputo press briefing, the spokesperson for the General Command of the Mozambican police, Inacio Dina, said “These three individuals are Muslims. But we cannot confirm any link between them and Al-Shabaab”.The story of the al-Shabaab link was broadcast, with virtually no details, by Radio Mozambique in June. The three were detained in the Mucojo administrative post of Macomia district, Cabo Delgado province.Dina said the three individuals are Mozambicans (so not Somalis). They were detained because they were inciting members of the public to disrespect the government authorities, and to pull their children out of schools. He said the three men, aged between 21 and 43, went from house to house urging people to disobey the authorities and to abandon schools.Asked if the three are still in detention, Dina said he had no information as to whether they were still being held or had been released. “Right now, I cannot tell you where they are”, he said.

Metical depreciates against euro

The Mozambican metical depreciated against the euro last week, with the European currency coming into the country at an average of 67.96 meticais, up 1.20 meticais from the previous week.In turn, the euro was selling for 69.29 meticais, up 1.23 meticais, according to weekly averages calculated by Lusa from Bank of Mozambique data.The purchase price of the euro ranged between 67.26 and 68.34 meticais, while the selling price ranged between 68.57 and 69.68 meticais.Last week was a day short thanks to the Independence Day holiday falling on a Sunday, and so being celebrated on Monday, June 26.The devaluation of more than one metical last week has wiped out the slight appreciation of the previous two weeks. The Mozambican currency is nevertheless still displaying a trend of appreciation, after falling in September 2016 to an all-time low of 88 meticais to the euro.Meticais average reference exchange rates of the euro.

Day … Buy … Sell

30 June … 68,34… 69.68

29 June … 68,28 … 69.63

28 June … 67,95 … 69.29

27 June … 67.26 … 68.57

26 June… holiday

Average … 67,96 … 69,29

The Bank of Mozambique set the reference rate in the national financial market for July at 27.75 percent, holding the index for the second consecutive month, according to information distributed to the press in Maputo.The central bank also held the weighted average rate for international monetary market operations and the single index rate at 21.75 percent.The creation of the single index (prime) rate was agreed between Bank of Mozambique and the Mozambican Association of Banks on May 17 as a measure to eliminate the proliferation of different interest rates in the country.All credit operations are now based on the single rate, plus a spread according to the risk analysis of each contract.“What we have just witnessed is an important step towards crystallising the reforms introduced more than 20 years ago when it comes to determining interest rates,” Rogério Zandamela, governor of the central bank, said when the measure was announced in May. The creation of the single rate is in line with international practice, which imposes a uniform reference in the calculation of interest rates for credit operations.

President Filipe Nyusi will today inaugurate three new buildings in Maputo housing the Bank of Mozambique’s headquarters and various other units.A press release received by Noticias reveals that the three new buildings cover a total of 87,500 square meters and well lend a new image to central Maputo, where they are located.“Two of the three buildings are located between Avenues 25 de Setembro and Samora Machel, and the third one on Banco de Moçambique Street,” the release reads. The work was carried out by Portuguese contractor Teixeira Duarte and contains security and technological features that will guarantee the handling and storage of money according to international security standards. The 1960s building which previously served as the central bank’s headquarters was thought to be ill-suited to current times.