Council rules

The Constitutional Council, Mozambique’s highest body in matters of constitutional law, on Tuesday declared that the government guarantees for the loans granted to the fraudulent companies Proindicus and MAM (Mozambique Asset Management) are null and void.Three companies, all set up on the imitative of officials in the State Security and Intelligence (SISE), obtained loans of over two billion US dollars, in 2013 and 2014 from the banks Credit Suisse and VTB of Russia, on the strength of guarantees given by the previous government, headed by the then President Armando Guebuza.

The Constitutional Council declared the guarantees for the third company, Ematum (Mozambique Tuna Company), null and void in June2019 and the arguments used in the new ruling are broadly identical to those in the Ematum ruling.The Council was reacting to a petition of 2,000 citizens asking the Council to declare the Proindicus and MAM guarantees as unconstitutional and illegal. The petitioners in particular wanted the Council to declare unconstitutional the resolution passed by the country’s parliament, the Assembly of the Republic, published in December 2017, which approved the General State Account for 2015.In the view of the petitioners the mention of the Proindicus and MAM loans in the 2015 State Account gave them retrospective validation (although the government, at the time, claimed that the mention of the guarantees merely acknowledged their existence, and said nothing about their validity).The Constitutional Council agreed with the petitioners that, in granting the loan guarantees the government violated both the 2013 and 2014 budget laws and the Constitution itself. Every year, the budget law puts a ceiling on the guarantees that can be granted by the government. The guarantees for Proindicus, Ematum and MAM smashed through this ceiling – as was acknowledged by the Commission of Inquiry set up by the Assembly to investigate the matter.

The guarantees for the loans to Proindicus (622 million dollars) and to MAM (535 million dollars) dated from 2013 and 2014 respectively, but were not included in the General State Accounts for those years, and were therefore not known by the Administrative Tribunal, the body that supervises the legality of public expenditure. The government never explained this omission, but merely said it included the guarantees in the 2015 General State Account “for purposes of regularisation”.Since the loan guarantees exceeded the limits set in the 2013 and 2014 budget laws, the only way to approve them would have been to request authorisation from the Assembly. Not only was no such request ever made, but the Proindicus and MAM loans were kept secret from the Assembly, from the public, and from the government’s foreign partners – with serious consequences.When the full extent of the loans became known, in April 2016, the International Monetary Fund (IMF) accused the government of concealing the country’s true foreign debt situation, and suspended its programme with Mozambique. The 14 donors who had given part of their aid to Mozambique in the form of direct support to the state budget suspended all further disbursements. They have never resumed.

The Constitutional Council had no doubt that the Guebuza government had violated the budget laws in two succeeding years, and also the clause in the Constitution which states that only the Assembly may grant loans for a period in excess of one financial year.Furthermore, the 2012 Law on the State Financial Management System (SISTAFE) states that no expenditure can be ordered or undertaken unless it is included in the state budget and is justified in terms of efficiency and effectiveness. Nothing of the sort happened with the Proindicus, Ematum and MAM loan guarantees.The Constitutional Council concluded that the government “completely disrespected the Constitution and the law” in contracting the Proindicus and MAM loans and issuing the guarantees. Those government decisions had been invalid right from the start.The Council thus, as it had done with Ematum last year, declared all acts concerning the Proindicus and MAM loans and guarantees null and void “with all the legal consequences”.

In other words, any attempt by the government to repay those loans will be illegal.

However, it should be noted that the government has ignored last year’s Council ruling on the Ematum loan, and has continued to make interest payments to the ex-Ematum bondholders.An agreement with those bondholders was reached by the Finance Ministry in May 2019, just five days before the Council’s ruling on Ematum. The ruling rendered that agreement entirely illegal, but the government made a first payment under the May 2019 agreement, of 112.5 million dollars, in March of this year.