31 October 2016

Mozambique: The House of Cards Has Collapsed

Photo: Stephen Jaffe/IMF
International Monetary Fund Managing Director Christine Lagarde (file photo).
analysis

Last week saw the final collapse of a house of cards built from greed and hubris. 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?                   

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