18 September 2017

Mozambique: No Normal Relations With IMF, Without Completing Kroll Report

Photo: International Monetary Fund
(File photo).

Maputo — The International Monetary Fund (IMF) has politely made it clear that there will be no normalization of relations with Mozambique until the information missing from the audit of the security-related companies Ematum (Mozambique Tuna company), Proindicus and MAM (Mozambique Assets Management) is provided.

In 2013-2014, the three companies borrowed over two billion US dollars from the European banks Credit Suisse and VTB of Russia. The government of the day, headed by President Armando Guebuza, illicitly guaranteed the loans, in violation of both budget law and the Mozambican constitution. These government guaranteed loans added 20 per cent to Mozambique's foreign debt.

Initially, only the Ematum loan was in the public domain, since it took the form of a European bond issue. The Proindicus and MAM loans were kept secret, and only came to public knowledge in April 2016.

The IMF, accusing the government of misreporting its debt situation, suspended its programme with Mozambique, and other western donors and funding agencies followed suit. All 14 donors who used to provide direct support to the Mozambican state budget suspended their disbursements and have not resumed them.

The IMF made it clear that a basic condition for resuming normal relations with Mozambique was an independent audit of Ematum, Proindicus and MAM. The Attorney-General's Office (PGR) hired Kroll Associates, reputedly the world's foremost forensic audit company, to undertake the audit.

In late June, the PGR published the executive summary of the Krioll report, which accused the management of Ematum, Proindicus and MAM of failing to cooperate and concealing information. The man who is the chairperson of all three companies, Antonio do Rosario, a senior officer in the State Intelligence and Security Service (SISE) openly boasted of refusing to hand over data, on the grounds of “national security”, and even of expelling the auditors from his office.

At a press briefing in Washington last Thursday, IMF spokesperson Gerry Rice confirming that filling in the gaps in the Kroll audit report would be a crucial step towards a new IMF programme for Mozambique.

He said the IMF was “encouraged” by the fact that the audit had taken place “because transparency and good governance are key”. But now the IMF wanted to see the full audit report, and not just the summary, published.

As Rice must know, the full report has been circulating on the Internet for some weeks but, inexplicably, the PGR has not yet published it on its website.

The full report is even more damning than the executive summary about the companies' refusal to cooperate. The main challenge in completing the audit, Kroll says, “was the lack of information available from the Mozambique companies. Kroll spent a considerable amount of time requesting and liaising with representatives of the Mozambique companies to obtain information and documentation that was, in some case, either ultimately incomplete or not provided at all”.

Kroll said it repeatedly asked Rosario (referred to in the report as “Person A”) for “outstanding information that would provide a better understanding of expenditure: the response was that the requested information was ‘classified' and not available”.

Kroll also found it could not obtain “reliable accounting records from the Mozambique companies to enable a proper assessment of the financial position of each company. Further, the Mozambique companies were unable to provide complete loan agreements or supply contracts”.

Thus the full report, far from solving the problem of the information gaps, reveals how wide they are.

Rice said “we believe it is key for the authorities to provide the missing information, highlighted in the audit summary and in particular critical information gaps record, regarding the use of loan proceeds. So taking steps to fill the information gaps and to strengthen transparency and ensure accountability will be critical to progressing toward a new program”.

The message is clear: unless the Mozambican authorities provide the missing data, particularly an explanation of what happened to all the two billion dollars, there will be no new IMF programme.

Complicating matters is the allegation that Mozambique purchased military equipment from North Korea, in violation of United Nations sanctions against Pyongyang. This was mentioned in two reports from the panel of experts set up by the UN Security Council to monitor the implementation of sanctions, on 27 February and 5 September.

The February report, which the media somehow missed, mentioned a six million US dollar contract between the North Korean Haegeumgang Trading Corporation and Monte Binga, a company owned by the Mozambican Defence Ministry.

Under this contract, according to the panel, citing as its source an unnamed UN Member State, Haegeumgang was to upgrade and refurbish Soviet era equipment: P-18 early warning radar, AT-3 anti-tank missiles, T-55 tanks, and truck-mounted surface-to-air Pechora missile systems. It was also to supply "man-portable air defence system components and training equipment", 250 kg "glide induced bombs", radar systems, communications and electronics detection equipment, and a "chemical warfare monitoring command car" and related equipment. The contract also mentioned rehabilitating a gunpowder processing factory.

The contract, the panel said, was signed in 2013 by Choe Kwang Su, described as the representative of Haegeumgang in Mozambique. He is also third secretary at the North Korean embassy in Pretoria. “In addition to the contract itself”, the report said, “a Member State showed the Panel photographs of the activities, including technicians of the Korean People's Army standing in front of refurbished tanks”.

The 5 September report said the panel was continuing to investigate the matter, but “Mozambique has yet to provide a substantive reply to the Panel's enquiries. Haegeumgang has been reported by two Member States as active in Mozambique and the neighbouring United Republic of Tanzania. One Member State specified that Haegeumgang had provided the same surface-to-air missile systems to both Mozambique and Tanzania”.

Monte Binga owns 50 per cent of Proindicus. Inevitably there are suspicions that some of the 622 million dollar loan to Proindicus went to the North Korean contract (however, the amount that Kroll could not account for in its audit is much greater than six million dollars).

The Mozambican government has neither confirmed nor denied that this contract exists. Last week, the government spokesperson, Deputy Minister of Culture and Tourism Ana Comoana, pledged full cooperation with the UN Panel of Experts. The government would provide “due clarification at the opportune moment”.

The panel accused several other southern African countries - Tanzania, Angola, Namibia and the Democratic Republic - of violating the sanctions against North Korea. Last week, the Namibian Deputy Prime Minister, Netumbo Nandi-Ndatiwah, announced that all contracts between the Namibian government and North Korean companies have been terminated, and invited the UN panel to visit Namibia “so that we can show them we have complied”.

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