11 January 2019

Mozambique: Finance Ministry Still Determined to Pay Illegal Debts

Photo: World Bank
Debt.

Maputo — Despite all the recent revelations about the gross illegalities committed in the scandal of Mozambique's "hidden debts", the Ministry of Economy and Finance is still determined to pay off the creditors.

In early November, the Ministry announced it had as reached agreement with creditors on the restructuring of the debt arising from bonds initially issued in the name of the Mozambique Tuna Company (Ematum), one of three fraudulent companies that took out loans of over two billion US dollars from the banks Credit Suisse and VTB of Russia in 2013 and 2014.

The banks never undertook any due diligence on the three companies, which are now all effectively bankrupt. The loans only went ahead because the previous government, under President Armando Guebuza, illegally issued guarantees, which smashed through the ceiling on loan guarantees established by the 2013 and 2014 budget laws.

Under the November deal, the existing bonds will be swapped for new bonds and for "value recovery instruments", linked to future fiscal revenues, from the natural gas projects in the Rovuma basin in the far north. Thus before any liquefied natural gas (LNG) is produced the government has committed revenues from this resource to paying off illegal debts incurred by its predecessor.

The new bonds will have a face value at issuance of 900 million dollars. This is slightly less than the sum of the outstanding principal and accrued but unpaid interest on the Bonds as of 9/30/2018 - which were 726,524,000 and 189,441,133 dollars, respectively.

The bonds will mature on 30 September 2033. The coupon (interest rate) will be 5.875 per cent, and interest is to be paid twice a year, at the end of March and the end of September. The first interest payment is due on 30 March 2019. Payment of the principal is postponed by a decade until 2029, when revenue from the natural gas should be flowing into the government's coffers.

The principal should be paid in five equal annual instalments, beginning in September 2029 and ending in September 2033.

But the recent revelations, emerging from investigations by United States prosecutors, show that Ematum was a gigantic fraud right from the start, and that much of the loans from Credit Suisse and VTB went on colossal bribes and kickbacks.

One might have thought that the Mozambican government would have seized on this evidence of massive criminality in the loan as a reason for at least suspending, if not cancelling its deal with the creditors.

But no - the spokesperson for the Finance Ministry, Rogerio Nkomo, interviewed by the Portuguese News Agency Lusa, said the preliminary agreement with the creditors remains valid.

"The Government made this proposal and, regardless of anything else, this proposal stands", said Nkomo.

He declined to comment on the accusations made by the US authorities, insisting that only the Mozambican parliament, the Assembly of the Republic, could make changes to the government's proposal.

"Looking at the country's economic conditions, it was this proposal that seemed most appropriate to solve this question", said Nkomo. "We must reach a definitive agreement with the creditors".

But Mozambican opposition parties and civil society organisations believe the government should declare the illegal debts as odious, and pay nothing at all. If the creditors want their money back, they should get it from those who designed and implemented the fraud.

The preliminary agreement with the creditors was reached before the dramatic events of the past fortnight, which have seen former Mozambican Finance Minister Manuel Chang arrested in South Africa on a warrant from the United States, which accuses him of conspiracy to commit money laundering, wire fraud and securities fraud.

Also arrested on the same charges were three former Credit Suisse executives, and the official fom the Abu Dhabi based company Privinvest, which arranged the loans, and was the sole contractor for Ematum and the two other fraudulent companies, Proindicus and MAM (Mozambique Asset Management).

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