Mozambique: Finance Ministry Defies Constitutional Council Over Ematum

Maputo — The Mozambican Finance Ministry on Wednesday informed the holders of the bonds that were once issued by the fraudulent company Ematum (Mozambique Tuna Company) that it now has "all the necessary conditions and authorisations" to advance and pay the restructured Ematum debt.

Ematum accounts for the largest share of over two billion US dollars of loans in 2013 and 2014 from the banks Credit Suisse and VTB of Russia to three security-linked companies. The loans were illegally guaranteed by the government of the day, under President Armando Guebuza, in violation of both the budget law and the Mozambican constitution.

The Ematum loan of 850 million dollars took the form of a bond issue on the European market. The proceeds were supposed to go towards purchasing fishing boats and other equipment for Ematum, and for coastal protection.

In April 2016, the government ratified a deal under which the Ematum bonds were replaced by sovereign government bonds. This was shortly before the full extent of Mozambique's "hidden debts" became known, which precipitated a financial crisis. The International Monetary Fund (IMF) suspended its programme with Mozambique, and the group of 14 donors who had provided direct support to the state budget halted all further disbursements.

The Mozambican government was quite unable to pay the interest on the ex-Ematum bonds, and lengthy negotiations with the creditors ensued.

In May this year, the Finance Ministry announced that the bondholders would be invited to exchange their existing bonds for new bonds, with a face value of 900 million US dollars, with an accrual date of 15 July this year, and maturing on 15 September 2031. Annual interest will be five per cent up until 1 September 2023, and an extraordinary nine per cent from 2023 to 2031.

Under this agreement, Mozambique will pay the interest in arrears every six months, in March and September, starting in March 2020. The capital will be paid in eight equal six monthly instalments of 112.5 million dollars on 15 March and 15 September of the years 2028, 2029, 2030 and 2031.

According to the Ministry statement, cited by the independent daily "O Pais", on Wednesday the government paid the creditors 38 million dollars. This appears to be the "consent fee and exchange payment" mentioned in the government's May proposal. The payment should have been made on 30 September, but this deadline was extended at the government's request.

But this payment violates a ruling made in early June by the Constitutional Council, Mozambique's highest body in matters of constitutional law.

Reacting to requests from the various Mozambican NGOs including the Budgetary Monitoring Forum (FMO), from the ombudsman, Isaque Chande, and from a petition of 2,000 citizens, the Council declared null and void all acts concerning the Ematum loan.

Also null and void "with all the legal consequences" is the loan guarantee issued by the Guebuza government.

The government, the Constitutional Council said, had "completely disrespected" both the Constitution and the law by contracting the Ematum debt. The loan and guarantee were thus null and void.

There can be no appeal against Constitutional Council rulings which are irrevocable.

It seems clear that the Council, by categorically ruling "all acts" connected with the Ematum loan as null, intended that no more money should be thrown at the creditors. The Finance Ministry, however, thinks differently and is pushing ahead as if the Council ruling had never existed.

The creditors are, of course, delighted. A spokesperson for the Global Group of Mozambique Bondholders (GGMB), cited by the Portuguese news agency Lusa, said this initial payment would allow Mozambique to normalise its relations with international financial markets "which is necessary to finance Mozambique's development goals".

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