Mozambique’s secret loans: A scandal that started in London
Tuna fishing ships and military patrol boats are currently sitting dormant, docked in the capital of Mozambique, Maputo. Together, these boats provide a daily physical reminder of the ongoing political scandal that has rocked this south-east African country and contributed to a major economic crisis.
But the story begins in the offices of two banks in London, Credit Suisse and VTB.
In 2013, these two banks arranged for the Mozambique government to borrow $850 million from international speculators, supposedly to pay for the tuna fishing fleet, with an interest rate of 8.5%. Unbeknown to most people at the time, Credit Suisse and VTB together also lent a further $1.1 billion, under English law, to two state owned companies in Mozambique, much of which is now reported to have been spent on military equipment, including the patrol boats in Maputo harbour. Much of the $850 million of loans has also been reported to have been spent on the military.
From 2001 to 2014 Mozambique was one of the fastest growing economies in the world. This was based on a series of mega projects based around the extraction and export of resources such as fossil fuels and metals. In a report in 2015, Jubilee Debt Campaign showed how this high growth was not leading to significant poverty reduction and that the dependence on raw materials made the country vulnerable to a big fall in prices, which could lead to a debt crisis.
The first ever mega project was an aluminium smelter just outside Maputo. In 2013 Jubilee Debt Campaign showed how foreign companies and governments, including the UK, were making large amounts of money out of this factory, whilst tax exemptions meant the Mozambique government was left with almost nothing.
Similarly, Mozambique organisation Justica Ambiental, part of Friends of the Earth International, have just released a report showing how the coal mines in the north of the country have generated little revenue for the government and created few jobs, whilst saddling the government with large debts to pay for infrastructure claimed to be required by the mines.
Unfortunately, our warnings are now coming to pass. The fall in global commodity prices has cut the Mozambique government’s revenue. In December 2015, the IMF began lending money to Mozambique to pay off previous lenders, whilst keeping the country in debt.
Then in April 2016, the existence of the hidden debts was finally revealed by investigative journalists. None of the loans were approved by the Mozambique parliament, breaching the country’s constitution.
Other revelations have included that a banker who worked on the deals for Credit Suisse is now employed by a firm majority owned by the maker of the ships.
The revelation has led to the IMF suspending its loans, followed by the World Bank and western governments. The Financial Conduct Authority in the UK has been reported to be investigating the activities of Credit Suisse and VTB to see if they misled other lenders.
In Mozambique, the value of their currency, the metical, has fallen 50% against the US dollar since mid-2015. Because so much is imported into the country, this has led to large increases in prices, including for basic foods, without equivalent increases in wages. This is on top of a drought in the south of the country which has pushed 1.5 million farmers into food insecurity. The fall in the currency has also increased the relative size of the debts owed in dollars.
Mozambique’s debt is now thought to be $11.6 billion, 93% of GDP, and without the loans from the IMF and World Bank to pay off other lenders, the debt cannot be paid. The government has already announced a range of cuts, reported to be across all government spending except for health, including education, social services and welfare and vital infrastructure.
Campaigners in Mozambique from organisations such as the Mozambique Debt Group and Budget Monitoring Forum are calling for a range of measures to hold government officials to account, including a forensic external audit of the debt, prosecution of any officials who broke the law, and changes to procedures to ensure such hidden borrowing cannot happen again. The call for an external audit has also been backed by the IMF and UK Ambassador to Mozambique.
But campaigners are also saying that the Mozambique people should not have to bear the burden of these hidden, illegitimate debts. Paula Monjane from the Civil Society Budget Monitoring Forum told us:
“The officials who broke the law in Mozambique need to be held accountable by the Administrative Court and the Central Office for Combating Corruption. This includes the lenders and financial institutions which facilitated these loans. In defence of the common good and against the continued impoverishment of the Mozambican people, we do not want, do not accept and will not pay the debts of EMATUM, ProIndicus and MAM .”
As Paula argues, this situation is not just the fault of the Mozambican officials involved. The lenders must also bear some share of the responsibility. That is why we are calling on Credit Suisse and VTB to drop the debt, as well as to fully comply with an external audit, and change their policies and procedures to ensure they do not in the future agree loans which have not been approved by a country’s parliament, or which break the law in that country.
Campaigners in Mozambique are trying to hold their government to account. But they need our help to also hold to account the banks based here in the UK for their role in creating this crisis which threatens the livelihoods of millions of people in Mozambique.
This blog was originally published on 9th September 2016 on the Jubilee Debt Campaign website.