Mozambique unlikely to repay US$2 billion to Credit Suisse and VTB Bank

The government of Mozambique, heavily in debt, is increasingly unlikely to repay a debt of US$2 billion to Credit Suisse contracted by a former Finance Minister who is being detained in South Africa.

The minister, Manuel Chang, is being held because of a request for extradition from the U.S.; it accuses him of multiple offences with relation to the loan from the two banks.

Civil groups in Mozambique, including its Bar Association, have called for the government not to repay the debt. The ruling Frelimo party is keeping its options open on the issue.

 The banks made two syndicated loans, to two companies, MAM and Proindicus, both involved with the security services. The transactions were secret. Apart from mentioning the loans in the state accounts, the government has never recognised them as legitimate.

 On January 24, the Political Commission of Frelimo met and one of the main topics of discussion was the so-called “hidden debts”. In its final declaration, it surprisingly left repayment as an open question, saying that the government must “identify the best solution to safeguard the interests of Mozambicans”.

This is a change from its previous line that Mozambique pays its debts, and opens the way to a declaration that the MAM and ProIndicus debts are illegitimate and illegal and should not be repaid.

The declaration also said:”Where it is proven that the money from the loans has not been used for the public interest, it is essential that people (involved) be held responsible and money and property be recovered.”

The Frelimo leadership is now signalling that the fact that the budget law required the guarantees be noted does not mean the government accepts the guarantees as legal or legitimate.

Bonds issued by a third state company, Ematum, are generally considered harder to refuse to pay; they were replaced with state bonds approved by parliament, while the MAM and ProIndicus loans were still secret.

Manuel Chang is being charged with violating the law by signing the guarantees for the loans.

In its declaration, Frelimo said: “the Political Commission argues that the registration of guarantees in the general state account, done in accordance with the legislation in force, should not impede the process under way in the institutions of justice”.

The U.S. accusations led to the arrest of three former Credit Suisse bankers in London on January 3, 2018; a third accused, Jean Boustani, an executive of ship-maker Privinvest, is already in U.S. custody.

Civic groups have demanded that Mozambique does not have to repay debts they consider were “illegally” approved.

Flávio Menete, chair of the Mozambican Bar Association (OAM), was particularly vocal against the repayment of the debts at a ceremony on February 1 to launch the 2019 judicial year. He said the debt “is of criminal origin, commonly known as odious debts” and “the Mozambican Bar Association will initiate investigations abroad to explore the possibility that Mozambicans will not be obliged to pay debts”.

The Centre for Public Integrity (CIP) recently distributed T-shirts with inscriptions of repudiation and indignation against the payment of illegal secret debts. But the police prohibited supporters from wearing them.

In a recent statement, the Budget Monitoring Forum (FMO) – a coalition of Mozambican civil society organisations – said that the U.S.-initiated process “is an opportunity for Mozambicans to get full disclosure on the illegal debts and recover all costs incurred by the Mozambican fiscus (treasury) as a result of illegal and immoral conduct by international bankers, contractors, public officials, their relatives and collaborators in Mozambique. The debt was illegal as it violated Mozambican legislation. We will continue to campaign against any debt restructuring proposals that do not consider the criminal nature of these transactions.”

FMO has argued that the UK’s Financial Conduct Authority (FCA) should pursue criminal sanctions against Credit Suisse for the role played by the UK- regulated bank in Mozambique involving illegal debt. The bank has been attempting to distance itself from its former employees, notably former executive Andrew Pearse, who was responsible for sovereign debt deals.

Frelimo has been struggling to react to the arrest. It is facing criticism and persistent questions about the role played in the affair by President Filipe Nyusi, who at the time was Minister of Defence. Fractures have emerged in the party.

In a speech to diplomats on January 23, President Nyusi noted the arrest of Chang and stressed the separation of powers and the need to wait for judicial institutions to deal with the issue.

His comments showed a shift from the party´s defence against the debts negotiated by his predecessor, Armando Emílio Guebuza.

Nyusi said: “we must have the courage to change the thinking of an elite that wants to dominate the economy of all Mozambicans.”

The son of the country´s first president, and member of the Central Committee, Samora Machel Jr (“Samito”), wrote to President Nyusi at the end of January calling on him to “convene a grand meeting [of Frelimo], to discuss, without reserve and limitations, the current state of the Party and the Country”, as “the people are abandoning us [Frelimo]”.

On February 3, former Mozambican Prime Minister Luisa Diogo, who worked as a deputy to Chang in the government, said she was “shocked” at the involvement of the former finance minister in the scandal.

“It’s a great shock because he’s a cadre whom I know and I thought I knew him well. With the work we did together I thought he shared the same principles of how to serve the state and how to serve the people. I’m shocked because, although I have understood about the debts since 2015, I never thought he had taken advantage of this.” (End)

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