Mozambique’s Mechanical Murky Water Dive

The long-awaited audit of Mozambique’s $2 billion in suspicious loans from 2013 then defaulted by New York private investigator Kroll, paid for by the Swedish Embassy upon IMF insistence before program consideration, was released by the Attorney General, which has a separate domestic criminal inquiry. One-quarter of the total could not be tracked, and the three state company borrowers,tied to the national intelligence agency, reportedly spent $700 million too much for acquired fishing vessels and security equipment. The obligations were hidden off-budget from the Fund and bilateral donors that subsequently suspended aid. The debt syndicate arrangers, Credit Suisse and Russia’s VTB Capital, came in for criticisms over high fees amounting to $200 million which they claim were overstated. The detectives noted pervasive lack of cooperation and documentation in their findings, and a Fund statement welcomed the summary despite “information gaps.” Creditors of the lapsed “tuna bond” have yet to show their hand, as the country continues to negotiate new offshore gas exploration deals. They remain reluctant to take haircuts and may also press legal action against the underwriters for alleged deception or negligence. Kroll further discovered after reviewing business plans and feasibility studies that the Mozambique companies in question were “not fully operational” with “considerable” management dereliction and excess contractor authority. The government guarantee process was “inadequate” with conflicts of interest and admission of budget law breach. Tendering also entailed questionable due diligence, and loan agreements had unexplained fees. The companies have no revenue and product supply invoices are unclear and inconsistent, although assets could be physically located. Other state enterprises rather than the borrowings provided share capital. Credit Suisse demanded prior central bank approval and IMF disclosure, but the paper trail suggested only these conditions were “overcome.” According to the authors company executives may not only have been in violation of debt covenants but the local commercial code without proper qualifications, accounting and project oversight.

Cameroon in the Central African Francophone zone is the latest oil exporter to turn to a Fund arrangement, as the fiscal toll left it unable to meet monetary union convergence targets. President Biya is one of the continent’s longest serving rulers, and the border with Nigeria has become embattled with the Boko Haram rebellion. Its President issued his first public declaration since May after unknown medical treatment. Bank exposure to oil companies has triggered fears of another crisis, as MSCI put the stock market on “self-standing” notice for its foreign exchange crunch implying near-term frontier index expulsion. Ghana has less than a year to go on its Fund facility as it registered a QI small primary fiscal surplus which may finally embed consolidation. The trade balance was also positive with cocoa exports up 25% in the quarter on forward sales. Gold and oil shipments and FDI rose as well and international reserves at $6.5 billion, a five-year high, have slowed currency intervention. Inflation is still in double digits and although foreign investors are back in the local bond market as external issuance is cautious yields may again spike on likely supply curbs to ensure that austerity is no longer finessed.

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