The IMF in Mozambique: How the poor are punished for mistakes of the rich
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In Mozambique, the IMF is saying that when the rich are guilty, the poor should be punished. In a saga in which no one has clean hands, Mozambique took $2 billion in secret loans in 2013/14, ostensibly for coastal protection and fishing. When the debt was revealed in 2016, the IMF halted its Standby Credit Facility (short-term balance of payment loan) and the 14 budget support donors cut all aid directly to the government budget – an instant aid cut of at least $500 mn per year. This triggered an economic crisis with high inflation hitting food prices and government cutting spending by hiring fewer teachers and stopping infrastructure building. IMF Managing Director Christine Lagarde used the unusual platform of BBC Woman’s Hour (18 May 2016) to say that in keeping the loans secret, the Mozambique government is ‘clearly concealing corruption’. And that set the agenda to blame the Mozambican elite, notably Armando Guebuza who was president when the loan was taken and the current president Filipe Nyusi who was defence minister at the time of the loan, some of which was spent on weapons.
The IMF and donors forced a forensic audit by Kroll Associates which made clear that however corrupt the Mozambican elite, the main responsibility lies with Credit Suisse, which was guilty of loan pushing. This happens when there is a global capital surplus, as in the 1920s, 1970s and now with quantitative easing – developing countries are pushed by banks to take loans they do not need and cannot afford. The IMF has been encouraging developing countries, including Mozambique, to take private commercial loans, which only promotes reckless lending. The idea for the loan came from Credit Suisse, which granted the loan in violation of Mozambican laws, with hugely exaggerated estimates of profitability and encouraging the loan to be kept secret from the IMF. Kroll discovered that, unusually, all of the money went directly to Privinvest, a Beirut and Abu Dhabi based company, and Kroll concludes that Privinvest overcharged Mozambique by at least $700 for equipment that was supplied.
Frelimo, Mozambique’s liberation movement, won independence from Portugal in 1974, and has remained united and in power since then. It has stuck to a two-term presidential limit and won five credible multi-party elections. But Frelimo maintains its unity by never expelling anyone from the party, no matter how corrupt, and never shaming key party figures. Mozambican politicians do not have clean hands, but there is no chance that it will make public information on how its own elite misused the loan. Gerry Rice, IMF spokesperson, told a Washington press conference on 14 September that the IMF wanted to “ensure accountability” of the Mozambicans – although there is no pressure for accountability by banks or contractors. So there is a deadlock. The IMF and donors want, at the very least, the public shaming of senior figures including at least one and possibly two presidents, but there is little chance Frelimo will agree to this.
So, if the elite will not budge, the IMF is putting pressure on the only group which is vulnerable – the poor. Even the World Bank is worried, publicly warning about possible urban riots caused by rising prices. Some in Mozambique ask if the IMF actually wants civil disorder or a “Mozambique spring” to put enough pressure on Frelimo to give the IMF and donors a few heads, or, if not, that enough voters will change sides in next year’s election to ensure the victory of the main opposition.
This raises a broader question. Of course a greedy Mozambican elite succumbed to the blandishments of Credit Suisse and Privinvest and visions of tens of millions of dollars in pockets, but are they the only ones to be held accountable? Are no questions to be raised about the IMF encouraging reckless private lending and loan pushing to poor countries? And where is the accountability for a major global bank that pushed the loan and encouraged corrupt, illegal and improper activity – including not telling the IMF and Mozambique’s own parliament about the loan.
Yet again, the devil gets off free, and this time with an IMF get-out-of-jail-free card.
