Renounce the debt?

By Joseph Hanlon

Should Mozambique refuse to pay the $2 bn secret debt? The parliamentary Commission report takes a middle position. It says the debt should be paid by the three companies and not the government, that the government guarantees are invalid, and that the debt could be declared null and void by parliament. But it says parliament should not do that, on three grounds. First, it would be an admission that the government acted in bad faith, which could bring legal action against the government and individuals under the civil code. Second, that the Mozambican "state would lose confidence at the international level". Third, any decision on the debt will be taken by a British court. The guarantees given as part of the loan include that British courts have "exclusive jurisdiction to resolve any disputes arising out of or in connection with this warranty" and that the Mozambican state renounces "any immunity which it or its property or income may enjoy in any jurisdiction".

I was policy officer Jubilee 2000, the campaign to cancel developing country debt, 18 years ago (and which campaigned for Mozambique's eventual HIPC debt cancellation). Based on that experience, I would make totally the opposite case. Precisely because the issue will be resolved by a British court, the Mozambican parliament should refuse to authorise the guarantees - at least on the MAM and ProIndicus debt. (Ematum has been rescheduled as Mozambique government bonds, so the position there is different.)

For MAM and ProIndicus, the loan was provided in secret by Credit Suisse and the Russian state-owned bank VTB, who then broke the loan into pieces which it sold to investors saying it was state guaranteed debt for a profitable fishing project. Due diligence would have shown all three claims to be false - the constitution did not allow the state guarantee, the two companies could never be profitable, and it was for arms. Therefore the loans were improper and should never have been made in the first place, and were sold on to investors under false premises. Thus a British court could decide that the liability is with Credit Suisse and VTB, and not Mozambique.

If Mozambique does not pay, or pays only small amounts, it is accepting liability for the debt and simply defaulting. But if it says the debt is improper and it renounces the debt and says the government has no liability, then it is for a British court to decided if Credit Suisse and VTB, or Mozambique, are liable.

As I noted in the newsletter last week, donors and lenders say privately they would support Mozambique if it renounced the loan. And it appears that the creditors - those who bought pieces of the loan - are taking the same line by refusing to negotiate with Mozambique. They may feel that they are more likely to get money from Credit Suisse and VTB than from Mozambique.

The Commission's report makes a strong case for saying the loan is illegitimate and improper, and not the liability of the government. The Commission's main reason for saying parliament should not declare the debt illegitimate is to protect the guilty parties in Mozambique. There should be more debate in Mozambique about whether it is sensible to accept $2bn in debt in order to protect the guilty. jh

In MOZAMBIQUE 348
News reports & clippings
 - 11 December 2016