Mozambique ad­mits it will de­fault on debt

The Star Early Edition - - WORLD - Paul Fau­vet for In­de­pen­dent For­eign Ser­vice

MAPUTO: The Mozam­bi­can Min­istry of Econ­omy and Fi­nance has con­firmed that Mozambique will de­fault on a pay­ment of al­most $60 mil­lion (R807m) of in­ter­est – due to­day – on gov­ern­ment guar­an­teed bonds is­sued by the Mozam­bi­can Tuna Com­pany (Ema­tum).

Ad­dress­ing the bond­hold­ers, the min­istry re­it­er­ated the state­ment by the Min­is­ter of Econ­omy and Fi­nance, Adri­ano Maleiane, in a pre­sen­ta­tion given to cred­i­tors in Lon­don on Oc­to­ber 25 – that the coun­try did not have the money to ser­vice its com­mer­cial debt.

“The de­te­ri­o­rat­ing macroe­co­nomic and fis­cal sit­u­a­tion of the repub­lic has se­verely af­fected the coun­try’s pub­lic fi­nances,” read the state­ment.

“The re­sult­ing debt pay­ment ca­pac­ity of the repub­lic is there­fore ex­tremely lim­ited in 2017, and does not al­low the repub­lic room to make the sched­uled in­ter­est pay­ment.”

This is Mozambique’s sec­ond de­fault.

In May 2015, it did not pay $178m owed on a sec­ond gov­ern­ment-guar­an­teed loan. This was a loan from the Rus­sian bank VTB to se­cu­rity-re­lated com­pany MAM (Mozambique As­set Man­age­ment).

The loans to Ema­tum, MAM and a third com­pany, Proindi­cus, amount to more than $2bil­lion.

Be­cause of the gov­ern­ment guar­an­tees, they added R2bn to the coun­try’s for­eign debt, and made it un­sus­tain­able.

The loans were ar­ranged un­der the pre­vi­ous gov­ern­ment, headed by Pres­i­dent Ar­mando Gue­buza. The true scale of the in­debt­ed­ness was hid­den from the Mozam­bi­can pub­lic, and from the In­ter­na­tional Mon­e­tary Fund (IMF).

When the IMF, in April last year, dis­cov­ered the ex­tent of the bor­row­ing, it sus­pended its pro­gramme with Mozambique.

Most other Western donors and fund­ing agen­cies then fol­lowed suit.

The gov­ern­ment in­sisted in Oc­to­ber that the Ema­tum, Proindi­cus and MAM loans can­not be re­paid un­der ex­ist­ing con­di­tions, but must be re­struc­tured.

But the Ema­tum bond­hold­ers are re­fus­ing to ne­go­ti­ate, ap­par­ently in the be­lief that Mozambique will give way, and the gov­ern­ment will per­haps raid its for­eign reserves to make the in­ter­est pay­ment.

How­ever, the min­istry state­ment made it clear that this will not hap­pen, largely be­cause debt re­struc­tur­ing is key to bring­ing the debt back to sus­tain­able lev­els – and with­out debt sus­tain­abil­ity the IMF will not re­sume any pro­gramme with Mozambique.

The min­istry told the bond­hold­ers that “the gov­ern­ment is ac­tively work­ing with the IMF to es­tab­lish the con­di­tions nec­es­sary for an early re­sump­tion of its fi­nan­cial as­sis­tance to Mozambique”.

“Fi­nan­cial sup­port from the IMF, un­der­pin­ning an am­bi­tious pro­gramme of re­forms to be agreed, will play a crit­i­cal role in im­prov­ing the repub­lic’s pub­lic fi­nances and sta­bil­is­ing its macroe­co­nomic sit­u­a­tion.”

That, how­ever, can­not hap­pen, the state­ment noted, un­less mea­sures are agreed with cred­i­tors “to put the coun­try’s debt on a sus­tain­able path”.

So, the min­istry sug­gested that the bond­hold­ers li­aise with the gov­ern­ment’s le­gal and fi­nan­cial ad­vis­ers, re­spec­tively the Lon­don law firm, White & Case LLP and Lazard Frères, the world’s lead­ing fi­nan­cial ad­vi­sory and as­set man­age­ment firm, in or­der to es­tab­lish “a col­lab­o­ra­tive and con­struc­tive di­a­logue”.

Mozambique’s Min­is­ter of Econ­omy and Fi­nance, Adri­ano Maleiane.

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