Mozambique: Government ‘stringing out’ talks on debt suits banks behind it – EIU

Login

Register

http://www.clubofmozambique.com/

Mozambique: Government ‘stringing out’ talks on debt suits banks behind it – EIU

8:45 CAT | 23 Mar 2018

Mozambique’s government is deliberately stringing out negotiations with its creditors, in a strategy that is also set to benefit the banks that were involved in setting up loans to public companies, according to the Economist Intelligence Unit.

The negotiations on restructuring the country’s debt are set to take “several years”, a situation that suits the governing party, Frelimo, whose top figures were responsible when in government for contracting loans since deemed illegal by a parliamentary committee of inquiry and “chronic” misconduct by international auditors, EIU analysts write in a note on the situation sent to investors.

According to their analysis, stringing out the negotiations will “probably” also suit Credit Suisse and VTB, the banks that set up the loans, given that they could be made answerable for their negligence in not identifying illegalities or corruption.

The EIU sees the government’s opening proposal for the restructuring as an attempt to “play hard” with its creditors, based as it is on low projections for economic growth (an average of 3.5% a year to 2022) compared to those of the Economist, for example, which sees the economy expanding by an average of 4.6%.

If the government really wanted to speed up the restructuring process, the analysts write, it could, for example, repudiate the sovereign guarantees issued of the loans taken out by public companies; if this was accepted by international tribunals – which the analysts believe it probably would be – “that would significantly ease the pressures on public finances.”

It would also, however, expose Frelimo leaders to accusations of illegalities. As a result, the EIU note says, the criminal investigations now underway in the UK, US and Switzerland are “the only things that could accelerate the process of restructuring the debt.”

Mozambique’s government on Tuesday proposed to creditors a haircut of 50% on overdue interest payments and any penalties, that is, forgiveness for $318 million of the $636 million owed. It also wants to extend the maturity on the debt and cut the interest rate.

The loans on question have already been extended by three years to 2023, in late 2016.

Source: Lusa