Are donors to Mozambique
promoting corruption?
"Corruption",
elite predation, and the "criminalisation" of the African state have
become fashionable topics. "Africa remains unproductive and … the pursuit
of rents or unearned fees is becoming ever more
extensive," writes
Béatrice Hibou (1999:100-102), adding that the bureaucratic apparatus,
including the courts, is being privatised and criminalised; bank and company
frauds burgeon; and drug trade and
money laundering are
becoming ubiquitous.
But World Bank researchers
find that “foreign aid can induce corruption” (Pradhan 2000: 35) and that there
is “no evidence that donors systematically allocate aid to countries with less
corruption” (Svensson 2000: 437).
Mozambique seems to fit the
pattern. From having been a paragon of integrity in the late 1970s, a study by
the South African Institute of Security
Studies (ISS) "clearly shows … that Mozambique is very close to becoming a
criminalised state." The legal system has collapsed and court rulings are
available to the highest bidder. Money laundering is common, and Mozambique has become an important drug warehousing
and transit centre, with senior figures involved (Gastrow & Mosse 2002). In
two major bank scandals, at least $400 million was stolen, partly by senior
figures in Frelimo, the ruling party. Two people who tried to investigate the
bank frauds, newspaper editor Carlos Cardoso and the government's head of
banking supervision, Siba-Siba
Macuacua, were both
publicly assassinated and the investigations of the killings blocked at high
level (Hanlon 2001, 2002a, summarised in 3.4 below).
Donor support seems to grow
in tandem with criminalisation. At its donor Consultative Group meeting in
October 2001, just two months after the
murder of Siba-Siba Macuacua, Mozambique asked for $600 mn in aid and was given
$722 mn. Sergio Vieira, a former security minister, wrote that the pledge of
more money than Mozambique requested
shows that the international community recognises "the good performance of
the government" and that this "overrides the bank scandal and the
assassinations of Siba-Siba Macuacua and Carlos Cardoso" (Domingo, 2 Dec 2001).
In this paper I will argue
that Vieira’s statement is correct – that donors are rewarding what they see as
"good performance" by allowing, and thus effectively encouraging,
corruption and state capture. Furthermore, I will argue that donors are
rejecting appeals from honest Mozambicans to do more than simply pay lip
service to
the need to curb corruption
because they need the myth of the
Mozambican success story.
In the following four
sections will look at: 1) the highly conflicting views of Mozambique, as a
development success story or a criminal state, 2) theories of corruption and
how that affects donor response, 3) long term perverse effects of aid policies,
and 4) conclusions.
1. Looking for what you
want to see
On the issues of both
corruption and development, donors and some Mozambicans seem to see totally
different countries.
1.1 'Criminal state' or
'corruption not institutionalised'?
"Corruption, though
not non-existent, is not institutionalised and the possibility for controllin
funds earmarked for Mozambique is easy and transparent," said
Guido van Hecken, Belgium's Chief of Cabinet for the State Secretary for
Development Co-operation (IRIN 2002).
"We live in a kingdom
where those who lead are gangsters," said one of the country's foremost
writers, Mia Couto, last year (Mosse 2001).
On 24 May 2002, Couto added
that in Mozambique an elite is using power "in order to enrich itself.
They don't think of Mozambique, they
think of themselves" (AIM 2002a). ISS says "there is a lack of
political will to fight organised crime and corruption" and that "the
relative impunity with which some of the successful [drug] traffickers operate
is often a result of their close connections with individuals at the highest
levels of government or the Frelimo party." (Gastrow & Mosse2002)
In a brave statement to
parliament on 6 March 2002, Attorney-General Joaquim Madeira pointed to
"the growing tendency for illegality to gain supremacy over legality, the
dishonest over the honest. He said that "the culture of legality is still
a dream, even among leaders who believe they are free or not to respond to
requests by the Attorney General's office." As part of corruption
investigations, Madeira sent requests for information to four ministers – one
sent the material requested, one telephoned to say he would not respond, and
two did
not respond at all.
(Madeira 2002)
Madeira pointed out that
foreign investors have told researchers "about the extra-legal conditions
that are habitually imposed on them by
Mozambican government leaders, ranging from demands for enormous commissions to
a partnership in the undertaking."
Corruption in the Criminal
Investigation Police (PIC) comes in for special attack from Madeira. PIC does
not process and even destroys the files
on money stolen from banks and government. It has even blocked investigation of
cases brought by the central bank, Banco de Moçambique. Judges and state
attorneys are also corrupt, Madeira told
parliament, adding "we had no idea of the scale of the involvement
of judges and even lawyers in business deals. Even the fees of lawyers are
fixed by a sentence outside the law, to be shared with the judge in
question." Magistrates and justice officials "accumulate fortunes
through illegality." (Madeira 2002)
1.2 Best economy or
increasing poverty?
Mozambique continues to be
one of the best performing economies in Sub-Saharan Africa, according to the
World Bank economist in Maputo, Dipac Jaiantilal (Mans 2001). "Mozambique
over the last decade has
emerged as an example of
successful reform," notes the World Bank.
"GDP has grown at an
average rate of 8.4%" (Stern 2002:xvi,39).
"Ordinary Mozambicans
have yet to see any real changes in their daily lives, despite official World
Bank figures," according to an article published by the United Nations
Office for the Coordination of Humanitarian Affairs Integrated Regional
Information Network (IRIN 2002b). This is confirmed by a public opinion survey
which showed people do not feel their standards of living are improving. In a
survey of 13,790 households undertaken by the National Statistics Institute
(INE) between October 2000 and May 2001, people was asked to compare their situation with what it had
been a year earlier; 35% said they were in much the same situation as a year
previously while 38% said they were worse off (AIM 2001).
"The declared
successes have not yet produced tangible results for the majority of the
population. Rising unemployment and extremely high levels of absolute poverty are producing, amount other aspects,
adverse social effects and rising crime," writes Prakash Ratilal (2001a),
a former governor of the Bank of Mozambique.
Although GDP is supposedly growing rapidly, it is
concentrated in Maputo and in mineral-energy enclaves like the billion-dollar
Mozal aluminium smelter. The latest UNDP National Human Development Report for Mozambique (UNDP 2001) shows that in the 2 years 1997-1999,
"real GDP per capita" in Maputo rose from $1076 to $1189, but in the same period "real GDP per
capita" in Zambézia fell from $106 to $96 – in just two years the ratio
between the richest and poorest provinces increased from 10:1 to 12:1.
Regionally in those two years, "real GDP per capita" fell in both the
centre and north, rising only in the
south.
Unpublished preliminary data for 2000 shows a dramatic
fall in GDP per capita throughout the country, to below 1996 levels. The fall
is not just in the south, which was affected by a major flood in 2000, but also
in the north. "Real GDP per capita" in Zambézia fell to $78, and two
northern provinces fell below $100 for the first time. In Maputo, "real
GDP per capita" also fell, but not nearly as much, and the ratio of the
richest to the poorest province increased to 14:1.
1.3 The donors see what they want to see
Are van Hecken and Madeira talking about the same
government? Are the World Bank and UNDP talking about the same country? Yes
they are, because it all depends where
you look.
"It is possible to work with Mozambican
authorities," said van Hecken.
That is the key point. Mozambique has become a donor
playground, and the Mozambican elite has become highly skilled at giving
the donors what they want. Thus
management of donor money is transparent and clear. The predatory elite do not
steal donors' funds; instead they rob banks, skim public works contracts,
demand shares in investments, and smuggle drugs and other goods – and they
ensure that the justice system does not work so they cannot be caught.
Similarly, donors see rapid GDP growth , growing
exports, increasing enclave foreign investments, growth in the areas of Maputo
that they frequent, and a government
which does the bidding of the international financial institutions (IFIs) and
can manage donor projects. They choose not to see that poverty is worsening in
rural
areas.
Indeed, they reject what they are being told by
Mozambicans. The donor's annual Consultative Group (CG) meeting was held in
Maputo 25-26 October 2001. After
meeting with each other and the government, and heaping praise on the
government for following IFI economic policies so closely, they met civil
society. "Several civil society organisations (CSOs), in a consolidated
statement, stated their belief that structural adjustment and high growth had
not resulted in poverty reduction in
Mozambique", according to the meeting chair
Darius Mans, World Bank Country Director for
Mozambique (Mans 2001b). The report indicated no donor reply; they seem not to
have heard.
The Poverty Reduction Strategy Paper (PRSP, known in
Mozambique as the Plano de Acção para a Redução da Pobeza Absoluta (PARPA),
Action Plan for Reducing Absolute Poverty), show the differences of
opinion starkly. In his report on the CG meeting, Mans
(2001b) reported that "there was widespread agreement [of the donors
present] that the most significant achievement of the last 12 to 18 months has
been the completion of the PARPA." Mans went on to note, without comment,
that "a number of CSOs expressed concerns about health and education
spending, which they claim is projected to decline as a percentage of GDP after
2002." Indeed, the PARPA shows that spending on "priority areas"
for poverty reduction falls from
19.4% of GDP in 2001 to 17.0% of GDP in 2005.
Education spending falls in cash terms as well as percentage terms, from
approximately $247 mn in 2001 to $218 mn in 2002 (a savage 12% cut), rising
slowly after that to $244 mn in 2004 and finally to
$262 mn in 2005.
Despite the admitted need for more teachers, not only
to expand primary education but also to replace teachers dying of AIDS,
teacher training expenditure is kept
constant (República de Moçambique 2001:
tables 7.4, 7.5, 7.6).
How can donors praise a "poverty reduction"
paper that cuts spending on education and other areas of poverty reduction? The
answer is that it satisfies other donor
demands, and this is made clear in the arcane language of the international
financial institutions. In his report on the CG meetings, Darius Mans cites the
World Bank economist Dipac Jaiantilal noting that poverty reduction requires
"creating and maintaining a sound economic environment, including low
inflation."
(Mans 2001b) The World Bank praised the government for
including in the PARPA tight monetary policies to "slow inflation"
(World Bank 2001).
Reporting on the statement of the IMF Resident
Representative Arnim Schwidrowski, Mans says "Mr Schwidrowski observed
that, in line with the PARPA's fiscal targets, the framework aimed for a
reduction in the
domestic primary deficit, excluding bank restructuring
costs, to under 5 per cent of GDP." (Mans 2001b) This sentence makes two
very different points. First, to meet
tight monetary policies, PARPA does indeed involve a cut in spending. Second,
so long as the cap is met, the IMF will allow the government of Mozambique to
plug the hole in the banking system
created by high level people plundering the banks instead of increasing
anti-poverty spending.
Taken together, the donors are making three points
about their own priorities:
1) Writing a document, rather than any concrete
action, was "the most significant achievement of the last 12 to 18
months";
2) That the priority for "poverty reduction"
is inflation reduction and a tight monetary policy, even though it requires a
cut in education and other poverty related spending; and
3) That the government is free to use money to cover
the costs of gross corruption, so long as it is done transparently and without
breaking the spending limits.
2. Institution building to prevent corruption
In many ways, Mozambique is a "transition
country" moving from socialism to capitalism, like those of Eastern
Europe, and a World Bank study of corruption in Eastern Europe provides a
useful background.
The authors develop a distinction between two types of
corruption, "administrative corruption” and "state capture"
(Pradhan 2000:2,3, 9,17).
"Administrative corruption” relates to the implementation of existing laws, rules, and regulations and most
commonly involves paying a bribe, either to obtain special treatment or simply
to encourage an official to carry out their job. Also, "state officials
can simply misdirect public funds under their control for their own or their
family's direct financial benefit."
“State capture” involves taking control of institutions, such as ministries, the judiciary or regulatory
agencies, to obtain illicit equity stakes, informal control, and other ways of
extracting rents, including "the sale of court decisions to private
interests and the mishandling of central bank funds”. It often involves the
overlapping business and political interests of state officials, "which
has been a particularly prominent characteristic of many transition
countries." The "underestimation
of overall state capture may be particularly high in countries with
kleptocratic political regimes, where institutions of the state have been used
to serve the interests of a particular leader and his broader circle,"
notes the World Bank study.
2.1 Mozambique wasn’t always corrupt …
Any discussion of corruption in Mozambique should
start from the death of Francisco Langa in May 1980. A military leader in the
liberation war, he was elected to the Frelimo Central Committee and became head
of the Centre for Support to Refugees and Liberation Movements, mainly from
Zimbabwe. An unprecedented Central
Committee statement said he had been caught embezzling
funds, and shot and killed himself because he was overcome with shame and could no longer face his comrades (AIM 1980;
Hanlon 1991:231).
I was working in Mozambique at the time and can
testify from personal experience to the honesty and integrity of the civil
service and leadership. The bureaucracy
may have been inefficient, but I was never asked for a bribe or payment. There
were no stories of high level or petty corruption; Langa’s behaviour was highly
unusual and wouldhave been seen as totally shameful.
Perhaps surprisingly, the World Bank in its study of
Eastern European transition economies admits that these countries were less
corrupt in the central planning era. The Bank argues that the Communist Party
controlled the behaviour of public officials using a mix of mutual oversight,
incentives and repression. It adds that central planning “did place certain
boundaries on corruption.” (Pradhan 2000:26)
This was true in Mozambique. But equally, or more,
important were idealism and political will. In the first decade of
independence, Mozambican officials really did believe they were building a
better country, and that the integrity of the state was important.
2.2 … but it is now
Both administrative corruption and state capture are
now ubiquitous in Mozambique. A survey by Ética Moçambique (2001) of 1200
people showed that 45% said they had
been victims of corruption in the past
six months. Of those, 31% paid less than $6, 45% paid
$6-60, and 22% had to pay $60-600, which is a substantial amount of money
in Mozambique where the GDP per capita
is only $300. The most common demands for money were in health (30%), education
(27%), and the police (21%). Bribes are not just financial; almost 5% of respondents said that they had been required
to "sleep with a government official". In most cases, the issue is
administrative corruption; bribes were
paid to obtain something to which the person
was entitled – in one case, to obtain anaesthetic
during an operation.
Others were to gain preferential treatment, such as a
school place or passing exams.
State capture is also now obvious. Corruption in the
banking system has involved senior government officials (Section 3.3 and Hanlon
2002a). The statement of Attorney-General Joaquim Madeira (2002) to parliament
gave other examples. The Ética Moçambique survey also showed state capture,
with 0.4% (probably 2 people in the survey) paying more than $60,000 in bribes.
What the report called "grand corruption" included obtaining bank
loans larger than would be justified under normal conditions, winning tenders,
preventing prosecutions for drug dealing and money laundering, and gaining a favourable
audit.
In private, some Mozambicans justify state capture on
the grounds that white and Asian-origin Mozambicans gained privileged positions during the colonial era and gain preferentially from
globalisation now,
and that a new black bourgeoisie needs space for
primitive accumulation which it can only do through the state (Hanlon 2002b:
114).
2.3 How to respond
Baroness Amos, Under-Secretary in the British Foreign
and Commonwealth Office (FCO) with responsibility for Africa, set out the
British response in a statement to an FCO conference 20 May 2002 on
"Tackling Corruption in Africa". She said "our approach is
holistic" and "aims to build the capacity of institutions" (Amos
2002). The World Bank says it
"addresses corruption in systemic terms. It is not the Bank's role to
identify and prosecute individual offenders, but rather to address the various
aspects of policy and institutional reform that are likely to be critical in
reducing corruption." (World Bank 2002a)
NORAD, the Norwegian aid agency, in its “Good
Governance and Anti-Corruption Action Plan”, explicitly argues that experience
shows that “investigation and
prosecution of corruption cases require large personnel and other resources,
which implies costs well above what poor developing countries can afford.
Strong emphasis must therefore be placed on preventing corruption, by raising public awareness, and by
reducing the scope for corrupt behaviour.” It then sets three objectives, assisting good governance,
increasing awareness of corruption in “aid administration”, and sharing
experiences in preventing and combating corruption (NORAD 2000: 19-20).
In Mozambique, the World Bank and donors are putting
$85 mn into a 10-year public sector reform project. Meanwhile the government is
moving to try to reduce administrative corruption, through individual actions
by governors and ministers against corrupt middle level officials (MPPR 25:5, 27:7).
Emphasis on capacity building and institutional reform
sounds sensible.
But it is inadequate, and it means donors are
rejecting appeals to take action against growing present-day corruption, while
pushing a decade-long programme of institutional change. In a closed meeting
earlier this year, one of the most prominent Mozambicans campaigning against
corruption said "we appealed to donors to put pressure on government to
pursue the high level people whose names are known and who were involved in
bank corruption. The government is putting money into plugging the holes in the
banks, and 45% of that comes
from donors. I asked them – I asked the ambassadors:
'Why do you refuse to put pressure on the government?' If you put donor money
into the budget and don't look to see where it goes, you are supporting
corruption."
British, Norwegian and World Bank approaches aim at
reducing administrative corruption and corruption involving aid, but they
ignore state capture and they ensure the elite more years of impunity. Even the
World Bank's own Eastern Europe study admits this will not work: "an
important part of the problem [of persistent corruption] lies in the tendency to focus exclusively on the state
and, in so doing, limit our anti-corruption strategy to standardized technical
solutions." (Pradham 2000:1)
3. Long term perverse effects of aid policies
"One major issue is the appropriate sequencing of
policy and institutional reforms. No poor country has the capacity to move
forward with equal vigor on all these fronts at once, so it will be important for the country, with external
support, to focus on identifying and grappling with the main obstacles to
growth," noted the World Bank in a paper earlier this year (Stern
2002:xiii). In this part of the paper, I will try to demonstrate that the World
Bank and other donors have never seen corruption and state capture as
"main obstacles to growth"; even when senior Mozambican officials
highlighted corruption issues, the Bank had other priorities. The
perverse effect, I argue, has been to promote
corruption and convince key figures in the Mozambican elite that not only is
corruption acceptable, but that it is the normal route to capitalist
development.
Unless noted, the material in the next four sections
is drawn from Hanlon (2001, 2002a).
3.1 The transition to capitalism
In the mid-1980s Mozambique was deeply immersed in a
war which was to cost more than one million lives and $20 billion. Mozambique’s
government knew the country had become a Cold War battlefield, but it took two
donor strikes, in 1983 and 1986 when food aid was withheld, before Mozambique
made its “turn toward the West”.
Mozambique agreed to structural adjustment,
privatisation and a transition to the market economy (Hanlon 1996:15-17). Aid
jumped from $359 mn in 1985 to $875 mn in 1988 (Hanlon 1991:269).
Government spending was cut, including on health and
education, and privatisation – which had begun in 1980 – was accelerated. In
this period, donor support was important in four areas of corruption.
1) The first was privatisation itself, which was seen
as a high priority to be carried out as quickly as possible. Donors looked the
other way when small firms were passed on to friends and family of the
leadership; the view seemed to be that transparency would slow the process.
There was also some support for the view that because of colonial restrictions, there was no national
business class, and that the nomenklatura were
the most experienced administrators.
2) In 1988 the Caixa de Crédito Agrario e de
Desenvolvimento Rural (Agricultural and Rural Development Fund) was set up
using donor counterpart funds to give “loans” to military men and party
officials, with no intention that the loans would be repaid. Donors accepted
that the money was being used to buy out military people and Frelimo party
officials opposed to ending the war and abandoning socialism.
3) The World Bank’s 1989 Small and Medium Enterprise
Development Project was intended to help the new owners of privatised
businesses.
Nearly $33 mn was lent, and the World Bank’s 1998
evaluation admitted that 90% of the loans would never be repaid. The Banks evaluation admitted that “the Bank is
alleged to have put substantial pressure on the management of the banks to
ensure the expedient disbursements of project funds; this undermined even
further the credit quality of the subloans.” A World Bank Industrial Enterprise
Restructuring Project was similar and gave $30 mn in loans to larger privatised
state companies, most of which will probably never be repaid (Landau
1998:62-63).
4) An organisation close to the President was
appealing to donors for project funding, and by the late 1980s was already
considered corrupt.
At the time, I was writing a book on the aid agencies
(Hanlon 1991) and I asked donors why they continued to support this
organization.
They replied, quite openly, that they were having
trouble spending their increased aid budgets and they saw this as a way of
buying influence to the President’s office to approve their projects. Projects
which violated government policies were approved by this route.
This period of the transition was important, because
Mozambican officials and newly emergent business people with little experience
of the world of capitalism were, in effect, being given a crash course by the
donor community. And the lesson was that capitalism is not about profit but
about patronage – businesses are “privatised” and given “loans” that need not
be repaid according to who you know and donor
whim.
Despite Landau’s report, the World Bank has never
accepted any responsibility for putting “substantial pressure” on honest
Mozambican bankers to bend the rules to give loans they knew could not be
repaid.
Indeed, World Bank Resident Representative James
Coates stressed to me in an interview in 2001 that he still expected
Mozambique’s government to repay those loans to the World Bank (although part
will be written off under HIPC debt cancellation).
3.2 Minimal government
The late 1980s were the period of the shift to market
capitalism, under the tutelage of the World Bank. The first half of the 1990s
were the era of inflation control and
minimal government, imposed by the IMF (Hanlon 1996:24ff). It was the era in
which the international financial institutions believed the less government the
better, and that development must be
left to the private sector. The IMF imposed savage cuts on government spending.
It was not until the IMF began to bar donor countries from giving aid for
post-war reconstruction,
provoking an unprecedented public protest from donors
in October 1995, that the IMF was forced to ease slightly its spending cap
(Hanlon 1996:134).
Salaries were the biggest component of the government
spending. A UN study showed that of 110,000 civil servants, more than half were
in health and education, and the army had only 12,000 people. The study
concluded the far from being too big, Mozambique’s civil service was already
too small to provide basic services (Adedeji et al 1995).
The only way to meet the savage IMF spending cuts was
to cut wages; within five years, salaries of front line staff such as teachers
and nurses were one-third of what they had been in 1991. Corruption was
inevitable, as front line staff demanded extra payments or took time off to
earn money or till fields, in a desperate attempt to feed their families. A woman going to a maternity
hospital had to have $2 to pay the midwife. “Demanding money is illegal. But
the midwives say ‘we work so hard all day here that we don’t have time to grow
food as
other women do’,” a Nampula woman told me. A Sofala
primary school teach commented “we in education have one foot inside and other
out, because we are parents and we don’t like to see our children dying of
hunger.” (Hanlon 1996:2,4)
It was obvious at the time that paying poverty wages
would create corruption.
In parallel with the low civil service salaries,
donors and non-government organisations began to pay key technicians and
civil servants high salaries to work
for them instead of the government, directly decapacitating and weakening the
government. More seriously, donors began to give key civil servants extra money
– for attending donor-run seminars during the business day, and for doing
consultancies instead of their government job. Donors encouraged civil servants
to steal time and do outside work for others instead of what they were being
paid to do by the government, creating a climate of donor-approved corruption.
3.3 Privatising the banks
The Mozambican bank scandal has been the subject of
other articles (Hanlon 2001, 2002a) and only a few points will be repeated
here. In the early 1990s banking was
liberalised; the first new private bank, Banco Internacional de Moçambique
(BIM, Mozambique International
Bank), owned 50% by Banco Comercial Portugués (BCP)
and 25% by the World Bank’s International Finance Corporation (IFC), opened in
1994. There was growing discussion about the privatisation of Mozambique’s two
state-owned banks, Banco Popular de Desenvolvimento (BPD, People’s Development Bank) and
Banco
Comercial de Moçambique (BCM, Commercial Bank of
Mozambique).
Privatisation of BCM became a “necessary condition”
for World Bank aid in 1995. The only candidate was a consortium put together by
António Simões, a Portuguese businessman with interests in the Mozambican
insurance and metal-working sectors. His group included Banco Mello of Portugal
and a company believed to be fronting for the family of President Joaqium
Chissano. The leadership of the central bank, Banco de Moçambique (BdM), was
noted for its integrity and honesty, despite the growing corruption in public
life, and made it known that Simões was not acceptable because he had a number
of bad debts with local banks, was failing in his efforts to rehabiliate the
metal-working sector, and was not accounting for concessional loans he received
from donors for this purpose. BdM began a desperate search for an alternative
bidder, but the World Bank backed Simões and said BCM had to be given to him –
and it was, on 26 July 1996.
BCM already had corruption problems, and the new
owners did not do the normal due diligence audit of the bank – meaning it would
be impossible to find out which frauds occurred before privatisation and which
after. Some new management was brought in, and one official said they found a
wide range of frauds. “The bank needed a total clean-up. But it never happened.
The shareholders told us not to.” In 1998, Simões sold his shares to Banco
Mello, which was subsequently sold to BCP, and in 2002 BCM was merged into BIM.
The amount of total losses is still disputed, but is close to $200 mn.
Meanwhile the IMF demanded the BPD be privatised by
the end of 1996, in early 1997 it said aid to Mozambique would be cut off if
the bank was not privatised soon, and on 8 May 1997 it set a deadline of
the end of June 1997. A Mozambican group close to
President Chissano’s family had been set up in 1996 but could not find a
foreign partner, until Chissano made a
personal request to the Malaysian Prime Minister Mahathir Mohammed, who
instructed the Southern Bank Behard to become a partner. Privatisation went
ahead on 3 September 1997. As with BCM, corruption was endemic from the first, and
no due diligence audit was done. The bank made loans to members of the
Mozambican elite who seemed to have no intention of
repaying. BPD, by now renamed Banco Austral, collapsed
and the private owners handed their shares back to the government on 3 April
2001. Losses will exceed $150 mn, and a substantial amount of money will be
required from the government. In 2002, Banco Austral was taken over by ABSA of South Africa.
In another article (Hanlon 2002a) I argue that there
is an ongoing struggle within the Mozambican elite, between a “predatory”
faction which sees state capture as the only way to rapidly develop a national
bourgeoisie and a “developmental” faction which promotes a longer term entrepreneurial perspective which
requires a more
interventionist, functioning and honest state. Bank
privatisation was an important site of struggle between these two groups, with
the IFIs backing the predatory faction. The banking scandal brought the issue
to the forefront, and caused two very public assassinations of figures linked
to the developmental faction.
Carlos Cardoso, editor of the faxed business daily Metical, became the defacto spokesperson of the developmental group. He had
been investigating the bank scandals when he was machine-gunned in a drive-by
shooting on 22 November 2000. With the collapse of Banco Austral, the
developmental faction tried to regain control and impose some integrity by appointing António
Siba-Siba Macuacua, the respected Banco
de Moçambique head of banking supervision, as
acting head of Banco Austral. But when he began to try to collect loans
from the Frelimo elite and to repossess properties, he was killed and thrown
down the stairwell of the bank’s headquarters on 11 August 2001. At first
neither murder was investigated, with the police either
unwilling or not permitted to pursue what were assumed
to be high level killers. Because he was an internationally known journalist,
Cardoso’s killing became a subject of an international campaign, and eventually
an investigation began; those alleged to have done the actual killing have been
arrested and charged. Siba-Siba was not well know internationally or in the
donor community; there has been no
international campaign about his assassination and
there has been little investigation of his
murder.
With one exception, there has been no investigation of
the thefts of nearly $400 mn from the banking system.
3.4 Ignoring the crisis
The issue is not new. Back in 1996, in a book on
Mozambique, I attacked the widespread corruption at all levels of government.
But I also wrote: “Donors have fallen into corrupt practices as well, and may
well have led the descent. They, too, must change. This means the obvious line
of neither paying nor offering bribes and of denouncing thefts and misuse of donor funds.” And I
called for “an end to indirect bribery … where a donor or NGO threatens to
withdraw assistance unless the
recipient does something it doesn’t want to do.” (Hanlon
1996:144) This is not to claim any prescience, but in
fact, to claim the opposite – that the issue was already well known and
discussed then.
The banking scandals did not occur in isolation. From
1998, Carlos Cardoso began to raise the issue of donor funding, and point out
that loans from Norway, Sweden, France, Germany and Switzerland seemed to have
been used by António Simões to buy BCM instead of to rehabilitate the
metal-working industry. Cardoso continued to raise the issue until he was
murdered. Yet none of the donors would say if the loans had been repaid, nor
would any admit to even asking the government what happened to their money.
Privately they were
embarrassed; some admitted they could not find the
documentation on loans made six years earlier, but none asked Cardoso to see
his copies of the loan agreements.
Despite the campaign by Cardoso and the pressure from
honest government and civil society forces in Mozambique, donors still did not
see the bank scandal and other corruption as a problem for them. But
the assassination of Cardoso, who was known personally
by many donor staff, the large injection of government money into BCM, and then
the collapse of Banco Austral combined to cause disquiet in some
parts of the donor community. It was pointed out that
with donors funding a significant portion of the government budget, it was the
donor money that was plugging the hole in the banking system, replacing the
money stolen in part by senior government and Frelimo people.
The first test came in mid-2001, when the donor
community was asked to approve the government’s poverty reduction strategy
paper (PRSP) and, with it, debt relief under the Enhanced HIPC (Heavily
Indebted Poor Countries) Initiative. Mozambican civil society reminded
sympathetic donors that the donor community carried far more weight than civil
society, and appealed to them to put some pressure on the government. Some
Nordic donor officials in Maputo called for approval of the PRSP to be delayed
until the government at least provided more information on the banking
scandals.
Again, other donor priorities took precedence. At that
time, only two countries, Uganda and Bolivia, had had any debt cancelled under
the Enhanced HIPC (World Bank 2002d:7), and the IMF and World Bank were under
heavy pressure from campaigners. This was felt particularly
in the United States, where the government had initially opposed debt
cancellation and was seen as blocking HIPC. Instructions came from Washington
to the US embassy in Maputo that Mozambique had to be approved for HIPC at all
cost, and USAID officials intensely lobbied the Nordic donor representatives,
and successfully convinced them that debt relief was more important than
corruption. The matter was not raised,
the PRSP was approved, and Mozambique gained debt
relief.
The next opportunity came at the donor Consultative
Group (CG)meeting in Maputo 25-26 October 2001. This was just two months after the murder of Siba-Siba Macuacua; no
investigation was under way and his efforts to collect bad debts had been
stopped. There was much high-flown rhetoric from donors about the assassinations,
corruption, and the bank scandal. Chairman Darius Mans noted that “most
delegates urged further actions including: aggressive efforts to recover
non-performing loans [and] legal prosecution of perpetrators of crimes to the
full extent of the law”. He added that delegates “welcomed [Finance Minister
Luisa] Diogo’s commitment to ensuring that financial expenditures related to
recapitalizing the banks do not
crowd out poverty-related spending.” (Mans 2001b)
Mozambique asked for $600 mn in aid and was given $722 mn – the extra money was
enough to plug the hole in the banking system. It was after this that former
security minister Sergio Vieira wrote that the donors recognise "the good
performance of the government" and this "overrides the bank scandal
and the assassinations of Siba-Siba Macuacua and Carlos Cardoso" (Domingo, 2 Dec 2001).
The issue came up again in May 2002, when the G-10
group of donors which provides direct budget support to the government met to
discuss the mid-year position. Several noted that there had not been
“aggressive efforts to recover non-performing loans” nor had there been any
investigations of various major crimes. Two donors wanted to delay the second
tranche of budget support to bring pressure to bear, but others did not support
this.
3.5 Is there no liability?
The World Bank now has a special anti-corruption
website which admits "it did not explicitly address corruption in its
development strategies" until 1996 (World Bank 2002b). And it now admits
that some of its policies which caused so many problems in Mozambique, were, in
fact, wrong.
World Bank Senior Vice President Nicholas Stern (xii)
noted that it is now recognised that “the minimal-government free-market
approach advocated by many people in the 1980s and early 1990s” will not
achieve the millennium development goals – a slightly coy comment since the
“many people” mainly worked for the IMF and World Bank, and a bit late,
considering the damage that was done. By 1995, the IMF and World Bank had
forced Mozambican public service wages down to one-third of their level four
years earlier; nurses and teachers had fallen below the “abject poverty line”
(Hanlon 1995:49). In 1995, UNICEF and UNDP published a remarkable booklet
called Pay,
Productivity and Public Service (Adjedeji et al., 1995) which looked a five African countries, including
Mozambique. In their introduction, UNICEF head Richard Jolly and UNDP Africa
head Ellen Johnson Sirleaf wrote that “an efficient and effective public
service … is a sine qua non for human development.” The booklet pointed to the
sharp decline in morale and quality of public service across Africa, and argued
that “a key cause of the decline is the erosion of basic service providers’
remuneration.” The result, it said, was less time and less attention to work,
as well as corruption and “privatised user fees”. It concluded
that “the elements associated with the decline in
public service quality are all elements of coping strategies designed to ensure
household survival. They cannot be eradicated so long as
additional incomes beyond government pay are necessary for the survival of the
majority of public servants who are front-line service deliverers.”
But the World Bank is rarely open to criticism of its
core policies.
Instead of listening to what two major United Nations
agencies were saying, it called on the UN to suppress the booklet because of
the implicit criticism of structural adjustment; the UN did, and few copies
were ever distributed.
Seven years later, the World Bank (2002c) anti-corruption
website says that “adequate pay” in the public service is essential for
preventing corruption.
Years of poverty wages have left the civil service
deeply corrupted, as the Ética Moçambique study showed. Wages have again risen
above the poverty line, but the “privatised user fees” and other coping
strategies built up during the years of poverty have not gone away. It is true
to argue that Mozambican civil servants are now being corrupt when it is no
longer necessary, but it is also important to remember that it was the
international financial institutions (IFIs) which forced them to be corrupt in
the first place and which suppressed any criticism of policies it now admits
were misguided. The Mozambique government carried out policies imposed by the IFIs
which created the administrative corruption problem, but the IFIs have washed
their hands of the problem and blame Mozambique.
Nines years after the event, the World Bank admits it
pushed Mozambican banks into making corrupt loans, in order to speed privatisation
– but it still expects the government to repay those loans.
Stern (2002:3) says proudly that “the Bank has also
learned from its failures”. But it is the Mozambican predatory elite which has
profited from those “failures” and ordinary Mozambicans, not the Bank, who
are paying for those lessons.
3.6 What are ‘good policies’?
The World Bank sets the tone for the donor community
in Mozambique. The Bank talks frequently about the need for "good
policies", but these are rarely actually defined in any but the vaguest
terms. A search of World Bank literature, however, shows that much of the work
on "good policies" was done by David Dollar and the Bank's
Macroeconomic and Growth Division, and that the seminal paper to which all
others refer was produced in 1997 by Dollar and Craig Burnside. They say
"the heart of structural adjustment are fiscal
discipline, trade liberalization and other market
friendly policies." They explicitly equate "good policies" with
"good economic policies", and then define an index of good policy
based on just three factors: government budget surplus, inflation (as a measure
of monetary policy), and trade openness (Burnside & Dollar, 1997:1,2,16).
In practice, as distinct from the rhetoric, the World
Bank measures "good policy" purely in monetary and trade terms. When
the crunch comes and the World Bank is actually evaluating a country, the talk
of poverty focus, democratisation, anti-corruption and a host of other issues
count for nothing.
4. Conclusion
Mozambique is fashionable with donors.
"Mozambique has a series of trusted and long lasting donors making it
possible to know the situation on the ground relatively well, making it
possible to 'jump onto the rolling train in the right direction',"
explains Guido van Hecken, Belgium's Chief of
Cabinet for the State Secretary for Development Co-operation (IRIN 2002).
Mozambique is fashionable for two reasons. First, it
is one of the few “success” stories in Africa. When the World Bank wanted to
justify increased aid and Bank policies in a report to the Monterrey UN
Conference on Financing for Development, its report cited six successful
countries where “institutional reforms have spared rapid development”. Only two
were in Africa: Mozambique and Uganda (Stern 2002:xv ff).
"Second, as van Hecken notes, “it is possible to
work with Mozambican authorities … They know how to work with the donor
community.” (IRIN 2002)
When some donors are under pressure to increase aid to
meet international targets, while others are under pressure from conservative
governments to justify their aid budgets, they desperately need success
stories. With so few “successes” in Africa, they don't want to rock the boat by
questioning the image of Mozambique.
4.1 Giving the donors what they want
Mozambique has done three things that donors want.
1) "Controlling funds earmarked for Mozambique is
easy and transparent," according to van Hecken (IRIN 2002)
"Government transparency and accountability have increased," writes
World Bank Senior Vice President Nicholas Stern (2002:39).
2) Mozambique has "implement[ed] key measures in
financial liberalization, exchange rate reform, trade liberalization and
privatisation through a series of adjustment operations," adds Stern
(2002:39).
3) The rhetoric of Mozambican leaders is strongly in
support of donor policies and agendas. For example, at a 25 February 2002
Commonwealth investment conference, President Joaquim Chissano cited "the
success achieved in recent years with the stabilisation and control of
macro-economic aggregates” and he said “the government will continue its role
aimed at the creation of an economic environment favourable for the development
of a strong business sector." (AIM 2002b)
I have tried to show that the Mozambican elite have
become skilled in giving the donors what they want – market-friendly policies,
fiscal restraint, transparency, good accounting of donor money and obsequious
praise of donor policies – rather than what they say they want, while at the
same time creating ever larger spaces for predation and state capture. At the
2001 donor Consultative Group meeting, there was much rhetoric about need for
curbing corruption and for legal and judicial reform – but they were no
different from statements made by donors for the previous decade. Although for the
first time there were also statements about the banking crisis and
assassinations, Darius Mans, World Bank Country Director for Mozambique, set
the tone when he said "strengthening the macroeconomic environment is the
key to poverty reduction." This includes a tighter fiscal policy, more
trade liberalisation (in a country which is already one of the most open in
Africa), and land
privatisation. Both the donors and the Mozambican
elite know these economic policies take precedence.
4.2 Allowing state capture by donor allies
In section 1.3 I pointed to the two very different
images of Mozambique. One is of rapid GDP growth and growing exports and of
transparent and clear management of donor money. The other is of worsening
poverty in rural areas and of state capture, with a predatory elite that robs
banks and non-donor resources, smuggles and kills, and maintains a corrupt
justice system.
A symbiotic relationship has grown up between the
Mozambican predatory elite and the donors to maintain the myth of the Mozambican
success story. The eminent Mozambicans who challenge corruption and state
capture are also the ones who, like Prakash Ratilal, challenge the image of the
success of World Bank policies. To
point to growing rural poverty is to say the emperor
has no clothes – the donors cannot afford to listen to this message, because
too much depends on the success myth.
Instead donors choose to “work with” the Mozambican
predatory elite, who are allowed to rob and kill because they satisfy donors’
genuine priorities. To be sure, the increasingly loud criticisms are being
noticed. In his opening statement to the Consultative Group meeting, Mans said
that "observers have recently expressed concerns about the shallowness of
the roots of multiparty democracy in Mozambique and about the ability of elites
to capture state – and private – institutions." (Mans 2001a) This is a
curious statement, because in contrast to his hard economic demands, this is
couched in the form of observers expressing concern. My reading is that Mans is
not bothered – that he and the other donors are prepared to allow state capture
by a group they can “work with”.
Corruption in Mozambique – and Africa – is not a
unique phenomenon.
The mafia in Italy and the recent Enron scandal show
how single-minded promotion of certain priorities can create a penumbra in
which corruption is fostered. The donor community stresses good governance, but
this paper argues that in practice it has a low priority, and that in their
quest to increase aid to Mozambique and promote further “market-friendly”
policy change as quickly as possible, donors are rewarding corruption and
refusing to support honest Mozambicans.
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Joseph Hanlon
7 Ormonde Mansions
100a Southampton Row
London WC1B 4BJ
tel:
(020) 78 31 57 98
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