Mozambique: IMF blocks extra aid

31.01.2006

In a repeat of a crisis a decade ago, donors now fear that the IMF is blocking aid increases to Mozambique, reports the Mozambique Political Process Bulletin. With public pressure in several European countries for increased aid, and with problems in Ethiopia and Uganda tainting these former donor darlings, donors are anxious to pump more money into Mozambique - especially as budget support. But the IMF says no - it will not allow Mozambique to accept more budget support. Instead, it wants donors to fund more projects outside the state budget - which goes directly against the policy of many donors.

MOZAMBIQUE 93
IMF BLOCKS EXTRA AID
TO MOZAMBIQUE
CARLOS CARDOSO KILLER
CONVICTED

News reports & clippings no. 93
from Joseph Hanlon
([email protected])
26 January 2006
========
This is an irregular service with 3 pages of news
summaries by Joseph Hanlon, with a long attached file
with AIM articles in full for those who want more detail.
To subscribe or unsubscribe, see note at end.
========
New website under construction with back newsletters and background
documents
http://www.open.ac.uk/technology/mozambique
========

DONOR CONCERN OVER
IMF CAP ON AID INCREASES

In a repeat of a crisis a decade ago, donors now fear that the IMF is
blocking aid increases to Mozambique. With public pressure in several
European countries for increased aid, and with problems in Ethiopia and
Uganda tainting these former donor darlings, donors are anxious to pump
more money into Mozambique -- especially as budget support. But the IMF
says no -- it will not allow Mozambique to accept more budget support.
Instead, it wants donors to fund more projects outside the state budget --
which goes directly against the policy of many donors.

The issue came to a head with the shocked outcry of donors when the
government on 7 November issued its draft PARPA (Plano de Accao para a
Reducao da Pobreza Absoluta 2006-9; Mozambique's PRSP) which said aid
would increase from $889 million in 2006 to $1,044 million in 2008, but
remains constant after that. Donors were upset and said they had stressed
to the government that more money was available. But the Ministry of
Planning and Development appears to have based its figures on the IMF cap,
rather than money actually available.

The core of the debate, which has been going on for more than two decades,
is that the IMF believes that aid can be inflationary. Since inflation is
the worst possible sin, aid must be limited. But a recent study by the IMF
itself of five countries in Africa, including Mozambique, argued that
substantial aid increases can be controlled and need not be harmful (see
article below).

The issue is expressed in arcane accounting terms. Mozambique's agreement
with the IMF is set out in the 17 October 2005 "letter of intent".
Mozambique is unusual in that the IMF puts a limit on what it calls
"domestic primary deficit", which is the government's current spending and
locally financed capital spending, less government revenue (from taxes,
customs duties, etc). Government is committed to cutting this deficit from
4.5 bn new meticais ($225 million) in 2005 to 3.8 bn new meticais ($190
mn) in 2006. This is, in effect, the amount of budget support the
government is allowed to spend, yet budget support is predicted to
increase from $274 million to $308 million.

This effective IMF cap on budget support contradicts donor policy in two
ways.

One is that the IMF is putting pressure on Mozambique to tax aid spending.
If donors were to pay tax, this would count as government income and it
could be spent. Bizarrely, if donors give the same amount as additional
budget support, it cannot be spent. This is serious, because most donor
countries have laws saying that aid cannot be taxed by the aid recipient,
so there is no chance of donors paying tax.

The other issue is that the cap excludes donor funded projects. Now, many
donors are trying to reduce the number of projects outside the state
budget, and are anxious to switch from funding individual projects to
having the spending in the budget and funded by increased budget support.
Yet the IMF is pushing exactly the opposite way, saying it will accept an
increase in projects funded by donors outside the state budget, but not an
increase is donor-funded spending within the state budget.

The letter of intent is available on
http://www.imf.org/external/np/loi/2005/moz/101705.pdf
and the draft of PARPA II on
http://www.open.ac.uk/technology/mozambique/pics/d53720.pdf

IMF STUDY SAYS BIG AID
INCREASES ARE OK

An IMF study released last August says that, contrary to IMF assumptions,
low income African countries, including Mozambique, are able to manage
significant increases in aid. A big increase in aid to Mozambique did lead
to an increase in inflation, but this was brought back to a reasonable
level, the study found, both by Bank of Mozambique actions and because
fiscal expansion brought rapid GDP growth.

The study goes on to challenge one of the IMF's own most central articles
of faith by saying that it seems that periods of higher inflation actually
achieve real growth, and that this should be tolerated in order to keep
the exchange rate from depreciating.

Aid volatility is the problem, it says, and low income countries can make
good use of "significant increases in aid" if they are planned.

But it appears that the IMF team which negotiated the letter of intent
with Mozambique last year had not read the institution's own study.

The study is "The Macroeconomics of Managing Increased Aid Inflows:
Experiences of Low-Income Countries and Policy Implications, August 8,
2005" and is on
http://www.imf.org/external/np/pp/eng/2005/080805a.pdf

CARDOSO KILLER
CONVICTED AGAIN --
JAILED FOR 30 YEARS

Anibal dos Santos Junior ("Anibalzinho") on 20 January was convicted of
leading the death squad that murdered investigative journalist Carlos
Cardoso in 2000, and was sentenced to 30 years in prison. He was also
convicted of attempted murder of Cardoso's driver, Carlos Manjate (who has
been declared unfit to work because of the bullet wound to his head),
illegal use of firearms, membership of a criminal association, use of a
false passport, use of false names, false declarations to the legal
authorities, and two counts of car theft.

This was Anibalzinho's second trial. He "escaped" from the Maputo top
security prison in September 2002 and was tried in absentia and convicted
in January 2003. He appealed and in December 2004, after he has "escaped"
a second time, the Supreme Court ruled that he had a right to be present.
He returned to Mozambique and the trial was reopened. He made little
attempt to defend himself and was again convicted. This time he did not
appeal.

Lucinda Cruz, lawyer for the Cardoso family, warned during the trial that
Anibalzinho had been helped to escape twice from the "maximum security"
prison and that he clearly had high level protection. After the trial, she
predicted Anibalzinho would escape again "within two years". His lack of
defence and his decision not to appeal suggests that he thinks he has
other ways of avoiding serving the sentence.

Meanwhile, the New York Times in an article on 21 January, said "a host of
unanswered questions about Mr. Cardoso's death and the banking scandal
that led to it continue to overshadow the victories in the Cardoso case."

It continues "Prosecutors have made no known headway into accusations that
a son of former President Joaquim Chissano, who led Mozambique as the
scandal unfolded, had close ties to those who arranged Mr. Cardoso's
death. Nor has the government explained how the newly convicted Mr. dos
Santos - known universally as Anibalzihno, or 'Little Hannibal' - twice
managed to walk out of Maputo's maximum-security prison and flee the
country with false passports, after first being arrested in the Cardoso
inquiry almost five years ago."
The article is on
http://www.nytimes.com/2006/01/21/international/africa/21mozambique.html

LATEST FEATURES

Mozambique: IMF blocks extra aid