[stop-imf] How Northern Donors Promote Corruption: Tales From the New Mozambique

[robert weissman]

[snip]

  What are the factors behind this increase in corruption? Among many
possible contributors, one stands out: increasing intervention by
international financial institutions and bilateral aid donors over the
past two decades in support of liberalisation, facilitated by tacit
alliances between donors and a predatory faction of the Mozambican elite.

In the 1980s, Mozambique became a Cold War battlefield. Apartheid South
Africa, encouraged to attack Marxist Mozambique, built up and supplied
the Renamo rebel unit in a war which eventually cost more than one
million lives and US$20 billion. Yet it was only after donors went on
strike twice and withheld food aid, in 1983 and 1986, that Mozambique
made its "turn toward the West", finally capitulating to structural
adjustment and a transition to the market economy.13 Aid then more than
doubled from US$359 million in 1985 to $875 million in 1988.14
Government spending was cut, including on health and education, and
privatisation - which had begun in 1980 - was accelerated. Hand in hand
with destabilisation and aid went a form of recolonisation, as foreign
officials from the World Bank or donor agencies began to issue orders in
many ministries while European corporations were again given the
exclusive rights over much of the country's production they had held in
colonial times.15

During the period, donors played a role in promoting policies that
increased corruption in four ways:

     * Privatisation was promoted as an urgent priority. Donors looked
the other way when small firms were passed on to friends and family of
the leadership. Company administration, some donor officials held, would
have to rely on the nomenklatura, since no national business class had
ever developed due to restrictions during the colonial era.
Transparency, the consensus seemed to be, would slow the process.
     * In 1988, an 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.16
     * The World Bank's Small and Medium Enterprise Development Project
was set up in 1989 to help new owners of privatised businesses. Nearly
US$33 million was lent. As the Bank's own 1998 evaluation of the project
noted, the Bank is "alleged to have put substantial pressure on the
management of the banks to ensure the expedient disbursements of project
funds", undermining the "credit quality of the subloans."17 The
evaluation admitted that 90 per cent of the loans will never be repaid.
A World Bank Industrial Enterprise Restructuring Project, meanwhile,
gave $30 million in loans to larger privatised state companies, most of
which will probably also never be repaid.18
     * Donors responded to appeals for project funding by an
organisation close to President Joaquim Chissano which by the late 1980s
was already considered corrupt. When donors were asked why they
continued to support this organisation, they replied, quite openly, that
they were having trouble spending increased aid budgets and they saw
this as a way of buying influence in the President's office to approve
their projects. Projects which violated government policies were
approved by this route.19

It was during this period of the late 1980s that Mozambican officials
and newly-emergent businesspeople with little experience of the world of
capitalism were, in effect, given a crash course by the donor community.
The main lesson was that capitalism is not about profit but about
patronage - how businesses can be "privatised" and given "loans" that
need not be repaid, provided you know the right individuals or donor
agencies.

[snip]

http://www.thecornerhouse.org.uk/item.shtml?x=3D85822

Corner House Briefing 33
How Northern Donors Promote Corruption
Tales From the New Mozambique

by Joseph Hanlon

published by

first published October 2004 | summary | PDF version
Contents

     * Acknowledgements
     * Introduction
     * The Growth of Corruption
     * Box 1: Liberalisation and Mozambique's Banking Scandals
           o Murders
     * Corruption and Foreign Donors
     * Box 2: Support for Administrative Corruption
     * Saying One Thing, Doing Another
     * Helping Donors Spin the Story
     * Box 3: Reassuring Stories vs. Everyday Realities
           o A Less Rosy View
     * Donors Put to the Test
     * The World Bank Also Fails Its Exam
     * The Future
     * Notes and References

Acknowledgements

The briefing is by Joseph Hanlon of the Open University, UK.
Introduction

Corruption is a worldwide and age-old phenomenon. Yet in recent years,
Northern donors have become increas-ingly vocal about corruption in
Southern countries and the need for these countries to clean themselves
up. Northern donors themselves, however, refuse to change their own
policies, or to make tackling corruption a priority. Indeed, they
continue to support corrupt Southern elites who are willing to back
Northern priorities on economic liberalisation, including free trade and
the down-sizing of the state.

Evidence has been mounting for some time that the economic
liberalisation policies required of Southern countries by Northern
donors have coincided with, and even led to, increased levels of
corruption.1 Africa is a good example of this.

Despite over a decade of structural adjustment reforms, commentators
have noted that levels of elite predation have grown, leading to a
virtual "criminalisation" of the state in some countries. "Africa
remains unproductive and ... the pursuit of rents or unearned fees is
becoming ever more extensive", writes B=E9atrice Hibou, researcher at the
Centre National de la Recherche Scientifique in Bordeaux, adding that in
parts of Africa the bureaucratic apparatus, including the courts, is
being privatised and criminalised; bank and company frauds are
burgeoning; and that drug trading and money laundering are becoming
ubiquitous.2 Mozambique, where corruption was almost non-existent in the
1970s but has grown to high levels during the 1990s, is a case in point.

Northern donors have been so keen on obtaining "market-friendly" policy
reforms, moreover, that they have often sided with elites to push
reforms through, even though these elites have been linked to corruption.

Northern donors have also proved adept at ignoring corruption when it
suits them. When a government such as Mozambique's tells donors what
they want to hear, rapidly puts in place the reforms that donors want,
and does not misappropriate too much aid money, Northern donors have
turned a blind eye to high levels of corruption and ignored pleas from
local civil society groups for real action on corruption. Donors have
behaved so that the inconvenient facts of corruption do not get in the
way of a foreign aid "success story".
The Growth of Corruption

Mozambique was widely seen as a paragon of integrity in the late 1970s.
As in Eastern European countries in the central planning era,3 the
ruling party placed boundaries on the behaviour of public officials
through a mix of mutual oversight, incentives and repression.

Equally or more important were idealism and political will. In the
country's first decade of independence between 1975-85, Mozambican
officials believed they were building a better country, and that the
integrity of the state was important. Both the civil service and the
leadership were known for their honesty. The bureaucracy may have been
inefficient, but stories of either high-level or petty corruption were
rare. So rare, indeed, that when Francisco Langa, a member of the
Frelimo Central Committee and head of the Centre for Support to Refugees
and Liberation Movements, was caught embezzling funds, the case was
considered highly unusual. Langa, who had been a military leader during
the liberation war of 1962-75, was so overcome with shame that he shot
and killed himself in May 1980.4

Yet today, at least two forms of corruption are rampant in Mozambique:
"administrative corruption" and "state capture".5

Administrative corruption involves making unofficial payments to get
officials either to flout or to apply existing laws, rules and
regulations. It can also involve state officials themselves manipulating
public funds under their control for their own or their family's direct
financial benefit.

Examples of administrative corruption prevalent in Mozambique today
include having to pay bribes to obtain something citizens are entitled
to (anaesthetic during an operation, say) or preferential treatment
(school places or passing grades in exams). In one survey, 45 per cent
of 1,200 respondents reported that they had been victims of such types
of corruption in the past six months. Of those, 31 per cent paid less
than US$6, 45 per cent paid $6-60, and 22 per cent had to pay $60-600, a
large amount of money in a country where the per capita GDP is only
$300. The most common demands for money were from officials in health
(30 per cent), education (27 per cent) and the police (21 per cent).
Bribes are not just financial; almost five per cent of respondents said
that they had been required to "sleep with a government official".6

State capture, by contrast, involves taking control of institutions,
such as ministries, the judiciary or regulatory agencies, to obtain
illicit equity stakes, informal control or various rents. This type of
corruption often occurs when the business and political interests of
state officials overlap, and is extensive in kleptocratic political
regimes where "institutions of the state have been used to serve the
interests of a particular leader and his broader circle". It includes,
among other things, the "sale of court decisions to private interests
and the mishandling of central bank funds".7

In Mozambique, state capture corruption is on a larger scale than
administrative corruption. In two major bank scandals over the past few
years, at least US$400 million has been stolen, partly by senior figures
in Frelimo, Mozambique's ruling party. Two people who tried to
investigate the bank frauds, a newspaper editor and the government's
head of banking supervision, were publicly assassinated and the
investigations of the killings blocked at high level (see Box 1:
Liberalisation and Mozambique's Banking Scandals).8

In addition, 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.9

When, as part of recent corruption investigations, Attorney-General
Joaquim 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. In addition, as Madeira has told
parliament, foreign investors have complained 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".10

The Criminal Investigation Police do not process and sometimes even
destroy the files on money stolen from banks and government, and have
blocked investigation of cases brought by the central bank, Banco de
Mo=E7ambique. Magistrates and justice officials "accumulate fortunes
through illegality". Judges and state attorneys are also corrupt:

     "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 ...
[There is a] growing tendency for illegality to gain supremacy over
legality, the dishonest over the honest ... The culture of legality is
still a dream."11

A study by the South African Institute of Security Studies (ISS) sums up
the story: Mozambique "is very close to becoming a criminalised state".12
Box 1: Liberalisation and Mozambique's Banking Scandals

Key to the scandals that have seen hundreds of millions of dollars
illicitly drained from Mozambican banks in the last decade was the
early-1990s liberalisation of the financial sector urged on the country
by the World Bank and International Monetary Fund.

In 1994, the first new private bank opened -- Mozambique International
Bank, owned 50 per cent by Portuguese private bank Banco Comercial
Portugu=E9s (BCP) and 25 per cent by the World Bank's International
Finance Corporation. In 1995, the World Bank made privatisation of the
Commercial Bank of Mozambique (BCM) a "necessary condition" for loans.

The only private interest capable of taking over BCM was a consortium
put together by Ant=F3nio Sim=F5es, a Portuguese businessman with interests
in the Mozambican insurance and metal-working sectors, and including
Banco Mello of Portugal and a company believed to be fronting for the
family of President Joaquim Chissano. However, the leadership of
Mozambique's central bank, Banco de Mo=E7ambique (BDM) (noted for its
integrity and honesty, despite the growing corruption in public life),
made it known that Sim=F5es was not acceptable because he had a number of
bad debts with local banks, was failing to rehabiliate the metal-working
sector, and was not accounting for concessional loans he received from
donors for this purpose. BDM began looking for another bidder, but with
World Bank backing, Sim=F5es finally acquired BCM in July 1996.

BCM already had corruption problems, and the new owners' failure to
conduct a due diligence audit -- an investigation of the financial,
operational and legal risks connected with an investment -- ensured it
would be impossible to find out which frauds occurred before
privatisation and which after. Some new management was brought in,
nevertheless, and one official reported finding a wide range of frauds.
"The bank needed a total clean-up," he said.

The clean-up never happened. According to the official, bank
shareholders did not want it to be carried out. In 1998, Sim=F5es sold his
shares to Banco Mello, which was subsequently sold to Portugal's BCP,
and in 2002 BCM was merged into Mozambique International Bank. The total
amount lost is still disputed, but is close to US$200 million.

Meanwhile, the IMF demanded that yet another bank, the People's
Development Bank (BPD), be privatised by the end of 1996. A Mozambican
group close to President Chissano's family was set up to take over the
bank, but could not find the foreign partner it needed. When the
deadline was not met, the IMF threatened to cut off aid if the bank was
not in private hands by the end of June 1997. Finally, Chissano made a
personal request to Malaysian Prime Minister Mahathir Mohammed, who
instructed Malaysia's Southern Bank Berhad to become a partner. The BPD
was finally privatised on 3 September 1997.

As with BCM, corruption was endemic from the outset. No due diligence
audit was carried out. 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 US$150 million,
and a bailout will be required from the government. In 2002, Banco
Austral was taken over by ABSA of South Africa.
Murders

Two prominent Mozambican critics of predatory state capture who tried to
do something about the scandal paid with their lives.

The first victim was Carlos Cardoso, editor of the faxed business daily
Metical and a de facto spokesperson for a "developmental" faction among
the elite favouring an interventionist, honest state capable of
promoting longer-term entrepreneurism. Cardoso was investigating the
bank scandals when he was machine-gunned in a drive-by shooting on 22
November 2000. Beginning in 1998, Cardoso had pointed out that loans
from Norway, Sweden, France, Germany and Switzerland seemed to have been
used by Ant=F3nio Sim=F5es to buy BCM instead of to rehabilitate the
metal-working industry.

The second victim was Ant=F3nio Siba-Siba Macuacua, the respected Banco de
Mo=E7ambique head of banking supervision, who was killed and thrown down
the stairwell of the bank's headquarters on 11 August 2001. Siba-Siba
had been appointed acting head of the collapsed Banco Austral by the
developmental faction in an attempt to regain control and impose some
integrity, but had stepped over the line by trying to collect from the
Frelimo elite and repossess properties.

At first, neither murder was investigated. But because Cardoso was an
internationally-known journalist, his killing became a subject of an
international campaign. An investigation was then launched and six
gunmen were convicted in January 2003. Yet the higher-ups who planned
the killing remain at large. One of the convicted men was allowed to
escape from a maximum-security prison to ensure he kept silent about his
paymasters. Seven policemen accused of facilitating the escape were
acquitted in late 2003, the judge remarking that they were "just
scapegoats to hide the class of untouchables" who had organised the
operation. Some witnesses had accused President Chissano's son, who has
admitted illegal international currency deals, of having ordered
Cardoso's murder.

Siba-Siba, unlike Cardoso, was not well-known abroad. No international
campaign was launched and his murder has been only sketchily looked
into. The thefts of hundreds of millions of dollars from the banking
system remain mostly uninvestigated.

Source:

     * Hanlon, J., "Do Donors Promote Corruption? The Case of
Mozambique", Third World Quarterly 25, 4, 2004, pp.747-763.

Corruption and Foreign Donors

What are the factors behind this increase in corruption? Among many
possible contributors, one stands out: increasing intervention by
international financial institutions and bilateral aid donors over the
past two decades in support of liberalisation, facilitated by tacit
alliances between donors and a predatory faction of the Mozambican elite.

In the 1980s, Mozambique became a Cold War battlefield. Apartheid South
Africa, encouraged to attack Marxist Mozambique, built up and supplied
the Renamo rebel unit in a war which eventually cost more than one
million lives and US$20 billion. Yet it was only after donors went on
strike twice and withheld food aid, in 1983 and 1986, that Mozambique
made its "turn toward the West", finally capitulating to structural
adjustment and a transition to the market economy.13 Aid then more than
doubled from US$359 million in 1985 to $875 million in 1988.14
Government spending was cut, including on health and education, and
privatisation - which had begun in 1980 - was accelerated. Hand in hand
with destabilisation and aid went a form of recolonisation, as foreign
officials from the World Bank or donor agencies began to issue orders in
many ministries while European corporations were again given the
exclusive rights over much of the country's production they had held in
colonial times.15

During the period, donors played a role in promoting policies that
increased corruption in four ways:

     * Privatisation was promoted as an urgent priority. Donors looked
the other way when small firms were passed on to friends and family of
the leadership. Company administration, some donor officials held, would
have to rely on the nomenklatura, since no national business class had
ever developed due to restrictions during the colonial era.
Transparency, the consensus seemed to be, would slow the process.
     * In 1988, an 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.16
     * The World Bank's Small and Medium Enterprise Development Project
was set up in 1989 to help new owners of privatised businesses. Nearly
US$33 million was lent. As the Bank's own 1998 evaluation of the project
noted, the Bank is "alleged to have put substantial pressure on the
management of the banks to ensure the expedient disbursements of project
funds", undermining the "credit quality of the subloans."17 The
evaluation admitted that 90 per cent of the loans will never be repaid.
A World Bank Industrial Enterprise Restructuring Project, meanwhile,
gave $30 million in loans to larger privatised state companies, most of
which will probably also never be repaid.18
     * Donors responded to appeals for project funding by an
organisation close to President Joaquim Chissano which by the late 1980s
was already considered corrupt. When donors were asked why they
continued to support this organisation, they replied, quite openly, that
they were having trouble spending increased aid budgets and they saw
this as a way of buying influence in the President's office to approve
their projects. Projects which violated government policies were
approved by this route.19

It was during this period of the late 1980s that Mozambican officials
and newly-emergent businesspeople with little experience of the world of
capitalism were, in effect, given a crash course by the donor community.
The main lesson was that capitalism is not about profit but about
patronage - how businesses can be "privatised" and given "loans" that
need not be repaid, provided you know the right individuals or donor
agencies.

Not surprisingly, corruption and donor support have continued to be
correlated. Donors continue to align themselves with a predatory elite
faction that sees state capture as the only way toward rapid development
of a national bourgeoisie.20 At the same time, donors reject the appeals
of a more critical, "developmental" faction of the elite, who promote a
longer-term entrepreneurial perspective requiring a more
interventionist, functioning and honest state.

For example, at its donor Consultative Group meeting in October 2001,
just two months after the murder of the government's own banking
supervisor, Mozambique asked for US$600 million in aid and was given
$722 million.21 According to Sergio Vieira, a former security minister,
this pledge -- which was enough to plug the hole in the banking system
caused by the recent World Bank- and IMF-facilitated thefts (see Box 1:
Liberalisation and Mozambique's Banking Scandals) -- was a sign that the
international community was applauding the "good performance of the
government", minimising the importance of both the bank scandals and the
murders of those who acted against them.

Mozambican critics have so far struggled in vain against such donor
actions. In a closed meeting in 2002, 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 per cent 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."22

International financial institutions and bilateral donors have also
indirectly fostered administrative corruption through their assault on
civil servants' salaries (see Box 2: Support for Administrative Corruption)=
.
Box 2: Support for Administrative Corruption

Although international financial institutions (IFIs) and bilateral
donors often help institute programmes to combat administrative
corruption, they also encourage it by pushing for cuts in public service
spending in recipient countries.

For Mozambique, while the late 1980s saw a shift to market capitalism
under the tutelage of the World Bank, the first half of the 1990s was an
era of inflation control and minimal government imposed by the
International Monetary Fund (IMF). 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.

Salaries were the biggest component of government spending. A United
Nations 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 that far from being too big, Mozambique's civil service was
already too small to provide basic services. But 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. 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".

As a 1995 booklet by the United Nations Children's Fund and UN
Development Programme argued, such "erosion of basic service providers'
remuneration" was a key cause of the "sharp decline in morale and
quality of public service across Africa". The result, it said, was
corruption as well as "privatised user fees" and less time and attention
to work. In Mozam-bique, front-line staff were forced to demand extra
payments or take 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 US$2 to pay the midwife. As one woman from Nampula province
pointed out:

     "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 Sofala province primary school teacher added:

     "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."

Donors and non-government organisations worsened the problem of low
civil service salaries by paying key technicians and civil servants high
salaries to work for them, thereby decapacitating and weakening 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.

Years of poverty wages left the civil service deeply corrupted. Wages
have now 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. Corruption among Mozambican civil servants may no longer
have the excuse of being a livelihood necessity, but it was the
international financial institutions which forced them into corruption
in the first place and which suppressed any criticism of policies it now
admits were misguided. The IFIs that created the administrative
corruption problem have simply washed their hands of the problem and
blame Mozambique instead.

Sources:

     * Hanlon, J., Peace Without Profit: How the IMF Blocks Rebuilding
in Mozambique, James Currey, Oxford, 1996;
     * Adedeji, A., Green, R. and Janha, A., Pay, Productivity and
Public Service: Priorities for Recovery in Sub-Saharan Africa, UNICEF
and UNDP, New York, 1995;
     * =C9tica Mo=E7ambique, Estudo sobre Corrup=E7=E3o Mo=E7ambique 2001, =
Maputo,
2001.

Saying One Thing, Doing Another

Why do donors wind up supporting corruption in Mozambique against their
stated interest in fostering good policies?

First, following the lead of the World Bank, which sets the tone for the
donor community in Mozambique, "good policies" are explicitly equated
with so-called "good economic policies". According to two of the World
Bank's leading policy theorists, that means mainly three factors:
government budget surplus; control over inflation (as a measure of
monetary policy); and trade openness. "The heart of structural
adjustment," they write, "are fiscal discipline, trade liberalization
and other market-friendly policies."23 As former World Bank Senior Vice
President Nicholas Stern writes, what is important is for a country to
be supported in "identifying and grappling with the main obstacles to
growth".24

Corruption tends not to be identified as one of these "main obstacles",
even when senior Mozambican officials highlight the problem. When
someone like Darius Mans, World Bank Country Director for Mozambique,
mentions hearing worries about the banking crisis, the assassinations,
the "shallowness of the roots of multiparty democracy in Mozambique" and
the "ability of elites to capture state -- and private --
institutions",25 he is careful to say he is merely repeating
"expressions of concern" by "observers". The implication is that they
are to be taken far less seriously than his hard economic demands for
"strengthening the macroeconomic environment", tighter fiscal policy,
land privatisation and yet more trade liberalisation in a country that
is already one of the most open in Africa. Similarly, formulas about the
need for curbing corruption and for legal and judicial reform are
repeated year after year without any muscle being put behind them. This
lack of seriousness reinforces the sense among key figures in the
Mozambican elite not only that corruption is acceptable, but that it is
the normal route to capitalist development.

A second reason why donors end up supporting the growth of corruption
lies with their need to prove to others that their approach is
effective. Whether they are under pressure to increase aid to meet
international targets, prove the viability of neoliberal agendas, or
justify existing levels of aid to conservative governments, donors have
to showcase development success stories. Mozambique, praised for
following international financial institutions' economic policies
closely, is one of the few candidates for this role on offer in Africa.
When the World Bank wanted to justify increased aid and Bank policies in
a report to the March 2002 United Nations Conference on Financing for
Development in Monterrey, Mexico, its report cited six successful
countries where "institutional reforms have sparked rapid development".
Only two were in Africa: Mozambique and Uganda.26

Reports of negative impacts of donors' market-oriented agenda -- whether
corruption, increased poverty, or shrinking democratic space -- are not
welcome ingredients in such success stories. To point to Mozambique's
growing rural poverty in particular is to say the emperor has no clothes
-- a message donors cannot afford to listen to. This is why there is
such a remarkable divergence between the reassuring tales donors tell of
development triumphs or bringing corruption under control and the
stories local critics tell of growing rural hardship and increased
corruption (see Box 3: Reassuring Stories vs. Everyday Realities, p.9).

The October 2001 Consultative Group meeting offers several examples.
Ignoring civil society statements that "structural adjustment and high
growth had not resulted in poverty reduction in Mozambique", donors
agreed that the "most significant achievement of the last 12 to 18
months" was the Action Plan for Reducing Absolute Poverty (PARPA).27 As
it happens, PARPA, which mandates tight monetary policies to "slow
inflation",28 belies its name by actually cutting spending on education
and other poverty-related items between 2001 and 200429 -- at a time
when primary education needs to be expanded, not contracted, and
teachers dying of AIDS must be replaced. Nor were donors concerned that
PARPA exempts bank restructuring costs from its target of reducing
domestic primary deficit to under five per cent of GDP -- leaving the
government free to spend money plugging the hole in the banking system
created by high-level corruption even as it imposes savage limits on
poverty-related funding.30
Helping Donors Spin the Story

Predatory factions in the Mozambican elite, quick to note donors' need
to construct African success stories and downplay deteriorating
conditions, have done their best to help out. They have ensured that
Mozambique has done three things that donors want:

     * Embark on market-friendly policies and fiscal restraint while
"implement[ing] key measures in financial liberalization, exchange rate
reform, trade liberalization and privatisation through a series of
adjustment operations".31
     * Manage aid funds relatively transparently. While the predatory
Mozambican elite do not hesitate to engage in robbery, they are careful
to ensure that it is not donor money itself that is stolen. "Controlling
funds earmarked for Mozambique is easy and transparent," according to
Guido van Hecken, Belgium's Chief of Cabinet for the State Secretary for
Development Co-operation. "Mozambican authorities ... know how to work
with the donor community".32 "Government transparency and accountability
have increased," writes former World Bank Senior Vice President Nicholas
Stern.33
     * Obsequiously praise donor policies. At a 25 February 2002
Commonwealth investment conference, for instance, President Joaquim
Chissano cited "the success achieved in recent years with the
stabilisation and control of macro-economic aggregates" and promised
delegates that the government would continue to create an "economic
environment favourable for the development of a strong business sector."34

At the same time, predatory factions know not to waste time pursuing
projects that donors see as of a lower priority, such as tackling
corruption that does not involve aid monies. They understand that in
return for their co-authorship of donors' success stories, they will get
a free pass to engage in primitive accumulation through the state,
robbing banks, skimming public works contracts, demanding shares in
investments, smuggling drugs and other goods, and rigging the justice
system to avoid arrest. They also know that, in donors' eyes, they have
an advantage over critics of state capture corruption such as former
Bank of Mozambique governor Prakash Ratilal, who often also do not
hesitate to point out the failures of international development
agencies. Anti-corruption programmes at the World Bank and the British
bilateral aid bureaucracies are in practice restricted to efforts to
control administrative corruption and corruption involving aid.

In sum, donors and the predatory factions of the Mozambican elite engage
in a symbiotic relationship. Donors are allowed to stoke the myth of a
Mozambican success story, prolonging the life of their institutions.
Their Mozambican colleagues are empowered to create ever larger spaces
for predation and state capture.
Box 3: Reassuring Stories vs. Everyday Realities

Because donor bureaucracies need success stories to satisfy
international aid targets, demonstrate the success of neoliberal
politics, or placate conservative politicians, they tend to have a
vested interest in telling reassuring stories of development triumphs
and corruption under control. Not surprisingly, such stories are often
strikingly at odds with the accounts of local critics.

For donors, Mozambique is a nation boasting rapid growth in Gross
Domestic Product (GDP), increased exports and transparent management of
donor money. For World Bank officials, it is one of the best-performing
economies in Sub-Saharan Africa and an "example of successful reform",
with GDP growing at an average rate of 8.4 per cent. Donors note
increased export volume as well as growth in the areas of the capital,
Maputo, that they frequent and in mineral-energy enclaves like the
billion-dollar Mozal aluminium smelter. They laud a government which
does the bidding of international financial institutions and can manage
donor projects.

Donor representatives such as Guido van Hecken, Belgium's Chief of
Cabinet for the State Secretary for Development Co-operation, are,
moreover, little concerned about corruption:

     "Corruption, though not non-existent, is not institutionalised and
the possibility for controlling funds earmarked for Mozambique is easy
and transparent."

Ordinary Mozambicans see a different picture: one of a nation of
worsening poverty in rural areas whose state has been captured by a
predatory elite that robs banks and non-donor resources, smuggles,
kills, and maintains a corrupt justice system. For them, development has
not yet brought about any real changes in their daily lives.
A Less Rosy View

One survey of 13,790 households undertaken by the National Statistics
Institute between October 2000 and May 2001 found that 73 per cent of
Mozambicans felt they were either worse off or in much the same
situation as a year previously. Writes Prakash Ratilal, a former
governor of the Bank of Mozambique:

     "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, among other aspects, adverse
social effects and rising crime."

While GDP per capita in Maputo may have risen from US$1,076 to $1,189
between 1997-1999, it fell from $198 to $177 for the country as whole
between 1997 and 2001 and for the poorest province, Zamb=E9zia, from $106
to $78, meaning that the ratio of average incomes between the richest
and poorest province increased from 10:1 to 14:1.

Local critics also see corruption as a more serious issue. While petty
bribe-taking is widespread, it is overshadowed by even more frightening
instances of state capture. According to the prominent Mozambican writer
Mia Couto:

     "We live in a kingdom where those who lead are gangsters ... [an
elite is using power] in order to enrich itself. They don't think of
Mozambique, they think of themselves".

And South Africa's Institute of Security Studies notes a:

     "lack of political will to fight organised crime and corruption ...
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."

Sources:

     * Mans, D., "Consultative Group Meeting for Mozambique", Maputo,
October 25-26, 2001;
     * Ratilal, P., "Perception of the Economy", Maputo, 11 Mar 2001;
     * Mozambique Information Agency, "Mia Couto Condemns 'Predatory
Elite'", 24 May 2002;
     * Gastrow, P. and Mosse, M., "Mozambique: Threats Posed by the
Penetration of Criminal Networks", Pretoria, 18-19 April 2002;
     * UNDP, Mozambique National Human Development Report 2001, Maputo,
2001;
     * United Nations Office for the Coordination of Humanitarian
Affairs, "Mozambique: No structural adjustment rewards for poor yet",
Johannesburg, 10 April 2002.

Donors Put to the Test

Links between corruption at all levels of the Mozambican government and
a wider global political economy have been common knowledge for years.
By the mid-1990s, it was already evident that donors to Mozambique had
fallen into corrupt practices and in many ways had led the descent, for
example by offering indirect bribes and failing to denounce thefts and
misuse of donor funds. Yet donors have never adequately addressed such
issues.

Thus when, in 1998, business periodical editor Carlos Cardoso argued
that loans from five European countries had been used by the Portuguese
businessman Ant=F3nio Sim=F5es to buy the Bank of Mozambique (BCM) instead
of to rehabilitate the metal-working industry (seeBox 1: Liberalisation
and Mozambique's Banking Scandals, p.3), none of the donors would say if
the loans had been repaid, or if they had even asked the government had
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 to see Cardoso's copies of the loan agreements.
Despite Cardoso's campaign and pressure from honest government and civil
society forces in Mozambique, donors did not see the scandal or other
corruption as a problem for them.

For a time it did seem that the assassination of Cardoso (who was known
personally by many donor staff) in 2000, the large injection of
government money into BCM and the collapse of Banco Austral were causing
disquiet in some parts of the donor community -- especially when it
became clear that it was donor money that was replacing the money stolen
in part by senior government and Frelimo officials. But when it came
time for action, donors reaffirmed their support for corruption.

The first test came in mid-2001, when donors were asked to approve a
government poverty reduction strategy paper (PRSP) and, with it, debt
relief under the Enhanced Heavily Indebted Poor Countries (HIPC)
Initiative launched in 1999.35 Mozambican civil society forces appealed
to sympathetic donors to use the occasion to pressure the government on
corruption, reminding them that they enjoyed more influence in the
country than civil society. Some Nordic donor officials in Maputo duly
called for approval of the PRSP to be delayed until the government at
least provided more information on the banking scandals.

Yet instructions soon came from Washington to the US embassy in Maputo
that Mozambique had to be approved for HIPC at all costs. The reason:
under heavy indirect pressure from campaigning critics of the IMF and
World Bank, the US, which had initially opposed debt cancellation and
was widely seen as blocking HIPC, was eager to change its image. (At
that time, only two countries, Uganda and Bolivia, had had any debt
cancelled under the Enhanced HIPC.36) USAID officials thus intensively
lobbied the Nordic donor representatives, and in the end, the matter of
corruption was not raised, the PRSP was approved, and Mozambique gained
debt relief.

A second test came at the donor Consultative Group meeting of October
2001, just two months after the murder of the banking supervisor
Siba-Siba Macuacua. At the time, no investigation into Siba-Siba's death
was under way and his efforts to collect bad debts had been stopped.
Much high-flown rhetoric issued from donors about the assassinations,
corruption, the bank scandal and the necessity of undertaking
"aggressive efforts to recover non-performing loans", prosecuting
"perpetrators of crimes to the full extent of the law" and "ensuring
that financial expenditures related to recapitalizing the banks do not
crowd out poverty-related spending".37 Yet when the issue came up again
in May 2002 at a meeting of a group of ten donor governments which
provides direct budget support to the government, there had still been
no "aggressive efforts to recover non-performing loans" nor any
investigations of various major crimes. When two donors wanted to delay
the second tranche of budget support as a result, they were voted down
by the others.
The World Bank Also Fails Its Exam

The World Bank has also failed to act on its awareness that "foreign aid
can induce corruption" and to heed its own researchers' warnings not to
limit its anti-corruption strategy to "standardized technical
solutions".38 Even the World Bank's own anti-corruption website admits
that the Bank "did not explicitly address corruption in its development
strategies" until 1996,39 and that some of the policies it followed in
Mozambique were wrong, for example in ignoring the fact that "adequate
pay" in the public service is essential for preventing corruption.40

Similarly, former World Bank Senior Vice President Nicholas Stern today
acknowledges that "the minimal-government free-market approach advocated
by many people in the 1980s and early 1990s" -- presumably including
many officials of his own institution -- will not achieve development
goals.41 Yet in 1995 the Bank succeeded in getting the UN to suppress a
remarkable booklet by UNICEF and UNDP called Pay, Productivity and
Public Service, which, on the basis of case studies of a number of
countries including Mozambique, concluded that corruption and other
aspects of decline in public service quality could not 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."42

The reason for suppressing this conclusion was simply that it amounted
to an implicit criticism of the adjustment policies the Bank was promoting.

More recently, despite admitting that it pushed Mozambican banks into
making corrupt loans that were known to be unrepayable in order to speed
privatisation, the Bank still apparently expects the government to make
good on the debt.43

In July 2003, IMF Managing Director Horst Kohler dodged journalists'
questions about bank fraud and Siba-Siba's murder, instead praising
President Chissano's government and calling for measures to "strengthen
the financial sector". "For Kohler," Mozambique's government information
agency itself commented, "the past can now just be swept under the
carpet".44
The Future

In 2002, the World Bank, claiming to be addressing corruption in
"systemic", "institutional" and "policy" terms rather than identifying
"individual offenders", joined donors in putting US$85 million into a
10-year public sector reform project.45 The British Foreign and
Commonwealth Office, too, says that its approach to "tackling corruption
in Africa" is "holistic" and "aims to build the capacity of
institutions".46 Along similar lines, NORAD, the Norwegian aid agency,
argues that because "investigation and prosecution of corruption cases
require large personnel and other resources, which implies costs well
above what poor developing countries can afford", it would be better to
prevent corruption, by "raising public awareness, and by reducing the
scope for corrupt behaviour."47 But donors are hardly going to be able
to take adequate anti-corruption measures that are "systemic",
"institution-building", "consciousness-raising" or "holistic" or if they
continue to reject citizens' appeals for practical action.

Former World Bank Senior Vice President Stern echoes many other
officials in international and bilateral aid institutions when he says
proudly that his institution has "learned from its failures".48 But it
is the Mozambican predatory elite which has profited from those
"failures" and ordinary Mozambicans, not the Bank or bilateral aid
agencies, who are paying for those lessons.
Notes and references

1 See Khan, M.H., "Corruption and Governance in Early Capitalism: World
Bank Strategies and their Limitations" in Pincus, J.R. and Winters,
J.A., Reinventing the World Bank, Cornell University Press, Ithaca NY,
2002; Riley, S.P., "The Political Economy of Anti-Corruption Strategies
in Africa", in Robinson, M., Corruption and Development, Frank Cass
Publishers, London, 1998; Harris-White, B. and White, G., (eds.),
"Liberalization and the New Corruption", IDS Bulletin, Vol 27, No. 2, 1996.

2 Hibou, B. "The 'Social Capital' of the State as an Agent of
Deception", in Bayart, J. F., Ellis, S. and Hibou, B., The
Criminalisation of the State in Africa, James Currey, London, 1999,
pp.100-102.

3 Pradhan, S. et al., "Anticorruption in Transition: A Contribution to
the Policy Debate", World Bank, Washington, DC, 2000, p.26,
http://lnweb18.worldbank.org/eca/eca.nsf/General/D74DB51B2D46615D8525695B00=
678C93?OpenDocument.

4 Mozambique Information Agency (AIM) Information Bulletin No. 47,
Maputo, May 1980.

5 A recent World Bank study of corruption develops this distinction in
an examination of Eastern European nations, but the taxonomy is also
useful in the case of Mozambique, another country in "transition" from
socialism to capitalism (Pradhan, S., et al., op. cit. supra note 3,
pp.2, 3, 9, 17.)

6 =C9tica Mo=E7ambique (2001), Estudo sobre Corrup=E7=E3o Mo=E7ambique, 200=
1, Maputo.

7 Ibid.

8 Hanlon, J., "Killing the goose that laid the golden eggs", English
version of a series of 12 articles which appeared in Metical, 17
September-3 October 2001,
http://www.mol.co.mz/noticias/metical/2001/en010917.html, and "Bank
Corruption Becomes Site of Struggle in Mozambique", Review of African
Political Economy 29, 91, pp.53-72. The =C9tica Mo=E7ambique survey cited i=
n
supra note 6 also revealed state capture corruption, with two
individuals reporting paying more than US$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 favourable audits.

9 Gastrow, P. and Mosse, M., "Mozambique: Threats Posed by the
Penetration of Criminal Networks", paper presented at the Institute of
Security Studies regional seminar "Organised Crime, Corruption and
Governance in the SADC Region", Pretoria, 18-19 April 2002.

10 Madeira, J., Attorney-General's Annual Statement to Parliament,
Maputo, 6 Mar 2002.

11 Ibid.

12 Gastrow, P. and Mosse, M., op. cit. supra note 9.

Corruption in Mozambique -- and Africa -- is, of course, not a unique
phenomenon. The mafia in Italy, the Enron affair, privatisation outrages
in the former Soviet Union, the scandal in the US over corruption in the
George Bush Sr. regime, the persistent pattern of bribery encouraged by
the operations of export credit agencies, and the tens of millions of
dollars constantly going to corrupt payments on aid projects are other
examples that demonstrate how single-minded promotion of certain
priorities can create a penumbra in which corruption is fostered.

See, for example, Hanlon, J., Mozambique: Who Calls the Shots?, James
Currey, London, 1991, pp.228-38 and Hawley, S., "Exporting Corruption:
Export Credit Agencies", Corner House Briefing No. 19; Hawley, S.,
"Underwriting Bribery: Export Credit Agencies and Corruption", Corner
House Briefing No. 30 and Pasuk Phongpaichit, "Corruption, Governance
and Globalization: Lessons from the New Thailand", Corner House Briefing
No. 29, all available at http://www.thecornerhouse.org.uk.

13 Hanlon, J., Peace without Profit: How the IMF Blocks Rebuilding in
Mozambique, James Currey, Oxford, 1996, pp.15-17. It was not until 1984
that Mozambique, weakened by the South African and Western campaign of
destabilization and unable to pay its debts, consented to membership in
the IMF and World Bank. See Hanlon, J., Mozambique: Who Calls the
Shots?, op. cit. supra, p.29.

14 Hanlon, J., Peace without Profit, op. cit. supra, p.269.

15 Hanlon, J., Mozambique: Who Calls the Shots?, op. cit. supra note 12.

16 Hanlon, J., "Do Donors Promote Corruption? The Case of Mozambique",
Third World Quarterly 25, 4, 2004, pp.747-763.

17 Ibid.

18 Landau, L. Rebuilding the Mozambican Economy, Country Assistance
Review, World Bank Operations Evaluation Department, Washington, DC,
1998, pp.62-63.

19 Hanlon, J., Mozambique: Who Calls the Shots?, op. cit. supra note 12.

20 Hanlon, J., "Debate Intensifies over Adjustment and Press Freedom in
Mozambique", Review of African Political Economy 29, 91, 2002,
pp.113-116. Some among this elite argue 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 that it can carry out only
through the state.

21 Mans, D., "Consultative Group Meeting for Mozambique, October 25 and
26, 2001: Chairman's Report of the Proceedings," Maputo, 2001.

22 Confidential personal communication to Joseph Hanlon, 2002.

23 Burnside, C. and Dollar, D., "Aid, Policies and Growth", Policy
Research Department, World Bank, Washington, 1997 p.3; see also pp.1, 2
and 16.

24 Stern, N., "The Role and Effectiveness of Development Assistance",
paper for the UN Conference on Financing for Development, 18-22 March
2002, World Bank, Washington DC, p.xii,
http://econ.worldbank.org/files/13080_econ.worldbank.org/files/13080_.
Nicholas Stern is also a former chief economist at the World Bank. He is
now second permanent secretary for the UK Treasury and Directory of
policy and research at the UK's Commission for Africa launched in
February 2004.

25 Mans, D., op. cit. supra note 21.

26 Stern, N., op. cit. supra note 24, pp.xv ff., xiii.

27 Mans. D., op. cit. supra note 21.

28 Ibid.

29 Under PARPA, spending on "priority areas" for poverty reduction falls
from 19.4 per cent to 17.0 per cent of GDP between 2001 and 2005.
Education spending falls in cash terms as well as percentage terms, from
approximately US$247m in 2001 to $218m in 2002 (a savage 12 per cent
cut), rising slowly after that to $244m in 2004 and finally to $262m in
2005. Despite the admitted need for more teachers, teacher training
expenditure is kept constant (Rep=FAblica de Mo=E7ambique, Plano de Ac=E7=
=E3o
para a Redu=E7=E3o da Pobeza Absoluta [PARPA], approved by the Council of
Ministers, April 2001, tables 7.4, 7.5, 7.6). Darius Mans's only comment
was that "a number of civil society organisations expressed concerns
about health and education spending, which they claim is projected to
decline as a percentage of GDP after 2002."

30 Mans, D., op. cit. supra note 21.

31 Stern, N., op. cit. supra note 24, pp.xv ff.

32 Integrated Regional Information Network (IRIN), United Nations Office
for the Coordination of Humanitarian Affairs, "Mozambique: 'Authorities
know what they want' - donors", Johannesburg, 9 April 2002,
http://www.irinnews.org/report.asp?ReportID=3D27190.

33 Stern, N., op. cit. supra note 24, pp.xv ff.

34 Mozambique Information Agency (AIM), "119202E Chissano speaks on
investment in Mozambique"; Maputo, 25 Feb 2002.

35 HIPC is a programme aimed at reducing the debts of some of the
poorest Southern countries by billions of dollars.

36 World Bank, "Heavily Indebted Poor Countries (HIPC) Initiative -
Status of Implementation", 14 Apr 2002, p.7,
http://www.worldbank.org/hipc/Status_of_Implemenation_0402.pdf.

37 Mans, D., op. cit. supra note 21.

38 Pradhan, S. et al, op. cit. supra note 3.

39 World Bank, "Anticorruption: World Bank Efforts", Washington, DC,
2002, http://www1.worldbank.org/publicsector/anticorrupt/efforts.htm.

40 World Bank, "Anticorruption: Multi-pronged Strategies for Combating
Corruption", Washington, DC, 2002,
http://www1.worldbank.org/publicsector/anticorrupt/strategies.htm.

41 Stern, N., op. cit. supra note 24, p.xii.

42 Adedeji, A., Green, R. and Janha, A., Pay, Productivity and Public
Service: Priorities for Recovery in Sub-Saharan Africa, UNICEF and UNDP,
New York, 1996.

43 Hanlon, J., op. cit. supra note 8. World Bank Resident Representative
James Coates claimed in 2001 that he still expected Mozambique's
government to repay those loans to the Bank (although part will be
written off under HIPC debt cancellation).

44 Fauvet, P., "Glowing Praise for Mozambique from IMF", AIM, Maputo, 11
July 2003.

45 European Parliamentarians for Africa, Maputo and Amsterdam,
Mozambique Peace Process Bulletin, later renamed Mozambique Political
Process Bulletin, 25, August 2000, p.5 and 27, December 2001, p.7. See
also World Bank, "Helping Countries Combat Corruption", Washington, DC,
2002, http://www1.worldbank.org/publicsector/anticorrupt/helping.htm.
Meanwhile, the government is moving to try to reduce administrative
corruption, through individual actions by governors and ministers
against corrupt middle-level officials.

46 Amos, Baroness, "Tackling Corruption in Africa -- Building a New
Partnership", speech, Foreign and Commonwealth Office, London, 20 May
2002,
http://www.fco.gov.uk/servlet/Front?pagename=3DOpenMarket/XcelerateShowPage=
&c=3DPage&cid=3D1007029391629&a=3DKArticle&aid=3D1021827509969.

47 Norwegian Agency for Development Cooperation, "NORAD's Good
Governance and Anti-Corruption Action Plan", Oslo, 29 Feb 2000. It then
sets three objectives, assisting good governance, increasing awareness
of corruption in "aid administration", and sharing experiences in
preventing and combating corruption.

48 Stern, N., op. cit. supra note 24, p.39.
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