The Cash-Strapped Kleptocracy Seeks an IMF Bailout
Angolan Finance Ministry officials seem to have learned nothing from the past. With low oil prices dragging the economy into crisis, the Ministry has had to turn to the International Monetary Fund (IMF) for a bailout. But Angolan officials are so desperate to conceal the extent of their troubles, that their official statement pretends this is a ‘normal’ IMF intervention, not at all like the rescue that Portugal needed just a few years ago.
In fact, it’s exactly the same type of financial aid programme that Portugal got in 2011, just as the IMF reported at the time. Portugal was given a three-year aid plan. Angola too is now negotiating a three-year aid plan.
According to Min Zhu, the IMF Deputy Managing Director: “We have received a formal request from the Angolan authorities to initiate discussions on an economic program that could be supported by financial assistance from the IMF.” His statement continued: “We expect to start discussions with the country’s authorities during the upcoming Spring Meetings in Washington D.C. and in Angola shortly thereafter on an economic program that could be supported by a three-year Extended Fund Facility (EFF).”
Both have the same goal: to inject funds into Angola so it can balance its books while it implements the necessary structural reforms to make the economy more competitive. The only difference is that each plan is specifically tailored to each country’s particular circumstances. Some countries need reforms to their labour or energy markets (such as Portugal); others need to diversify their economy and make their tax system more efficient (such as Angola). In short, the targets may differ, but the parameters and desired outcome remain the same.
Extended Fund Facilities (EFFs) are different from the stand-by accord Angola obtained in 2009. EFFs last longer and have a longer repayment period. According to the IMF: “When a country is facing serious disequilibrium in the balance of payments in the medium term because of structural weaknesses which need time to be addressed, the IMF is able to assist the adjustment process with an EFF.”
Only recently President José Eduardo dos Santos told the MPLA central committee meeting that he had dipped into Angola’s Sovereign Fund to meet the February payroll for the country’s civil servants. No matter how the Finance Ministry tries to spin it, this move shows that Angola has a serious cash flow problem and can no longer resolve its economic and financial problems alone but needs both time and external support to work towards solutions.
Angola is cash-strapped, and it was exactly what happened in Portugal. It had insufficient funds to pay the following month’s salary bill, although the Prime Minister at the time, José Sócrates, strenuously denied the situation.
It’s also worth noting that the reason given for the economic crisis is the fall in oil prices. It’s true that oil prices have plummeted but that isn’t the only reason behind the structural problems besetting the Angolan economy. In the words of US financier Warren Buffet “only when the tide goes out, do you discover who’s been swimming naked.”
The dive in oil prices laid bare the real problem with the Angolan economy: a kleptocracy in which every one acts for their own self-interest. Angola was relying on a relatively tight group of entrepreneurs dependent on political patronage to kickstart economic diversification. It failed to create a true market economy, relying instead on a closed system without real competition, in which the main beneficiaries were the politicians themselves. It would be hard to find an economist who would recommend such a self-evidently unviable economic model.
Meanwhile Portuguese entrepreneurs have welcomed this approach to the IMF as though it were manna from heaven. Their delight suggests that the imminent intervention of the IMF will ensure that they get paid what they’re owed by Angola and their investments will be safe after all. Not so fast. The IMF will impose conditions – forcing Angola to open up its markets. A truly free market would see businesses offering real quality and fair prices replace these favoured partnerships. Old alliances and triangular relationships will find it much harder to compete. It’s far too early yet to count chickens.
In any case, intervention by the IMF does not in itself solve the fundamental problem. Will someone dare to allow real competition to telecom Unitel? Or allow anyone who isn’t Isabel dos Santos to invest in a privatised National Oil Company Sonangol? Is anyone capable of taxing the capital invested outside Angola? Or to reform the State institutions to ensure that ghost civil servants who never set foot in the office are taken off the payroll?
Little wonder that the Finance Ministry is desperate to spread the message that all is well when the reality is far muddier. Only root-and-branch reform can offer a lasting solution and the present Angolan government has shown time and again that it lacks both the desire and the capacity for real reform.