May 5, 2006

DUGASSE TUTILE EFFORT ON DEBT RELIEF

CONTRADICTS CBS GOVERNOR

The government of Seychelles has recently made public statements where it has acknowledged approaching countries with whom Seychelles has outstanding debt arrears to obtain a rescheduling of the debts.

This week the Minister of Planning and Employment, Jacquelin Dugasse announced after returning from Brussels, that the Government of Belgium has agreed to reschedule a US$10 million debt arrears. According to the Government controlled newspaper Nation, we will only need to repay US$1 million a year starting in 2010 even though we have been unable to repay anything all those years. But Dugasse does not tell us whether during the grace period of five years that the Belgian Government has given us, interest will continue to accrue on the US$ 10 million.

The debt due to Belgium, according to the Minister, was incurred in order to create the East Coast reclamation. Since the latest reclamation is only a few years old, it could not have accrued so much interest in so short a time on such a sum. Therefore this loan could only have been taken in 1987 when the first part of the reclamation to create the Providence Industrial Estate was undertaken. 

The principal (in other words the actual amount borrowed) according to Dugasse, was US$8 million. The other US$2 million is interest that has accumulated because we have not made any repayment. This effectively means that we have ended up paying 20% more for the money we actually borrowed and by the time we have finished paying the US$10 million back the total amount repaid would be 20% more.

US$10 million, however, is a pittance compared to the total external debt outstanding - incurred by the Government on our behalf over the years. According to President Michel (who is and has been the Minister of Finance since 1992) when he presented the budget in December, the total external debt at 31 December 2005 was US$ 300m or SR1, 641,707 million. Fifty percent of that, according to Mr. Michel, is bilateral debts. Bilateral debts are loans made by other governments directly to our government.

Loans that are made by international institutions such as the African Development Bank, the World Bank etc. to our government are called multilateral debts. These debts amounted to US$98 million (SR 541 million) according to President Michel as at 31 December, 2005. When he visited Seychelles last year the new President of the African Development Bank said that our debt to his institutions has reached US$40 million and we have stopped making any repayment for some time. In other words we are accumulating interest.

A third category of loans or debts that we have incurred is called commercial debts.  These are loans our government has taken from financial institutions overseas. On 31 December, 2005 this type of debt outstanding was only US$95 million according to President Michel.

Governor of the Central Bank, Francis Chang Leng recently told us that the Central Bank itself has outstanding debt to the tune of € 40 million to a consortium of banks led by the Bank of Tokyo Mitsubishi. For its repayment, the commercial banks have insisted that all foreign currency revenues of the Government be collected by Barclays Bank. According to the terms of the loan the amount of foreign currency the government was expected to earn over the life of the loan was US$35 million a year, all of which must go to repay the loan. Meanwhile, tourism earnings are estimated to be only US$ 180 million a year.

To be fair to Minister Dugasse, he has been extraordinarily candid. He admitted that no other European country that we are indebted to has agreed to follow the Belgians. “The Seychelles European creditors are insisting that the government go through the Paris Club of donor nations to have the debts rescheduled, a move which would result in the incorporation of a number of International Monetary Fund (IMF) economic reforms”, he was quoted as saying by the state controlled Seychelles Nation.

This statement in itself demonstrates the deceit that is being practiced in the financial management of this country by both government and the Central Bank. Only last week the Central Bank Governor claimed that the IMF and the World Bank approved the Macro economic Reform Program (MERP) and the way it was progressing generally. Yet the Minister now indicates to us that the IMF would prescribe other alternatives to the MERP as the way forward.

The government’s own external debt is not all in the death trap situation the Government of our country has placed us in. According to Mr. Michel in the budget statement the Government gave guarantees too over the years to foreign intuitions. At the end of December 2005 the total outstanding guarantees the government had given amounted to SR 945,624 million rupees.

Some of these guarantees may be for the government’s own debts. But a large part of the outstanding guarantees are to cover debts of government owned institutions such as SMB, the Development Bank of Seychelles, PUC and Air Seychelles.

Over and above that, the government has borrowed heavily from the commercial banks in Seychelles itself as well as the Pension Scheme, over the years. According to President Michel in the budget, domestic debts outstanding at the end of 2005 were SR4, 830,973 million rupees. Added together the domestic and external debt burden we are carrying since the beginning of 2006 amounted to SR6, 472,680 million. This is the burden our children will have to carry for a long time, in other words our treasure will have to live in a future of a much lower standard of living.

As we approach the most crucial election in the life of the SPPF, the President, his Ministers and the Central Governor seem to be speaking at cross purposes when it comes to the issue of the management of the economy. Meanwhile, we will need to find ways to get out of a major debt trap the Government of our country has fallen into. That is why almost everyone in Seychelles today wants to change the people running our government and about time too.