The announcement by Minister of Finance Mr. Danny Faure to the National Assembly that the Government is planning to approach the so-called Club de Paris in order to reschedule Seychelles bilateral debt was, as usual, classic SPPF obfuscation and spin to hide the reality from their supporters. Actually, it will be quite sometime before Danny Faure will be allowed in the reception area of the Club de Paris in spite of his misleading statement to the law makers.
In practice what the SPPF has done is to raise their hands very high in the National Assembly and admit defeat on the economic management front. This means that they have agreed to hand over to the International Monetary Fund (IMF) the most important account book in the country – the Consolidated Fund, and thus give up control over the government expenditures to the Washington DC institution, for the foreseeable future.
Indeed, by the time you read this article, faceless men and women from the International Monetary Fund (IMF) in New York would have been ensconced in some cubicles in Liberty House with laptops in hand ready to start making the lives of James Michel, Danny Faure and Francis Chang Leng a nightmare.
The Consolidated Fund is not some bank account for a charity organisation, although over the past 31 years it has been operated as if it was one. This is the account book which the Constitution (Article 151) says all the moneys due to the Government of Seychelles, whether borrowed or raised through taxes is supposed to be entered and accounted for: “There shall be a Consolidated Fund into which shall be paid all revenues or other moneys raised or received for the purposes or on behalf of the Republic, not being revenues or other moneys that are payable by or under an Act for some specific purpose or into some other fund established under an Act for a specific purpose.”
Even though this constitutional provision is very clear to anyone who can read English, the SPPF in government has never fully complied with it. For example, every year tens and sometimes hundreds of millions of rupees are spent without the authority of an Act, in defiance of the restrictions placed by the Constitution. At the time of writing the amount of red ink on the consolidated fund account has exceeded R9, 000,000,000 (Nine billion rupees).
As anyone who is familiar with the principle of book keeping knows, every debit entry must be matched by a credit entry in a ledger. In this case the other side credit entries are a debts to domestic commercial banks, meaning you and me, in excess of R3, 600 million as at 30 May 2008; debts to multilateral agencies in excess of R 400 million as at 31 December 2007; debts to various countries in excess R 1,350 million as at 31 December 2007; debts to international financial institutions in excess of R 740 million as at 31 December, 2007 and finally, debt to international investors in excess of R 2,490 million; the grand total amounting to over R8,900 million. This sum does not include guarantees made by the government on money borrowed by parastatals.
What the faceless men and women from the IMF will be doing on behalf of the Club de Paris, (whose debts are in fact only a portion of our total debt) is ensure that money for the repayment of their debt is put aside before anybody else gets paid. At the time of writing, legal documents are being drafted detailing the extent of the powers of the IMF officials to decide how much money the government can spend from now on and what new taxes need to be raised. SPPF, however, has already started to violate laws to avoid public embarrassment. Since the beginning of the year the Ministry of Finance has taken control of the money which should be paid into the bank accounts of the Social Security Fund in violation of the law. This is likely to be challenged in court.
The most humiliating thing for the SPPF is still to come. President Michel and Minister Danny Faure will have to sign a letter addressed to the Managing Director of the International Monetary Fund, Mr Dominique Strauss-Khan, which will more or less go as follows:
Dear Mr Strauss-Khan,
This letter describes the economic policies that the Government of Seychelles intends to follow during FY 2008/09 (July 1, 2008 to June 30, 2009). Through prudent macroeconomic policies and a step-up in structural reforms, the Government aims at restoring order to the public finances, maintaining low inflation and reducing external vulnerability, while laying the basis for a sustained recovery in economic activity and employment and a reduction in poverty over the medium term. To further these objectives and in the context of the successful implementation of this economic program, the Government will work to develop, over the next few months, a medium-term program that could be supported by a three-year Poverty Reduction and Growth Facility arrangement from the IMF.
The Government is conscious of the fact that, if the strains that have been building up in the public finances and the economy are left unchecked, there would likely be serious adverse economic consequences with accompanying widespread social dislocation, particularly rising levels of unemployment and poverty. The Government is resolved to pre-empt such developments by tackling the root causes of current economic difficulties, and by doing so in a way which protects critical investment in economic and social infrastructure and create a solid foundation for economic and social progress into the future.
The structural reform agenda for 2008/09 includes a comprehensive reform of the tax system, a public expenditure review, the initiation of civil service reform, privatization, and the strengthening of financial system supervision, with the support of the World Bank, EU etc.
This letter will be published on the IMF website and make available to all members of the IMF. Then, the IMF Board will meet and approve the agreement. After that Faure could just as well take a holiday and save himself the embarrassment of having to tell the grassroots that the game is over and now they have to remove the punch bowl.
Watch this space for more embarrassing revelations.