Seychelles negotiating with IMF

Another devaluation expected

A second devaluation is expected now that Seychelles  is negotiating with the International Monetary Fund ( IMF) as a pre-condition for debt re-sheduling with countries of the Paris Club.

According to Finance Minister Danny Faure, Seychelles is hoping that some debts will be written off and the rest rescheduled by some countries of the Paris Club, once its reform programme is approved by the IMF.

The usual conditions laid down by the IMF is devaluation of the national currency; downsizing the public service and cutting down on spending for the armed forces.

This statement is as usual, based on short-term expediency and almost never on a long term strategy.

This is the third time in six years that Seychelles has negotiated deals with foreign institutions or banks for debt rescheduling.  In so doing it has ended up having more debts than the ones it tried to plug.

The first was in 2002, when President Michel was still Vice-President and Finance Minister and it was a $ 150 million loan obtained from a syndicate of foreign banks for its debt rescheduling programme. The main lenders were  Tokyo-Mitsubishi Bank, Barclays, Standard Chartered and Mauritius Commercial Bank ( MCB). The Seychelles Government guaranteed it  with earnings from the Indian Ocean Tuna ( IOT), passenger service fees from  its management of the Flight Information System ( FIR) and licence fees sold to the EU.

Though presented as a major effort to ease debt servicing, the funds covered just a fraction of the debt owed and only 3 projects; land reclamation, sewage and public transport. Barclays made its support conditional on it being allowed to transfer all unremitted profits and $ 12.5 million had to be paid even prior to the signing of the loan agreement.An additional $ 4 million was also paid to Mitsubishi Bank in processing and legal fees on behalf of other banks.

 About a  third of the loan was used to repay debts contracted for balance of payment purposes. At the time the government was already spending more than 45% of earnings for debt servicing.

The second loan was in 2006 when $200 million worth of bonds were sold and backed by Lehman Brothers. At the time some lending institutions , such as the African Development Bank ( ADB) were repaid and later new loans negotiated.

 An additional  $ 30 million  worth of bonds were issued about a year later, ostensibly to cover the huge interest accumulated from the initial one.

Faure has expressed confidence that some friendly countries, believed to be France will back its debt re-sheduling bid in the Paris Club. Other countries owed significant sums include the UK, Italy, Belgium and Russia.

July 11, 2008
Copyright 2007: Seychelles Weekly, Victoria, Mahe, Seychelles