On the 29 December 2018, Former Mozambican Finance Minister Manuel Chang was arrested in South Africa in relation to Mozambique’s US$2 billion hidden loan scandal, exposed back in 2016. Earlier this month, the same US indictment led to the London arrests of three former employees of one of the banks that initiated the deal, Credit Suisse, as well as an executive of an Abu-Dhabi based company.
This week, world leaders are gathering for the World Economic Forum in Davos, at a time when a lot more can be done to improve transparency between the global financial system and developing countries, to allow parliaments, journalists and non-governmental organisations to scrutinise loans being made to governments.
Mozambique’s 5 years of economic turmoil, cuts in donor funding and reduced social services for the poor cannot be undone, but we can stop it from happening again. An initiative is already underway, and it is being led by the private sector. With the oversight of the Institute of International Finance (IIF), a set of voluntary principles are currently being agreed by banks from around the world, which aim to increase lending transparency through better disclosure of debts.
Behind closed doors, member banks are ironing out the details of these principles. This is no easy task, as there are a host of legal and commercial challenges, which could reduce the inflow of private money for these countries. If loans are to finance, not undermine, economic development in countries like Mozambique, the first step is getting these principles right. Before Davos, we ask for three things:
- Ensure that IIF principles serve their purpose. Whilst respecting legal and commercial controls, actors must be able to hold both lenders and borrowers to account to prevent another crisis like Mozambique’s. Journalists and civil society can be allies in exposing unfair and corrupt practices or misuse of loans, and profitable projects and strong growth mean bank loans get repaid. It’s a win-win, but stakeholders must be involved in the process.
- Don’t delay the release and implementation of principles. For every day without them in place, we take a risk that another Mozambique will happen, impacting the lives of future generations.
- Dream bigger. Other lenders, including those funded by public money, including development finance institutions and lending from other governments must also step up. Implementing the G20 Guidelines is a good place to start.
The private sector has made a bold statement in drafting the principles, but we are yet to see whether they can set the standard internationally, and deliver a fairer and more transparent global financial system.
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