IMF tops up Mauritania loan to $101.6 million, but what are these changes?

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Executive Summary: Bye bye price subsidies, hello price inflation without wage increases

IMF Executive Board Completes Fifth Review Under Mauritania’s Extended Credit Facility Arrangement and Approves US$16.9 Million Disbursement

Press Release No. 12/460
November 27, 2012

The Executive Board of the International Monetary Fund (IMF) completed today the fifth review of Mauritania’s economic performance under the program supported by an Extended Credit Facility arrangement (ECF) and approved an extension of the arrangement by three months until June 30, 2012.1 The Board’s decision, which was taken on a lapse of time basis,2 enables the immediate disbursement of an amount equivalent to SDR 11.04 million (US$16.9 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 66.24 million (US$101.6 million).

The Executive Board approved a three-year arrangement for Mauritania in March 2010 for an amount equivalent to SDR 77.28 million (about 120 percent of the country’s quota in the IMF, see Press Release No. 10/89).

Economic activity in Mauritania has been resilient, despite a severe drought and several external shocks. Inflation was contained, and fiscal and external buffers have reached unprecedented levels. Nonetheless, progress in reducing poverty and unemployment is uneven, and the economy is still too dependent on developments in extractive industries.

The sizeable buffers accumulated during the ECF-supported program provide a cushion against downside risks in 2013. As before, the economy remains exposed to a sharp fall in external demand, renewed bouts of volatility in the terms of trade, and a delay in the disbursement of fishing licenses. Yet a record level of foreign exchange reserves and a surplus in the overall fiscal balance this year create room for policy to respond if downside risks materialize. Over the medium term, reducing poverty by making growth more inclusive remains an overarching challenge.

Anchoring fiscal policy on developments in non-extractive industries will help preserve debt sustainability while protecting pro-poor spending. The draft 2013 budget preserves fiscal discipline through ambitious subsidy reform and wage bill containment, reducing reliance on volatile mining revenues[1]. At the same time, the spending on well-targeted social safety nets will increase [2]. The planned ramp-up in public investment spending [3] is appropriate in light of Mauritania’s pressing infrastructure needs, but should take into account absorptive capacity constraints and the new procurement code.

Monetary policy will become more active through the introduction in the immediate future of a new monetary policy instrument [4] that will help absorb excess liquidity and reduce risks of an unhealthy credit spiral. Sustaining greater exchange rate flexibility is essential for absorbing external shocks.

Continued satisfactory program implementation—based on phasing-out ill-targeted subsidies [5], strictly applying the new investment and procurement codes, and reinvigorating labor market and public enterprise reforms—will help diversifying the economy. This, in turn, is necessary for making growth more inclusive and reducing poverty. The sixth and final review of the ECF-supported program is scheduled for May 2013.

  1. The draft 2013 budget preserves fiscal discipline through ambitious subsidy reform and wage bill containment, reducing reliance on volatile mining revenues. So no pay rises, possible lay-offs or pay cuts, and more “ambitious” fuel price increases to erode subsidies.
  2. Spending on well-targeted social safety nets will increase. More graft for the regime insiders to pocket cash intended for small business loans and grants, social care, and the “Hope” shops
  3. Planned ramp-up in public investment spending .. should take into account absorptive capacity constraints and the new procurement code. Maybe they mean projects like solar / oil / gas / roads – but those are all funded from loans. Maybe IMF would like transparent and fair contract bidding? Wouldn’t we all.
  4. Monetary policy will become more active through the introduction in the immediate future of a new monetary policy instrument that will help absorb excess liquidity and reduce risks of an unhealthy credit spiral. Sustaining greater exchange rate flexibility is essential for absorbing external shocks. Any emergency paraconomists out there? What is this instrument? Maybe a fiscal blunt object to the back of the neck is heading Mauritania’s way. Will it take the same route carved out by the increasingly magical yet friendly bullets?   Seriously, this in context of the comments about “volatile mining revenue”, make me think the state is about to reassess the value of some major assets, which could herald a sell-off or compulsory purchase (using the windfall from tax on mining that began this year with Kinross and is about to happen with MCM), depending on the direction of the revaluing. On the other hand, it could mean an increase in the central bank interest rate, though I doubt a positive response from Mauritania’s private investment sector. That leaves an investment bond issue, and this is my punter’s pick. Aziz and his team have been courting any and every potential source of customers for any T-paper they might be planning to issue. 
  5. Continued satisfactory program implementation – based on phasing-out ill-targeted subsidies… etc see 1.

Mauritania’s most recent letter of intent is available as a PDF: [Fr] http://bit.ly/Rsb482 [En] http://bit.ly/VdfhIi

New #m25fev Civil Activism Campaign in #Mauritania

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An awareness-building campaign mounted by February 25 Movement [ar] civil activists in Mauritania to encourage people to react against against spiralling prices has been launched across the country. This first new campaign after a distinct lull in activity has received an enthusiastic reception from Mauritanian youth on social networks, and lots of coverage in local media.

This image shows the change in fuel prices from the three significant price reductions totalling 84MRO implemented after the 2008 military coup against former president Abdallahi – one of the reasons used to justify it was his inability to control runaway price inflation – and then the increases right after the 2009 election that brought General Aziz to power.

With the presidency and international funding secured, prices have been increased 23 times, by a total of 226MRO. They will continue to do so, as long as the Mauritanian government keeps its promise to the IMF, to remove all fuel and food subsidies, restrict wages and install other economic measures in exchange for continued tranches of cash from the Extended Credit Facility.

The 6.4 million-dollar question: what happens to the IMF funds, and to the revenues from the countries two main sources of income: mining and fishing. Aziz made bold claims about being the “president of the poor” (a trashy tag beloved of dictators) and promising to stop corruption.  The reality is that people are worse off and, far from ending corruption, Aziz and his regime have transferred senior political, business and banking positions from former elites to their own sticky-fingered clique.

Here’s an English language version of the image

Mauritania – A Life or Death Numbers Game

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UPDATE 10 March 2012:
The fund raising appeal machine is getting into high gear now, with many major aid agencies highlighting a food crisis in the Sahel, and complaining about how the world dragged its feet last time, and earlier action is needed. However, this is not a new story in any Sahel country, and certainly not in Mauritania, where the alarm was raised last August but failed to win international attention until January of this year, when the “big guns” climbed on board.

Sahel food crisis : drought stricken South of Mauritania

Sahel food crisis : drought stricken South of Mauritania where lack of jobs force people to resort subsistence farming. This meagre existence is euphemistically referred to as "employment".

Back in August, Aziz responded to calls for help to deal with drought by telling people in rural communities not to worry, and promising rain would come. Well, those promised rains never arrived, and people are indeed worried. By November 2011, the government had concocted a scheme to seek funding from the international community and an emergency appeal to raise US$157 million was launched. This appeal, which you might see referred to as a “state of emergency” by international aid agencies, is almost a secret inside Mauritania. As is common with press relations about fund raising, you will not see mention of the US$50 already promised by Saudi Arabia, or the money available through significant sources of funding in Africa or the Gulf.

In the middle of January, after Mauritania and neighbouring countries had been rocked by widespread protests over basic commodities such as food, clean water and electricity, Aziz promised to keep food prices low. But 11 increases in the price of fuel in the past year have turned that into another impossible, broken, promise. Fuel prices are fundamental to the cost of food and water in a country like Mauritania, which covers a vast area of over 1 million square kilometres, and where 70% of all food consumed is imported.

The IMF flatters Mauritania with lavish praise for their financial mismanagement, cooing over an increase in foreign exchange reserves for which no one, not even the IMF I suspect, will ever see the actual calculations. Less publicity is give to the whopping US$70.9 million in loans via the IMF racked up since Aziz took control after a military coup in August 2008, for which less than US$155,000 in interest repayments is recorded. The IMF pins all of this on anticipated revenue from mining (mainly gold, copper and iron), neglecting to underscore the paltry value of 3% which is Mauritania’s cut of the proceeds.

Where are these millions being spent? The health minister recently boasted that almost US$80 million had been spent on healthcare in the past 3 years, including building 6 new hospitals. But they have a serious shortage of trained doctors, the infant mortality rate is over 75 per 1,000, and the only way to get medical treatment for serious health problems – say, if the President’s son leaves his wife and baby at home to go out joyriding and happens to shoot you – is to be flown out of the country. Sadly, only a handful of Mauritania’s inhabitants are privileged (or, in the case of Badr’s victim, unlucky) enough to afford such perks, and the rest are struggling under the burden of inefficient and corrupt administration. Recently, the World Bank reported that their Health and Nutrition Support Project was rendered ineffective because:

During four and half years of the project, there were two coup d’etats, (the first one on August 3, 2005, and the other on August 6, 2008); the Prime Minister changed four times, the Minister of Health had changed eight times, and the Director of Directorate of Financial Affairs (DAF) changed four times. All these changes occurred because of the political instability which prevailed in the country during the project period.

Mauritania, september 2008

Mauritanian Camel Market - Image via Wikipedia

Very few of Mauritania’s tiny online community even acknowledge the issues raised by the drought. They don’t talk about the fundraising appeal launched by the Mauritanian Red Crescent or other Human Rights Groups, and they don’t talk about the periodic alarms raised by UNICEF or other groups warning of the dire consequences of 1.2 million people being affected. They know that behind the drought, and the push to get international funding, and the clamour of agencies in the media, there is only more politics and more corruption. The offline community might not know the details, but they know Aziz, heralded as the “President of the Poor” in his election campaign. The people understand now that he was not advertising himself as their champion, but rather making a prediction that, under his administration, the entire country would be further reduced to grinding poverty.

While the government in Mauritania rakes in a tidy sum from loans and grants, actual economic data on the country is almost non-existent, and stories often contradict. For example the Mauritania PM says a healthy mining sector helped the country achieve record foreign reserves (to pay for massive imports) and stable economic growth despite international financial issues, but a couple of days later we hear that Canadian giant Kinross shares were hit by a 6-9 month delay in exploiting the Tasiast mine, which it plans to make the biggest in the world. Since then, they have announced that they intend to write off the US$4.6 billion they paid for Tasiast when they took over Red Rock. How much of that $4.6bn did Mauritanians get? None. Zero. Zilch. How can a country of just 3.2 million people be literally sitting on the biggest goldmine in the world and yet be scraping around for a couple of million dollars to stave of the effects of drought on over a third of the population?

These stories illustrate and highlight the predicament of people in Mauritania:

CERF Allocates US$4 million to UN agencies helping relieve Mauritania Drought Crisis

WFP Mauritania

WFP Mauritania

19 January 2012: Dry spells and the poor distribution of rainfall during the 2011 growing season resulted in a significant decline in cereal production. It is expected that the low coping capacity of households will result in progressively worsening livelihoods and above-average needs for emergency food assistance.

In response, the CERF has allocated US $4,005,971 to five UN agencies in response to the emergency. The World Food Programme (WFP) has been allocated $2,000,139 for management of acute malnutrition among vulnerable groups. The United Nations Children’s Fund (UNICEF) has been allocated $596,230 to manage child malnutrition, and the Food and Agriculture Organization (FAO) has been given $600,336 to assist farmers affected by food insecurity. The United Nations Population Fund (UNFPA) has been provided $426,912 to support reproductive health services for vulnerable groups while theWorld Health Organization (WHO) has been provided $382,354 to address severe malnutrition among children. More than 100,000 people will benefit from CERF funding.

via UN CERF – Mauritania 2012.

OIG identifies “losses” of $6.7 million, including misappropriations of $4.2 million

On 31 October 2011, the Global Fund’s Office of the Inspector General (OIG) released the final report of two separate investigations into five grants managed by two principal recipients (PRs):

  • Comité National de Lutte Contre le SIDA (SENLS) – one grant: HIV, Round 5
  • United Nations Development Programme (UNDP) – four grants: malaria, Rounds 2, 6; TB, Rounds 2, 6

The investigations were conducted between 2009 and 2011.

The OIG identified what it called “losses” of $6.7 million, including $4.2 million in funds that were misappropriated, $0.8 million in ineligible expenditures and $1.7 million in unsupported expenditures. The OIG said that these losses should be repaid to the Global Fund.

(Note: The OIG defines “misappropriation” as “the knowing or intentional use of the property or funds of another person for one’s own use or other unauthorized purpose, particularly by a public official, or by any person with a responsibility to care for and protect another’s assets.” “Misappropriation” includes what the OIG calls “fraud and abuse.” The OIG defines “ineligible” expenditures as costs not in line with the budget and work plan approved by the Global Fund. The OIG defines “unsupported” expenditures as those lacking adequate supporting documents to provide evidence that the activity took place and that the expenditure was in line with programme activities.)

The losses that the OIG identified in Mauritania are not new, in the sense that they had been announced in December 2010 in an OIG progress report to the Global Fund Board (see GFOarticle). However, the breakdown of the losses into the various categories was different in the report released on 31 October as compared to the OIG’s earlier announcements.

via aidspan.org

US$ 17.9 million IFAD loan and grant to boost the agricultural sector in Mauritania

Rome, 3 November 2011 – A US$17.9 million loan and grant from the International Fund for Agricultural Development (IFAD) to Islamic Republic of Mauritania will help to improve the incomes and the living conditions of poor rural households depending on agriculture, the United Nations rural poverty agency has announced.

The loan and grant agreements for the second phase of the Poverty Reduction project in Aftout South and Karakoro regions were signed today in Rome by Sidi Ould Bebaha Ould Tah, Minister for Economic Affairs and Development of Mauritania, and Kanayo F. Nwanze, President of IFAD.

Agriculture, livestock and fishing are the main source of income for the people of Mauritania. While the country’s agriculture is fragile due to recurrent drought and the desertification, the sector employs more than 56 per cent of the country’s population.

During this second phase of the project, the Government of Mauritania and IFAD will work together to boost the potential of the agriculture sector by enabling vulnerable rural households to significantly increase their production, part of which will be used to improve their food security; to create jobs for young people in agriculture, and other related occupations. The project will also focus on capacity-building activities to help women to acquire access to new economic opportunities and responsibilities within the rural organizations.

The project will build on the accomplishments of the first phase, which began in 2002 in an area known in Mauritania as the “poverty triangle”. During this time, the percentage of households suffering from periodic food shortage decreased and improvements increased such as the status of children’s nutrition, overall living conditions and basic infrastructure.

The second phase of the project will help build an economic and social fabric based on sustainable natural resource management that will be inclusive to poor rural households, particularly women and young people. More than 21,000 vulnerable rural households, women and young people will benefit from the project.

To date, IFAD will have financed 13 programmes and projects in Mauritania for a total investment of US$115.1million benefiting 181,950 households.

via IFAD

A Wedge of New Egypt Pie – with Martyr Sauce

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Deutsch: Hauptverwaltung des Internationalen W...

IMF HQ - Image via Wikipedia

According to the New York times, Egypt’s foreign currency reserves have fallen from a peak of $36 billion to about $10 billion and could run out entirely by March. Promised loans and funding from the US, Europe, the IMF and Arab neighbors have not materialized, according to the NYT and some reports from Egypt. We are also told they originally rejected an IMF loan but are now seeking to revive it. The IMF will “consider” and a decision will be ready in March – conveniently close to crunch time for Egypt. If no one in Egypt’s leadership can see they are being played over this I will assume they are blinded by greed.

Meanwhile, no one is including mention of the $1 billion loan SCAF was able to conjur up at the end of last year. Or the running cost of Egypt’s several security forces, for that matter. At the time, I asked how much more they had tucked away. Speaking of stashed cash, where are Mubarak’s assets? The endless delays to his trial are also dragging Egypt nearer to the financial abyss. What about the money and property that was tied up in Spain, or the funds embezzled by Mubarak’s crew, cronies and family all these years – where is that small fortune hiding? While we’re at it, didn’t Suzan Mubarak buy her way out of jail by promising to return a wedge of illicit wealth? Is Egypt still supplying subsidized gas to Israel through a deal with a US-owned operation? Why?

What’s really going on here is the international bully boys perfecting their game. For example, we have the US administration talking and meeting with the Egyptian Muslim Brotherhood (probably not short of cash itself) then we see Reuters with a quick follow-up upbeat MB story from the leader of the Muslim Brotherhood’s economic committee, Ashraf Badr el-Din, suggesting that the Brotherhood and other main parties are moving toward consensus on managing the economy. Take your time, there are only 84 million lives and the stability of the entire region at stake. It’s too much to hope that someone have the guts to stand up and talk honestly about the need to make massive sacrifices over a medium to long term. As long as that is not happening anywhere else, despite the desperate, blindingly obvious need, it sure isn’t going to happen under SCAF’s beady eye.

We will hear lots in the next 6 to 8 weeks about the youth, the unemployment, and the need to make “reforms” (which means cutting subsidies). We won’t hear that this is backed by a huge international cartel of financiers like the IMF or World Bank and companies like Coca Cola etc promising foreign investment for infrastructure development, business growth and employment. In exchange for what? A nice big slice of New Egypt Pie. What a shame the gravy is made from the blood of martyrs.

Police clash with protesters in #Romania

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Protesters clash with riot police on University Square in Bucharest on January 14, 2012 during a protest against the government’s austerity program and Romanian President Traian Basescu

Romanian police fired tear gas and clashed with protesters during an anti-government rally, the third consecutive day of demonstrations against austerity cuts and falling living standards.

The protests were the most serious since President Traian Basescu came to power in 2004 and were the result of pent-up frustration against public wage cuts, slashed benefits, higher taxes and widespread corruption.

In 2009, Romania took a two-year 20 billion euro loan from the International Monetary Fund, the EU and the World Bank, as its economy shrank by 7.1%.

Romania imposed harsh austerity measures under the agreement, reducing public wages by 25% and increasing taxes.

The unlikely catalyst for the protests, however, was the resignation of popular health official Raed Arafat, a Palestinian with Romanian citizenship who opposed health reforms proposed by the government.

On Friday, Mr Basescu told the government to scrap the reforms, but public anger had already risen against Mr Basescu and the government.

Widespread support for Mr Arafat has led commentators drawing parallels with ethnic Hungarian Laszlo Toekes, whose opposition to late dictator Nicolae Ceausescu in 1989 was the spark for the anti-communist revolt.