AFRICANEWS

Angola

Petrodollars fuel war despite IMF transparency programme

The exact amount and way that the Angolan government spends its petrodollars to fuel its long-standing civil war may remain a mystery despite a new programme between the Angolan government and the International Monetary Fund (IMF) to increase the country's transparency, says Human Rights Watch.

An ambitious project between the Angolan government and the International Monetary Fund (IMF) to institute far-reaching economic reforms might not work, as the Bretton Woods institution has insisted that the monitoring of the country's oil industry will be part of the programme. The Angolan government, which has always remained cagey on the role of petrodollars in the war effort, might not be that entirely co-operative.

This is according to a report published early this month by the New York-based Human Rights Watch. The rights group doubts the success of the programme, since it will demand that the Angolan government be transparent on, and accountable for, how oil revenues are used.

The oil project, called Oil Diagnostic, is part of a wider programme known as the Staff Monitored Programme (SMP), which seeks to implement a wide range of economic and institutional reforms in Angola so that more credit facilities can be set up in the war-torn Southern Africa country. The IMF, together with the Angolan government, will supervise the US$ 1.6 million, 18-month programme with the government paying 68 percent of the costs while the World Bank will pay the balance.

“The Oil Diagnostic [name of the oil monitoring project] could be an important step in establishing transparency and governmental accountability,” says the report.

But it remains to be seen whether the government will be able to comply with its requirements, especially on the issue of monitoring how oil revenues are spent, says the report.

Just as past investigations have found that the rebel group UNITA has used revenue from the illegal sale of diamonds to finance its war against the government of President Eduardo Dos Santos, the regime has likewise been accused of using proceeds from oil exports to fuel its war effort. The government has denied this.

According to the terms of the contract, Diagnostic which will be implemented by the accounting firm KPMG for eighteen months, will only assess whether the amount of oil revenues generated are equal to the amount of funds deposited in the central bank. It will also seek to develop mechanisms that enable the government to monitor revenues accurately.

To achieve this, KPMG will create a database that contains an assessment of proven and probable oil reserves, production, and exports. It will also develop a projection of export oil prices, production, exports, and subsequent revenues payable to the government on a quarterly basis from mid-2000 to the end of 2001, and annually until 2005. It will also monitor the actual revenues received by the government and compare these figures to the projections of revenues on a quarterly basis from June 2000 to December 2001 among other measures.

“Ideally, this agreement will lead to a substantial improvement in the government's management of oil revenues and greater transparency and accountability in its use of such income,” says the report. “However, the agreement has limitations that could hinder such developments.”

First of all, this is not a comprehensive audit of the oil revenues. It will only help the government to determine how much revenue the central bank should receive from oil production. Secondly, it will also not examine how the government uses its oil revenues after they are deposited in the central bank, which is why fears are rising that the government might get the official excuse to continue using the oil proceeds to buy more arms.

KPMG will have eighteen months from the end of 2001 to prepare a final report, which the company will submit to the government, IMF, and World Bank. The report's recommendations are expected to include provisions for safeguards against “concluding of contracts for the procurement of goods and services without adequate competitive bidding or on a basis other than arm's length.”

This leads Human Rights Watch to say that: “It is critically important, therefore, that the government should provide – and the multilateral institutions insist on – the most thorough, verifiable, and public explanation from the government of all discrepancies to establish transparency and accountability.”

But according to the contract, the government does not have to make the reports public, although one of the key objectives of the diagnostic is “to assist the Government in increasing transparency with respect to revenues from petroleum production.” This is the key reason why Human Rights Watch doubts the project's effectiveness. Since the reports are technically the property of the Angolan government and KPMG, the IMF and World Bank cannot release it without Luanda's permission.

Human Rights Watch is calling on the Angolan government to release the reports when they are published. “Human Rights Watch urges the Angolan government to make a firm commitment to release all Oil Diagnostic reports to the public as soon as they become available, and to ensure that they are disseminated in Portuguese,” says the group.

So far, the IMF has said that it will insist on the public release of the reports, but has not indicated what it will do if the government says no.

The rights group has also criticised the programme for not being mandated to investigate any personality involved in oil-for-arms deals. In fact, the agreement explicitly states that “the consultants [KPMG] shall not be expected or required to consider or investigate or conduct any form of enquiry into the conduct, practices, honesty, integrity or standards of, or nature or quality of work performed by, any person who has or may have had, any involvement in or connection with, directly or indirectly, the facts, matters, circumstances or events which shall be diagnosed, monitored, studied, assessed or considered by the consultants during the performance of these services.”

According to Human Rights Watch, this is unfortunate in a country that has been at war since independence from Portugal in 1975, with every resource being used for the purchase of arms.

Spending on defence is the government's largest expenditure. According to IMF estimates, 34.6 percent of government expenditure from 1995 to 1999 was allocated to defence, reaching its highest level in 1999 (41 percent of expenditures) after the collapse of the Lusaka peace process in December 1998, which sought to end the conflict. Following the collapse of the peace pact, fighting resumed, with each side increasing its spending on arms.

But arms purchases – especially on the side of the government – have been an opaque issue, with substantial discrepancies occurring between official and independent estimates. For example, official government figures stated that defence spending amounted to 11.1 percent of government expenditures in 1997-1998, but the IMF put the figure at 40 percent. In 1998-1999, defence expenditures amounted to only 27.2 percent of government spending, but 13.8 percent was unrecorded. There were no unrecorded defence expenditures in 1999 and by the end of last year; the government was yet to indicate how much it spends on weapons.

Covert arms purchases financed by oil revenues were also a concern during this period, especially after international oil prices fell sharply in 1998, leaving the Angolan government short of cash. This forced the regime to use the US$870 million it got through signature bonus payments on oil exploration and offshore deepwater concessions to pay for its weapons purchases.

These funds were earmarked for the “war effort,” according to the Angolan Foreign Minister, Venancio de Moura. The multinational oil companies BP, Exxon-Mobil, and Elf are heavily invested in these areas, principally because only the large oil companies have the expertise and investment capital to develop these technically challenging and expensive deepwater concessions.

With such obsession with arms, it is not surprising that poverty in Angola has been on the rise as its social sector has collapsed. The World Bank's Country Report 2000 indicated that that “income inequality in Angola increased sharply over 1995 to 1998, with the richest 10 percent of the population enjoying a 44 percent increase in wealth while the poorest 10 percent suffered a 59 percent decrease.”

UNICEF reported that Angola had the world's second highest child mortality rate in 2000 while four million people – or 30 percent of the population – have been internally displaced as a result of the continuing conflict. The IMF estimates that nine million out of the country's 13 million – 62 percent of the total population – live in absolute poverty. By last year, Angola was ranked 160th out of 174 countries in the United Nations Development Programme's (UNDP) 2000 Human Development Index (HDI). This is despite its vast oil and mineral wealth.

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