Eurobond: Is IMF playing games after Kenyan government cooked its books?

Cord leader Raila Odinga delivers a speech during a public forum on Eurobond saga held at Ufungamano in Nairobi on Thursday, February 11 2016. [PHOTO: DAVID NJAAGA/STANDARD}

What is the International Monetary Fund (IMF) up to?

In its latest review of Kenya’s accounts two months ago, the IMF board not only re-approved a programme whereby it had granted the Kenya government access to a ‘precautionary credit line’ (a kind of insurance policy against economic shocks) of US$750 million but it doubled this sum to $1.5 billion.

Essentially, the IMF was saying that, with such sticky fingers around the cookie jar, the risk of economic problems expected from Kenya‘s self-inflicted economic wounds have just doubled.

Kenya now has the largest such facility granted by the IMF of any country in the world, so we are in a class of our own as the riskiest economy on the planet.

But the interesting thing is that, in the documents tabled by IMF staff to support the increase, the IMF’s accounting regarding the Eurobond $2 billion loan (of which $1 billion is still missing) not only contradicted the Treasury’s accounting but was even more convoluted.

In trying to make sense of it all (or something), the IMF backdated the entire sum of shs.176 billion (the whole Eurobond $2 billion) to the financial year 2013/14.

In other words, the IMF said that we spent all this $2 billion immediately we got it – in less than one week between June 24, 2014, and the end of the financial year six days later on June 30, 2014.

That did not happen. The Treasury’s own documents indicate the first transfers from the JP Morgan Chase account in New York were effected on July 3, 2014.

So the IMF, in replacing the government’s cooking of the books with some cooking of its own, has tacitly acknowledged that the Eurobond money is nowhere to be found.

One of the accounting frauds that the Treasury has been perpetrating is the claim that the remaining part of the US$2 billion (after early repayment abroad of a so-called Syndicated loan), and amounting (translated into shillings) to shs.140 billion, was “factored in domestic financing”.

In other words, the money, including our missing $1 billion, was used on various expenses, and local ‘domestic’ borrowing was reduced accordingly.

The Treasury tried to boost this story by hiding behind the skirts of the IMF ‘precautionary credit line’ programme.

It announced that, “Under this [IMF] programme, strict reporting of all government accounts are done, and with the regular IMF missions to review this programme, it would not be possible to hide figures as alleged in the newspaper reports since the reviews would have detected this.”

But the IMF would have had difficulty with the Treasury’s accounting because the figures come from the monetary accounts kept by the Central Bank of Kenya (CBK) and are used to set IMF programme performance targets. So it had to find another way of balancing the books, and it apparently decided to backdate the Eurobond loan. And with that done, it proceeded to double Kenya’s ‘precautionary credit line’.

Why would the IMF want to approve such a facility for a country that, by the IMF’s own tacit admission, has misplaced a billion dollars?

It stretches the imagination to think that Kenya, in the eyes of the IMF, is the ‘best-in-class’ in managing and accounting for public finances. Does the IMF ever read the reports of Kenya‘s own Auditor-General on the parlous state of public finances?

Collusion is a dirty word.

To recap in brief, the government in 2014, with lots of fanfare and Uhuru Kenyatta having announced from State House how brilliant this was going to be, borrowed US$2 billion in a so-called Eurobond loan, to be paid back at some time in the distant future.

After the money had been received, the first thing that was done, contrary to the Constitution, Article 214(1), was to pay off an old debt from pre-2013.

This was regardless of the fact that such debts can only be repaid from the Consolidated Fund – the pot that contains all the government’s money – and repayment has to be approved by the Controller of Budget (Constitution, Article 206(4)) to ensure there is no jiggery-pokery.

When faced with the fait accompli, the Controller first truthfully said she hadn’t approved the repayment (she couldn’t have, when the Eurobond proceeds had not been deposited in the Consolidated Fund). And then – doubtless after being taken aside for a ‘little chat’ – she said she had.

In truth, the only people who had taken it upon themselves to approve the repayment of that loan were a few senior people in government. We don’t know what the loan was used for but they obviously wanted to avoid scrutiny.

They acted in collusion with others working in the public sector who knew exactly what they were doing, why they were doing it, and how they would contravene the Constitution in order to achieve that objective.

The Cabinet Secretary to the Treasury, Mr Henry Rotich, contravened the Public Finance Management (PFM) law in paying off that old loan abroad. He evaded constitutional safeguards put in place to protect public money.

Anyone, or any government, that sidesteps those provisions immediately raises reasonable suspicion that they are up to no good.

 

Next, another portion of the $2 billion Eurobond loan, about $395 million, was transferred from the US to Kenya.

This and the earlier loan repayment abroad added up to exactly US$1 billion.

The remaining $1 billion of the $2 billion Eurobond has NEVER been accounted for.

Endless stories, seven bogus letters (purportedly effecting transfer of the money from the CBK to the government) and vehement protestations have been offered by the Treasury and the CBK, backed up by a lot of ignorant pronouncements from sycophantic know-nothings.

Countless tables with lots of columns in tiny print and unfathomable arithmetic have been published. None of them provides any proof whatsoever of what happened to that second $1 billion.

In the so-called ‘answers’ put out by the Treasury in the past three months, not a single genuine document has been published to provide a paper trail of where that $1 billion went. Not a single piece of accounting has been availed for scrutiny.

All we have been offered is a litany of ever more unlikely tales and a mishmash of irrelevant documents, as various officials have scrabbled around looking for some kind of halfway-credible explanation of an event that, in truth, cannot be explained.

It cannot be explained for one simple reason: the transfer of $1 billion to the government’s Consolidated Fund (the account holding all government money by law) has never happened.

That money is somewhere else – somewhere it is not supposed to be, a place that is top secret, in a location known to only a few.

After much hemming and hawing and many lame pronouncements, the Treasury eventually came up with the story that the $1 billion remaining at JP Morgan Chase had been sold to a CBK dollar account held at the US Federal Reserve Bank in New York (the last bank to which the money appears to be able to be traced) for the best price possible, and that the CBK had then provided the Treasury with the equivalent amount in shillings in Kenya.

Excellent. Or it would be excellent, if it had ever happened or been legal. But it didn’t happen and it wouldn’t be legal if it had.

A Treasury statement of January 14, 2016, said the following concerning this purported sale of US dollars abroad:

“The STANDARD PROCEDURE [my emphasis] for this transaction is for the Government to sell the dollars received to CBK, which it retains as its own international reserves and simultaneously credits the Government Account with the equivalent in Kenya Shillings.”

One glaring problem with this assertion is that, in the case of the earlier portion of the loan remitted to Kenya (the $395 million mentioned above) this so-called Treasury “standard procedure” was not followed.

Nor was this “standard procedure” followed in the case of a later supplementary loan the government received (called a Tap sale and amounting to $815 million).

The “standard procedure” applies to nothing at all except the $1 billion, and was clearly concocted for the sole purpose of helping cover up a grand theft from the Kenyan public. The “standard procedure” claim is hogwash.

The two transfers of the earlier two sums of money remain the only amounts from the Eurobond proceeds that were traced into the Consolidated Fund by the Auditor-General and the Controller of Budget, and the only amounts for which supporting documents have been published by the Treasury.

Even given its contemptuous disregard for the law, if the government’s story on the missing Eurobond $1 billion were true, it would be a very simple matter to disarm its critics and put the matter to rest once and for all by publishing, along with any supporting documents, four things:

(1) The (genuine) letter the Treasury wrote to the CBK instructing it to arrange the sale of the $1 billion abroad at the best price possible.

(2) The (genuine) authorisation letter the CBK wrote to the JP Morgan Chase Bank in New York asking for such a sale to be effected.

(3) The (genuine) confirmation letter and supporting documents that JP Morgan Chase provided to the CBK confirming the sale had been made, resulting in the gross receipt of X-amount of money, and giving the name and ownership details of the account at the US Federal Reserve Bank that the money had been transferred to.

(4) The (genuine) letter the CBK wrote to the Treasury advising that the proceeds of the dollar sale had amounted to X-amount of money, that the expenses and fees incurred amounted to Y-amount of money, and that the final net sum of Z-amount of money in shillings had been credited to the Consolidated Fund for use by the government.

Where are these documents?

I’ll tell you. They have never been published because they do not exist.

Whatever happened to that money was decided among a small group of conspirators, and the truth remains a closely guarded secret.

To put the tin lid on it, the officials whose job it is to protect the public’s interests laughably prefer to keep summoning opposition leader Raila Odinga to tell them what he has figured out about the matter.

If there was ever a smokescreen or a red herring to divert attention from the truth, this is it.

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Let me list a few organisations of interest. The Office of the Controller of Budget. The Ethics and Anti-Corruption Commission (EACC). The Criminal Investigations Department. The Treasury. The Central Bank of Kenya.

Very few people have any faith in any of these bodies or the people running them – yet it is bodies such as these that keep trying to add to explanations about the missing Eurobond dollars, backing each other up.

The Director of Public Prosecutions (DPP) however – evidently keen to stay on the right side of history – ordered the Auditor-General to conduct a ‘special audit’ concerning the $1 billion.

Why would it be necessary to have a ‘special audit’ for a matter that the EACC, the Treasury, the CBK and others all say is kosher and above board? The answer to this is that the DPP obviously does not buy the government’s story.

A major heist such as Eurobond, just like Goldenberg and other notorious scams, can only be managed through the silence and collusion of people in high places. A small group of people all agree to watch each other’s backs as they connive to cheat the Kenyan public.

They are all in it together. Collusion is the vital cog in the engine that has facilitated the Eurobond heist.

A CBK press release on January 14 claimed that CBK chairman Mr Mohammed Nyaoga, who had earlier been named as a person of interest in the affair, had been appointed after the loan had been won, and therefore had “no access to or participation in the Eurobond matter”.

What? Someone takes over as chairman of a major national institution and has no interest in finding out what has been going on – and what is continuing to be discussed under his nose in long and frequent headlined reports in the media?

Isn’t it his business to get himself thoroughly informed about the organisation’s operations, past and present?

Can a chairman of the CBK who reportedly knows nothing about Eurobond be deemed capable of doing his job?

He cannot. And if he does know, and he’s keeping quiet, he is as guilty as the rest. So that’s it. Either collusion or incompetence. Take your pick.