June 15, 2016 / 11:50 AM / 3 years ago

UPDATE 2-Mozambique currency falls 10 pct amid scepticism about IMF mission

* Scepticism about debt breakthrough hits currency

* Government heading for default on $535 million loan

* Donors angry at secrecy around private debt deals

* IMF’s Lagarde: secrecy “clearly concealing corruption” (Adds Prime minister comments)

MAPUTO, June 15 (Reuters) - An International Monetary Fund team arrived in Mozambique on Wednesday to try to find a way out of a sovereign debt crisis that is crippling the economy of one of the world’s poorest countries and could trigger social and political unrest.

Prime Minister Carlos Agostinho do Rosario welcomed the arrival of the IMF team which is scheduled to stay until June 24. But diplomats were not optimistic about its prospects for success, given the anger among donor nations after the government ran up more than $2 billion in private debt deals behind their back.

Reflecting the scepticism, the national currency, the metical, plunged 10 percent on Wednesday to a record low of 66 against the dollar, a decline that is likely to fuel inflation, already at 18 percent and squeezing Mozambique’s 25 million people.

A coalition of 26 Mozambique civil society groups said this week that $1.86 billion of the loans arranged by Credit Suisse and Russia’s VTB Bank was illegal and should not be paid.

IMF managing director Christine Lagarde said last month the lack of transparency behind the transactions was “clearly concealing corruption”. She did not elaborate.

The Mozambique civil organisations said the loans breached a law requiring all borrowing and guarantees longer than a year to be approved by parliament. They called for those responsible in the government and the banks to be held accountable.

The southern African nation’s parliament has agreed to open an inquiry, although diplomats doubt it will ask too many tough questions of leaders of the Frelimo party, which has dominated politics since the end of a civil war in 1992.

“Frelimo has its own version of accountability, which normally involves car crashes or people disappearing,” one regional diplomat said. “The number one priority is to get some of this money back.”

The loans include an $850 million Eurobond issued in 2013 to finance a tuna-fishing fleet. Subsequently, it emerged that $500 million of the cash was actually spent on defence equipment and has since been re-allocated to the defence budget.

The fleet of tuna-fishing boats - built in France - are now rusting in Maputo harbour and need to be refitted to meet European Union standards, according to Finance Minister Adriano Maleiane.

The other two deals are a $622 million loan to Proindicus, a state-owned company partly owned by the intelligence services, and $535 million to Mozambique Asset Management (MAM), also owned by the intelligence services.

The Proindicus funds were earmarked for maritime security and the MAM debt was to build shipyards to service a nascent offshore gas industry. The shipyards have not been built.

MAM missed a May 23 deadline for a $178 million loan repayment and the government has so far not honoured its sovereign guarantee. VTB has yet to declare a formal default.

The IMF confirmed that it would have “high-level meetings” with officials from the finance ministry and central bank but did not provide further details.

Rosario has so far led the government’s efforts to come clean on the foreign debt, which amounts to 80 percent of GDP. But diplomats say his influence in the Frelimo leadership is limited.

Speaking at the opening of the Annual Assembly of the Organisation of Cooperatives from Portuguese speaking countries, Rosario said the IMF visit would be an important step in “normalizing relations with our international partners”, the state news agency said.

“We have to look forward. The past is the past”, he said. “We have to have solutions because our country is rich in human and natural resources, and we are capable of going forward.” (Reporting and writing by Ed Cropley and Manuel Mucari; Editing by Richard Balmforth)

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