Angola's Debt:
Manifestation of War and Oil

NYT 24dec00   Here, wheelbarrows and bicycles wobble along avenues once clogged by automobiles. Street lights have been blinded by rifle fire. There is no running water, no postal service, no garbage collection and scant rehabilitation for a shattered town where collapsed roofs, missing walls and other scars from the continuing civil war disfigure nearly every building.

Portugal held onto its colonies longer and more fiercely than other European colonizers. Led by the insurgent groups (the MPLA and UNITA), Angola broke free in 1975, just in time to join the rest of the developing world in accumulating external debt. The newly independent country would seem a good candidate to borrow internationally to rebuild its seriously damaged infrastructure. Contrary to the straight line in the (borrowed from Jubilee2000, thank you very much :) graph from 1980 to '85, Angola's external debt in 1985 was only $2.5bil, a small fraction of the eventual level of indebtedness that led to HIPC status in 1996. Angola began its serious buildup of debt about a decade later than the usual profile of developing country debt accumulation.

The next difference is that the first runup in debt, $6bil was to the Soviet Union. Rather than borrowing Western funds to stay in power in exchange for fighting communism they (the MPLA, the group considered the de facto government because they controlled most of the territory, ( Luanda (the traditional capital) and Cabinda (the northern guarded enclave where offshore oil workers reside) ) borrowed from the Soviet Union in exchange for keeping capitalism away from Angola's mineral resources. The US and the South African apartheid government responded in the late 'eighties with support to the UNITA rebels. The war between the MPLA and UNITA ceased to be funded by external money when the USSR fell in 1991. The MPFL and UNITA then signed a peace accord in 1991 which included an open election in 1992. The head of the MPLA, Jose Eduardo dos Santos, barely won the 1992 election against the UNITA leader, Jonas Savimbi. "Savimbi did not accept his defeat and returned to the bush. The war started again" and both sides looked for new sources of funding. UNITA started selling diamonds for arms.

Despite extreme poverty, Angola did not qualify for debt relief in the December 2000 group of IMF/WB debt relief approvals. A significant part of the oil revenue that goes to the State seems to be siphoned off into posh lifestyles by corrupt officials. And the defense budget is bigger than the debt service budget. And, with recent new discoveries, considerable more oil revenue is to come.

THE END OF THE WAR MAY BE IN SIGHT:
UNITA is not the only African warring party that purchases weapons with diamonds. The insurgent group of Sierra Leone has been doing the same but they are making the colossal blunder of mutilating people, especially children, to teach the countryside the cost of siding with the government. The mutilated children in Sierra Leone have gotten sufficient international press that top fashion magazines openly worry about whether diamonds at the world's best jewelers may be "blood diamonds" and, in turn, the De Beer diamond cartel has finally agreed to cooperate with the UN to stop the purchase of diamonds from insurgents in Sierra Leone, Angola, the Congo and the Central Africa Republic. With UNITA increasingly unable to buy arms with diamonds and with the high price of oil giving the government a larger revenue stream, the Angolan civil war may be near a terminal point. Economics (plus pictures of mutilated children in mass media) may do the job that several major peace treaties backed by the presence of the UN, unfortunately, failed to accomplish.

EVEN IF HOSTILITIES CEASE, CORRUPTION MAY LEAD TO MORE DEBT:

The second part of the government's debt buildup in the 'nineties was from commercial/private lenders. Africa is generally known for its external debt to multilateral and bilateral official sources, but Angola is exceptional for its large, post-Soviet borrowing from private sources. Why would any rational, risk-avoiding commercial party make loans to a poverty stricken country embroiled in Civil War? Because oil reserves could are used as collateral.

Although its creditors are different (it negotiates with the London Club rather than the Paris Club), its level of poverty is similar to most of sub-Saharan Africa. Poverty is sufficiently severe that Angola was listed in the original set of 41 HIPCs. But dismal level of human welfare is a little different as well. Since both warring parties have laid so many landmines, Angola has "the highest proportion of people with amputated limbs in the world." Without the war producing both poverty and debt, Angola would have presumably been like oil-rich Nigeria, not classified as HIPC.

Since Angola (ie, the MPFL) services debt with oil revenue, perhaps the usual decline in expenditures on health and education associated with the rise of indebtedness (as shown on the right) isn't that applicable to Angola. A quarter of century of war may be sufficient to explain why they have so much poverty despite the oil income that constitutes at least 80% of government revenue. If the optimistic forecasts of the magnitude of the deep sea discoveries prove correct (such that the 1999 production of 700k barrels/day will eventually become 2 mil barrels/day, exceeding Nigeria's 1.5mbd), perhaps Angola's debt should not be considered excessive at all. Oil exports that might someday rival the exports of Nigeria takes on added significance when one remembers that Angola's population is only 12mil compared to 120mil for Nigeria.

But the graft and corruption around the government's use of its oil revenues may insure that external indebtedness will continue to rise with the increasing oil revenue. The British NGO, Global Watch, is reported (28nov00) as arguing that oil companies are involved in a "wholesale rip-off of Angolan state assets due to their lack of transparency." HWR reports that, due to the hidden flows of money from oil through the government, the IMF will start to monitor the use of oil revenue by the government.

According to allafrica.com 27nov00

In April this year [2000], in response to the lack of transparency in the use of oil revenues, an agreement was finalised between the IMF, the World Bank and the Angolan government, to monitor oil funds as part of a broader Staff Monitored Program (SMP). ...
A member of the foreign oil industry in Luanda estimates that taxes and royalties to the Angolan government from oil companies amount to around US $200 million each month. However, the source admitted that it would be difficult to gain that information from outside the industry and even harder to discover how that money is spent by the government.