MIC and Crony Capitalism

Editorial

In the wake of the Covid pandemic, governments across the world have made available extensive financial packages to support employees, save jobs and prevent economic collapse with assistance to businesses and large corporations. The sizes of the support packages of rich and less rich countries are record-breaking – trillions of dollars of public money, often channelled through their central banks, drawing from their usually large currency reserves.

Here, on the basis of our corporate structures and a perceived lack of transparency, public opinion has been voicing out the need to put in place proper safeguards and strict conditionalities to ensure that public money is used judiciously and channelled towards the public interest. Government assistance should serve three goals: (1) make sure people’s basic needs are met, (2) make it possible to prevent economic collapse and speed up economic recovery post lockdown, and (3) use these funds to create positive change, and rebuild sectors/enterprises which bring value to the overall economy, based on their longer-term importance to the people and the national economy.

The Mauritian government has come up with the Mauritius Investment Corporation Ltd, set up by the Bank of Mauritius as a Special Purpose Vehicle under its aegis with an initial “one-off exceptional contribution of Rs 60 Billion” by the Central Bank. The objective of the MIC is “to mitigate contagion of the ongoing economic downturn to the banking sector, thus limiting macro-economic and financial risks”. The MIC, which was established by the BOM under Section 6(1)(y) of the amended Bank of Mauritius Act, was meant to operate “independently within the parameters of a strict governance structure”.

As yet, it is not known what are the conditionalities that have been applied for the disbursements of the MIC, the Minister of Finance – the supervising ministry of the Bank of Mauritius and by extension the MIC – having until this week, refused to reveal details of the terms and conditions agreed with recipients on the ground of confidentiality clauses binding the MIC to the beneficiaries. What he announced though, during the PNQ addressed by the Leader of the Opposition, was that MIC’s loans to the tune of Rs 30 bn, already disbursed to distressed enterprises would have been instrumental in saving 30,000 direct jobs and another 90,000 indirect ones. Missing from the Minister’ statistics was the extent of burden sharing which ought to have been applied by the MIC when it went out to save the big corporates.

In May, last year, political commentator Rajiv Servansingh in a premonitory interview to this paper, made the point that burden sharing should be the fundamental guiding principle to bail out enterprises following the Covid… ‘How these funds are transferred and the conditionalities attached to them will likely be a defining moment for the present government and a test of the will of the State not to fall into the trap of “socializing losses while profits remain solidly privatized”. He went on to argue the case for “conditionality bargaining” which should govern the whole process of bailout and would entail “five conditions which need to be fulfilled by companies which wish to benefit from the State’s financial support:

(1) beneficiary companies that generously distributed non-taxable dividends to shareholders over the past 5-6 years should call on those large investors to contribute to a recapitalization of their companies;
(2) companies which are provided with soft loans and other forms of financial packages should not distribute dividends for as long as those loans and other facilities have not been fully repaid;
(3) part of the funds being allocated to those companies would be fully convertible into equity at some future time at the discretion of the State;
(4) beneficiary companies would not be allowed to proceed with any share buybacks for as long as they have not refunded loans and other facilities extended under the package; and
5) the State should have board representation for as long as facilities have not been repaid. To these should be added an additional condition that these companies would not proceed with any involuntary redundancy of workers during the next twelve months.”

That he concluded would be “the litmus test of how public funds will be used for saving private, often family-controlled companies from otherwise inevitable bankruptcy”. Note being taken of both Lord Desai’s (first Chairman of the MIC) and the Central Bank governor that the MIC would operate in full transparency, there can be no justification for opacity around the use being made behind closed doors of public funds of such momentous amounts. Government has little to gain by damaging leaks, a deepening of mistrust and a heavy atmosphere of suspicion around crony capitalism.

* Published in print edition on 23 July 2021