MIC: More Questions than Answers

The people cannot be made as in 2008 to bear the costs but not reap the benefits of recovery. We cannot be safeguarding private interests at the expense of public interest

By Mrinal Roy 

The outgoing Chairman of the Mauritius Investment Corporation (MIC), Lord Meghnad Desai’s recent interview in the Mauritius Times and the Minister of Finance’s answers to the PNQ of the Leader of the Opposition  on the MIC this week have hardly lifted the veil on the opacity which continues to shroud the Rs 30 billion so far advanced from the war chest of Rs 80 billion, drawn from the country’s foreign exchange reserves, to bail out distressed companies including some of the biggest conglomerates of the country. This is in the teeth of their glib statements about transparency and good governance. They confirm our worst misgivings about the MIC and raise more questions than answers.

The tenor of the interview and the rationale to justify the MIC mission of ‘care and love’ was so obviously music to the ears of the government that it immediately became the instrument of a spin doctoring exercise by the national TV on prime time news the same evening. Spin doctoring cannot stifle the growing interrogations regarding the patent lack of transparency of the MIC decisions and conditions under which billions of Rupees of public funds blithely drawn from the country’s foreign exchange reserves which are one of the prime assets of the country are used to bail out distressed private companies.

Foreign exchange reserves are a country’s backup funds and a buffer against any emergency. They help buttress the national currency against devaluation pressures. Foreign exchange reserves are also used by countries to maintain competitively priced exports, remain liquid in case of crisis and provide confidence to investors.

Who cares?

The IMF in its Article IV 2021 report issued on 28 June on Mauritius warns that various actions taken by the Bank of Mauritius such as the transfer of Rs 60 billion (14% of GDP) to the government, the purchase of Rs15 billion (3.5% of GDP) of government bonds and the transfer of Rs 80 billion to fund the MIC as a fully owned subsidiary have ‘led to a substantial deterioration of its balance sheet’. The IMF has therefore proposed measures to ‘enhance the central bank’s credibility’ and recommended that the ‘central bank should refrain from providing direct financing to the government and advised reforming the Bank of Mauritius law, including to preempt further exceptional transfers to the government.’ The IMF also recommended that ‘the central bank be recapitalized within a reasonable timeframe and relinquish ownership of the MIC and that its financing be provided through the budgetary process.’

These measures aimed at assuring a more rigorous monetary policy are an indictment of the ‘policies deployed by the BOM in coordination with the government.’  They can certainly not be dismissed by a peremptory and cavalier ‘Who cares about what the IMF says?’

This is not the time to hide behind dated ideological quarrels with the IMF but have the discernment to own up when it is patently calling a spade a spade.

Questionable rationale

The core argument to justify the rationale of using Rs 80 billion drawn from such a strategic and prime asset as the foreign exchange reserves of the BOM to fund the MIC mission is that these reserves can be much more useful to save companies and jobs affected by the Covid-19 pandemic rather than remain lying in US Treasury Bills with low interest yields of 1.25%. This begs so many germane questions. Why is such a low yield benchmark used as a yardstick to risk and advance public funds to bail out distressed private companies and conglomerates? Can this paltry yield on our reserves not be materially improved through a judicious placement in a diversified and conservative portfolio including gold? Shouldn’t the authorities take the cue from the manner major central banks in the world protect and improve yields on their international reserves? 

This simplified and rather flabbergasting rationale also occults the key importance and role of adequate foreign exchange reserves in a country like Mauritius with a current account deficit of  more than 15.6% of GDP in 2021,a volatile net investment position (NIIP) due to the vicissitudes of GBCs’ portfolio flows and an international reserves which according to IMF ‘covered 103 percent of the Fund’s ARA metrics at end-2020’, which is close to ‘the lower limit of the 100-150 percent adequacy range’. It also seems to dismiss the larger role of foreign exchange reserves as a buffer and security against any emergency or to support and shore up the national currency in an open economy like Mauritius.

A Robinhood for conglomerates

Against such a grim backdrop the prime objective of the authorities should have been to ensure that these strategically important foreign exchange reserves used to fund the MIC are securely protected and safeguarded through carved in stone terms and conditions. This seems to be far from being the case.   

From scant reports which filtered in the press, we learnt that most of the big conglomerates in the country have benefitted from billions of Rupees from the MIC Robinhood.  According to Lord Desai, out of the 100 applications from corporations of various sizes received, the MIC has provided assistance to 60 companies during the past year. In return for billions of Rupees of bail out funds, the companies gave MIC five-year bonds as collateral with the condition that they are only be cashed after five years in order to enable the distressed companies to recover their losses at public expense. How could such patently disadvantageous terms uphold, as per the glib assertions of the MIC, public interest and benefit the people of Mauritius?

The modus operandi of the MIC raises many questions. What were the criteria used to choose those eligible for bail outs? It is important that these criteria are made public. As the intent is to help Mauritius and its people, has the MIC ascertained that the companies seeking assistance have transparent recruitment policies which provide equal and merit based opportunities at all echelons to rainbow Mauritius?  Were the chosen companies viable before the pandemic? It is public knowledge that the hotel industry, for example, was already highly indebted towards banks.

Total transparency and accountability

Despite Lord Desai’s assurances that the MIC will make the applications and the decisions of its Investment Committee available for public consultation and audit, there has been a total absence of transparency and accountability of the MIC decision making process. It is time for him to cotton on to the ‘vibes in Mauritius regarding the MIC’. The Minister of Finance has caused a furore when he raised the spectre of confidentiality clauses in the National assembly to presumably pave the way for a total blackout of the key terms and conditions under which tens of billions of Rupees of public funds have been advanced to bail out distressed private companies including some of the biggest conglomerates.

This is totally unacceptable, especially as the MIC certainly has the financial leverage and clout to scuttle any proposal for a confidentiality clause to hide the terms under which public funds are advanced to the corporate sector from legitimate public scrutiny. The cardinal rules must be that every Rupee of public bailout funds must be accounted for in a transparent manner and they cannot be the object of decried confidentiality clauses.

It is also patently obvious that those calling the shots are yet again bungling the opportunity of leveraging substantial public bailout funds to recast the ownership of prime assets in the country for the common good.

Clearly the crying lessons of past blunders in the context of the 2007-08 financial crisis have not been learnt. Bailouts using public funds must be advanced on terms and conditions based on sound financial and commercial principles which also securely protect and safeguard the funds. Public funds cannot be used to nurse distressed private conglomerates and companies back to profitability at the expense of the taxpayer and the people who cannot be made as in 2008 to bear the costs but not reap the benefits of recovery. We cannot be safeguarding private interests at the expense of public interest.

Fudging

The MIC also seems to be conveniently fudging the corporate interests of conglomerates with those of the people and the Mauritian economy despite the lopsided structure of the Mauritian economy with its corporate behemoths having extensive control over key assets of the country and financial resources amid widening inequality. This is the more so at a time when increasing swathes of people are having difficulties to meet their essential existential needs in a context of a plummeting Rupee, rising freight and other import costs fueling the continuously escalating prices of groceries. More than ever before in a context of Covid-19 pandemic unequivocal solidarity at all levels in particular towards the most vulnerable must prevail over narrow vested interests.

* Published in print edition on 23 July 2021