Open letter to the IMF on the loan request by the Republic of Kenya for US$100 million

2nd June 2009

Mr. Dominique Strauss-Kahn
Managing Director
The International Monetary Fund
700 19th Street, N.W.,
Washington, D.C. 20431
For the attention of the Board of Directors

Through W. Scott Rogers, IMF Resident Representative to Kenya.

Dear Sir,

Re: Loan request by the Republic of Kenya for US$100 million

We understand that the Kenya government has applied for an emergency credit for US$100 million to cushion its currency from the International Monetary Fund. We also understand that this application is due for consideration at your next board meeting. The Partnership for Change is concerned that while Kenyans continue to demand accountability from the Government of Kenya on our public debt, the government continues to ignore the public and continues to borrow and indebt the poor people of Kenya.

We understand that the Kenya government has applied for an emergency credit for US$100 million to cushion its currency from the International Monetary Fund. We also understand that this application is due for consideration at your next board meeting.

The Partnership for Change is concerned that while Kenyans continue to demand accountability from the government of Kenya on our public debt, the government continues to ignore the public and continues to borrow and indebt the poor people of Kenya.

The position of the Partnership for Change is that transparency requires that Kenyans know what they owe, to whom they owe, and for what purpose they have a debt. The Partnership for Change wants no further contracting of international debts unless and until the government of Kenya accounts to the people of Kenya through parliament by tabling the complete list of all loans and debt registers for the period 1963 to date for public scrutiny. We also want the law amended before any further borrowing, so that it is illegal for the government of Kenya to borrow without prior parliamentary approval and full debate on the merits of the borrowing. We request that all future lending to Kenya be pegged to accountability and transparency. We submit that that most of the debts that Kenya is listed as owing are bogus, corrupt debts, which have impoverished Kenyans who repay these debts annually to the tune of 24 per cent of our national budget. The effect of making poor, starving Kenyans pay these unconscionable debts can easily be described as a crime against humanity.

It is in this context that we write to your organisation as hereunder.

Three years ago, when he was the junior senator for Illinois, US President Barack Obama, famously said in Nairobi that ‘while corruption is a problem we all share, here in Kenya it is a crisis – a crisis that is robbing an honest people of the opportunities they have fought for – the opportunity they deserve.’ If he were to visit Kenya today, he might feel that the situation is no longer a crisis but has reached the tipping point. In fact, corruption in Kenya is no longer a crisis; if one understands crisis to mean that point where there is some hope of recovery should the government intervene. We believe that corruption in Kenya is akin to a terminal cancer that has become malignant, and the government doctors attending the patient are administering placebo treatment, allowing the cancer to spread institution by institution. Among these institutions are the treasury and the ministry of finance whose debt management leaves a lot to be desired.

Aggravating the situation, President Mwai Kibaki and Prime Minister Raila Odinga are in denial as evidenced by their public statements, that the corruption problem in the grand coalition is not serious. The consequences of their denial is that the fight against corruption is not a government priority and Kenyans continue to suffer as impunity for gross economic crimes becomes entrenched to the same extent as during the Daniel Arap Moi regime. Arap Moi’s greatest scandal, Goldenberg, remains unresolved and beneficiaries named in a judicial commission of inquiry remain in cabinet and public prominence. This despite promises by Mwai Kibaki and Raila Odinga.

Nothing characterises such impunity as the treasury or the ministry of finance. It is this department of the Kenyan government that is responsible for the unresolved scandal of the sovereign debt in the form of irrevocable promissory notes worth close to US$750 million dollars that were illegally issued, without legal consideration, to several phantom credit companies in the Anglo Leasing credit contracts. To date these have not been cancelled and the government that is asking you for emergency credit is actually negotiating payments of these bogus debts with the so-called financiers in Europe, in the full knowledge that no credit was delivered to Kenya and that the poor taxpayers are the ones who will eventually pay for these bogus debts.

To add insult to injury the Government is refusing to seek mutual legal assistance from international authorities who are willing to unravel the Anglo Leasing scandal with respect to their nationals. It is public record that among such authorities whose inquiries are being frustrated by the Kenyan authorities, and the Attorney General in particular, are the United Kingdom’s Serious Fraud Office. The Kenyan authorities have also yet to make a serious request for assistance of the United States department of justice, which has in its custody a US national who was involved in Anglo Leasing called Bradley Birkenfeld. The Kenya Anti Corruption Commission has no interest in international asset recovery.

Beyond the failure of investigative and prosecutorial bodies in Kenya, corruption is systemic because the ministry of finance and the treasury are not accountable to Parliament and can keep the contracting of such bogus loans, shielded from legislative scrutiny in breach of the External Loans and Credits Act which requires Parliament to be informed of such debt by the minister of finance. To date, for example, the detailed separate audits of the 18 security related contracts known as Anglo Leasing worth Ksh56.33 billion, have never been tabled in parliament.

But it is not just parliament that has been kept in the dark. The Central Bank of Kenya (CBK) has been side-stepped by the treasury for decades as it borrows recklessly, especially since the mid 1980s.

Section 31 of the Central Bank of Kenya Act states that the Central Bank shall administer any payment agreements entered into by Kenya, and shall be consulted by the government in negotiating any payments agreement. However in contravention of this law, the Central Bank has been kept out of the loop. Although in 2004, the Central Bank was lobbying for amendments to the External Loans and Credit Act to compel the government to consult it in all external loans borrowing, these amendments have never been enacted. So the situation in 2009 remains as it was in 2004. Although the permanent secretary for finance, Mr Joseph Kinyua, said that he issued a circular abolishing the use of promissory notes and to stop commercial credit agreements of the Anglo Leasing type, the government does not have to consult with the Central Bank before it borrows money abroad. In fact the government is not obliged to give full disclosure of external payment agreements it requires the CBK to administer. As regards external commercial public debt, the Central Bank is legally bound to pay without protest so long as the instructions given to the Bank by the government are proper and there are sufficient funds to honour the transaction without querying the underlying transactions.

This is what happened during the entire Anglo Leasing series of payments of commitment fees, principal repayments and interest servicing from 1997 to date. Unfortunately for the Kenyan people whose taxes are the guarantee for sovereign debt, these Anglo Leasing debts are secured by irrevocable promissory notes and legal opinions by Kenya’s attorney general, Amos Wako, which validated them giving consideration for sham contracts drawn by treasury whose sole purpose was to facilitate embezzlement of taxpayers’ funds. An investigation by the controller and auditor general, Evan Mwai, found that not a shilling in credit was ever provided by Anglo Leasing financiers to justify the issuance of promissory notes. Sadly provisions have been made in the current budget to pay some of these debts for money not received and which is certainly not owed. The budget is prepared by the treasury that has approached you for emergency credit.

As if that were not enough, the permanent secretary for finance and other senior treasury officials have told civil society representatives that there are false entries in the country’s national external debt register. These were apparently inserted between 2001 and 2004 and cover the Anglo Leasing type 18 security related contracts. It would appear that despite having cleaned the external public debt register in 2001, after hiring Lazard Brothers the Government of Kenya in just a few years loaded the external public debt register with close to US$1 billion worth of fictitious credit and debts.

Treasury’s pathetic stewardship of our public resources threatens to cost Kenya billions of shillings. If the debt register contains false entries, Kenyans have no way of knowing how much they owe to external creditors and on what terms. In effect the permanent secretary, Joseph Kinyua has disclosed that there is a multi billion shilling hole in our books comprising what are obviously unconscionable debts.

Kenyans are aware that the largest component of our public debt is to the World Bank and the IMF. We want the World Bank and the IMF to lend responsibly and not to continue impoverishing Kenyans. What Kenyans would like to see from the World Bank and the IMF is comprehensive debt relief, with immediate cancellation of our debts to your organisations. Millions of Kenyans are wallowing in abject poverty and indeed are starving, unemployed and destitute. Without transparency in this matter of national debts, there will be little point in continuing to maintain the fiction, now being put about by your institutions, the International Monetary Fund and the World Bank, that the government of Kenya has the capacity or will to unravel this shameful system failure and corruption scandals. Kenyans must stop the abuse of borrowing powers by the treasury. We do not want to borrow US$100 million from the IMF. The Government of Kenya should be reminded that they have provided for a similar amount US$100 million to repay bogus Anglo Leasing and Ken Ren fertiliser factory debts in the current budget 2008/2009. Ken Ren fertiliser factory is a phantom project for which annual payments are being made by the treasury to a bank in Austria and a bank in Belgium. They should use those funds to ‘cushion the currency’. The IMF and the World Bank should not assist the Government of Kenya in scamming Kenyans.

We therefore respectfully urge you:
1. Not to approve the request by the government of Kenya in its present form.

2. To insist that the following conditionalities apply before the request is considered:

• The Government of Kenya immediately demonstrates austerity measures, including the reduction of the number of ministries to a reasonable number such as 13 (the size of cabinet at independence). Kenyans cannot afford to maintain a bloated cabinet of 93 ministers and assistant ministers. There are currently 43 ministries in the grand coalition government, many of which have no developmental added value and are mere sinecure positions for the president and prime minister to fill.
• An audit of the external public debt register be made and issued to the public through the national assembly.
• A report on pending legislation and threatened proceedings against the government of Kenya on the basis of sovereign debt be made and issued to the public through the National Assembly
• Immediate retirement in the public interest of the permanent secretary, treasury and the head of debt management and immediate replacement of the two persons with Kenyans with appropriate credentials who can easily be found from within the Kenya public service.
• All wasteful expenditure is removed from the national budget estimates to be presented to Parliament in June 2009 and that the estimates to reflect 60 per cent in development expenditure and 40 per cent in recurrent expenditure.
• Provision by the government of Kenya of evidence that it has requested mutual legal assistance for international asset recovery and has taken action to seize proceeds of corruption in Kenya.
  

3. To consider comprehensive debt relief for Kenya, by canceling our current debts to your institutions in order to alleviate the suffering of millions of poor Kenyans and to enable Kenya to meet crucial Millennium Development Goals.

4. Peg all future support to the government of Kenya to accountability and transparency in the borrowing and implementation of the funds advanced.

We trust the International Monetary Fund Board of Directors will consider the opinion of those who will inevitably be taxed to repay whatever loan the government of Kenya obtains, regardless of whether or not they obtained any developmental benefit from it.

Yours Faithfully,

Mwalimu Mati

For the Partnership for Change

The Partnership for Change is an open initiative of Mars Group Kenya and other like-minded organizations, civil society agencies, NGO’s, youth groups, faith based organisations, social movements and grass roots organisations and networks from all of the eight provinces of Kenya. The mission of the Partnership for Change is to advance the strategic use of non-violent action in calling upon the Kenyan citizen to demand the end of Impunity, the restoration of democratic accountability and the end of dictatorship in Kenya.

c.c.
Open copies to:

1. All members of parliament (Kenya National Assembly)
2. Bilateral donors to Kenya
3. The country resident director, the World Bank
4. The resident representative, African Development Bank
5. The resident representative, International Monetary Fund
6. Media
7. The board of directors of the World Bank