MONEY, BAD LOANS, and CORRUPTION - The IFC Loan Deal

Examination and Analysis of the Kind of Loans that have brought Ghana to National Bankruptcy (HIPC)

Part I

If it smells like a fish, and moves like a fish, it must be fishy! The Americans say if it moves like a duck, and quacks like a duck, it must be a duck.

In any society, if you are signing a contract, especially on behalf of others such as a community, organization, or a nation, and the person says “Hush, let’s keep it a secret”, it does not take a rocket scientist or electronics engineer to smell something fishy. All people from third World nations know what I mean. This is what we call basic common sense!

Bad loans, bad contracts, corruption, and at best sheer ignorance with pompous facades, have gone hand in hand to destroy the economies of most third world nations. Bad advice, official corruption, and shady deals, have let nations like Ghana sell all valuable "State Owned" assets for fractions of cents on the dollar. I use the NPP – IFC loan deal of July 2002 only as an example. The NPP government is not exclusive in Ghana’s history of rotten deals.

Being Skeptical: I have to admit that when I first read of the NPP government negotiating a $1Billion deal from some outfit that calls itself the IFC, International Finance Consortium, with the commission of about $12.5Million, I was at first skeptical. I was skeptical because the news came from a guy known to be critical of the NPP government. As I have said elsewhere, and I repeat, I am not a member of any political party in Ghana, at least not whiles none of them seems to care for us overseas. I therefore recommend that we the educated should try to read all news and make judgments and opinions based on experiences of how previous administrations of Ghanaians have behaved when they signed contracts, how they managed projects, how they accounted for public funds, and how they responded to public criticism.

We must ask, justifiably, what brought us to this $6.2 Billion accumulated debt and national bankruptcy in the first place? It should be a fact in the minds of most Ghanaians and outsiders who have studied the situation, that the PNDC and NDC corrupted Ghana, and most of the money borrowed cannot be accounted for. Subject to time and our ability to investigate and bring cases to justice, it is obvious that the Rawlings administration was a very corrupt administration, from the bottom to the very top.

The people of Ghana must never allow such things to repeat. We are human beings with brains like any others in the world, educated talent, and we need the right honest leadership with smarts, experience and integrity, to guide us from this cycle of poverty and misery.

Having read the whole contract put on the network on July 12, 2002, I feel a moral obligation to write. This IFC loan deal is too important not to put something on record whiles the debate is brewing on in the Ghana Parliament, which seems to be jumping from controversy to controversy in their second year of existence in our fourth republic.

In the middle of this article, a friend in Atlanta, some 2,500 miles away, called me and argued for half an hour, expressing more skepticism that both sides of Parliament were reported to have reviewed the contract, and therefore it must be Okay. (This shows you how much we care about our country, if anybody dare say that we have been away too long and are not in touch!). He told me that if the contract was bad, how come Hon.Alan Bagbin, Opposition leader, was on the plane as we talked, Saturday July 13,2002, with the ruling party members, to sign the deal in the US?

Well, I said to myself: Aren’t these the same MPs from both parties who behind closed doors, voted to take $20,000 each from the empty bankrupted Ghanaian coffers? Both sides agreeing does not make it right anymore, as our representatives (MPs) have agreed before to raid empty coffers without coming out with any viable economic solutions first.

Society’s Ethical Code and a Calculator: Honestly we know our people are not paid well. $137 or so per month for an MP is too low, even if you give him a free car. However, despite arguments and writing by some of us for the government to sit down and work out the formula to pay themselves as well as government workers a living wage, the legacy of Dr. Botchwey remains. As Dr. Botchwey replied to one of my writing in the mid 1990s, “we just cannot pay workers a living wage”. As such, looking at the majority of Ghanaians and our laissez-faire culture, and projecting to the tradition of the ruling party, it is no wonder that they refuse to buy themselves calculators and use them to go to work on this perennial problem. Other nations that we started Third World status with in 1957 have transformed themselves to “First World” status.

We Ghanaians must learn to accept blame and responsibility. We have to blame the Rawlings 20 year administration (1982-2001), and the Acheampong administration of 1972 to 1979, for allowing inflation rate to eat at Ghanaians purchasing power to today’s 7,800/$1. About 98 out of the first 100 people who wrote me on my article on July 4, 2002 agree with me that Dr. Botchwey must be held mostly accountable for our economic doom. As a society, we must learn that without blame there is no responsibility. Without responsibility, no human being is worth the name to be above animals. Why then do these Ghanaians want to hold the titles of “Executive”, “Chief”, “Director”, “Manager”, or “Minister”, and thump their chests as if they were some great gifts to mankind?

I don’t want to be disrespectful of my age mates who stayed in Ghana and, as Dr. Botchwey and some would like to put it, “suffered to keep the economy going”. However, the honest truth is that it should not be anybody’s concern if anybody, especially a Minister of State, suffered under Pontius Pilate or Ghana’s economy. This applies to the NPP itself if they take the old habits. We of the coming generation will hold any administration and their Ministers and executives responsible even if the NPP is not able to do it now. It is their responsibility to find the right formula for our society to move on just as the people in Singapore did. No more excuses for stealing because of poor pay.

Using simple paper and calculators to solve problems should be the job of MPs, as also the so-called executives in all aspects of our society. I will challenge anybody to prove me wrong that not more than a handful of MPs would own a calculator they carry with them all the time to help them make important decisions dealing with money and numbers. If you asked any of them to calculate the amount of monthly payment Ghana will have to make on a loan of $350 Million at 2.5% interest rate for 25years, I will bet 99% of them will fail.

The conservative tradition of “continuing what others left us”, seems to be the trademark of the ruling and previous parties. And we of the latter generation hate it!! It is hard to know how individual members of Parliament will think when it comes to issues that affect their own bellies.

So far, no major administrative changes have been made by the NPP following the 20-year cycle of failure that has brought us to HIPC. Will NPP continuity of NDC methods, policies, and spending habits help Ghana? We have to judge ourselves.

Justice by Civil Means: Many people ignorant of how democracy works, think that a military coup is an answer to civilian government misbehavior. No! That’s wrong. A coup is like jumping from frying pan to fire! God knows we don’t want any more coups in Ghana! And God knows the current generation of Ghanaians will not tolerate and never forget any illegal acts, deliberate or accidental, that will further imperil our nation. We are tired of crooks masquerading in the public arena as MPs, Ministers and government executives. Neither the NPP nor the NDC before it, should ever think that the coming generations will ever forget what we have gone through because of the corrupt nature of our uncles and fathers in government! We will never forget and never forgive! Period! Forgiveness is left to God, and we will not have our nation led and run by crooks whose intentions are not for public service. We are tired! And will not have it anymore!!

How the Story Unfolded: In the first week of July 2002, one Patriot Turncoat put something on the Ghanaweb Say-It-Loud (SIL) forum that the NPP government was negotiating with some agency called IFC – International Finance Consortium, which claimed some relationship with the UN and World Bank, and was loaning $1Billion to Ghana, under some dubious circumstances. The report said Parliament had already approved it.

I found this lack of press coverage on such a national indebtedness under a democracy strange, especially in view of the doubts. I requested to have a copy of he agreement put in the public domain so we all could read it. Nobody I know wants Ghana to be in debt another Billion and with nothing to show for it again! My intuitive faculties, developed in these 55 years, ten of them dealing and negotiating loans in America and the rest in solving engineering problems, tells me something is fishy!!

On July 12, 2002, we read on Ghanaweb news:
Government sources say some modifications have been made to the loan agreement with the International Financial Consortium (IFC), which has generated much debate and controversy. Joy FM can confirm that the new agreement submitted by the Finance Minister provides for a total amount of $350 million and not $1 billion as earlier proposed. It would be for 25 years at an annual interest rate of 2.5%.

Well, this gave me the impression that the original report by Patriot Turncoat had some great merit, that the government representatives were actually negotiating a hard-money loan for $1Billion. For those not aware, a “hard-money” loan is a loan given to people with blemished credit (as we say it diplomatically in the loan industry) or HIPC nations. It carries a higher interest rate and higher loan fees than normal or conventional loans. I had warned the government in my writings. But again, our Ghana governments seem to do things and conclude, and make many mistakes, before the public hears about it. Hard money lending follow the Biblical scenario of “to them who have to them will more be given, and to them who do not have, the little that they have will be taken away from them.” It is surprising how the wise sayings and proverbs of 3,000 years or more still apply to today. Applicants with good income and credit, get lower interest rates, which makes their monthly payments lower than the poor person with bad credit.

Part 2

NPP in rush and desperation?: As of the time of writing, July 12-14th, it appears from all what we were reading from the Ghana news media that the government was in desperation to obtain a loan, any loan, and there seems to be a rush by the finance committee to wrap this up before public debate. There also seems to be some secrecy intended, some intention on the part of the people involved on the side of the government, and the IFC, to do this under secrecy, but to leave room open to form some side companies from this deal, in Ghana. This is where the doors and entrapment of CORRUPTION seems to be wide open. Let me show you my analysis, credit from postings by Patriot Turncoat and the Ghana news media, linked to GhanaWeb:

1. Questionable References:
Author: Patriot Turncoat (143.166.99.242)
Date: 07-12-2002 14:48

LOAN AGREEMENT BETWEEN INTERNATIONAL FINANCIAL CONSORTIUM (IFC) AND GOVERNMENT OF GHANA

FINAL PROJECT AGREEMENT

1. THE PARTIES (“The Borrower”) The Republic of GHANA State House Accra, Republic of GHANA and 1.1 C H E M A C Inc. representing the (“The Lender”) International Financial Consortium, LPP (“The Consortium”) 123 Pleasant Avenue, Upper Saddle River, NJ 07458/USA Tel (201) 934.3300 Fax (201) 327.8861

2. PREAMBLE 2.1 The Borrower desires a Loan for: 2.1.1 Nationwide Infrastructure Projects and Up-grades 2.1.2 Requisite Infrastructure Support for 2.1.1 2.1.3 TOTAL Funding request for 2.1.1 & 2.1.2 USD 350 Million (US-Dollars three hundred and fifty million) The Consortium, in co-operation with the United Nations and International Companies with specific expertise and experience of design and development, management and maintenance will obtain and provide funding for the implementation and for satisfaction of Borrower’s requirements.

ANALYSIS: The name and identification seems Okay. I just called the number and got a recording with the name Chemac Inc. I checked a Website under www.CHEMAC.COM and found the following information:

Chemac Industries Inc. 12-100 Kalamalka Lake Rd. Vernon, British Columbia Canada V1T 9G1 Or contact us at: Phone: 1-250-558-3001 Fax: 1-250-558-3065

If you prefer to use email, please send to sales@chemac.com

Chemac’s facilities offer the following services: State-of-the-art formulations Availability of a wide range of quality chemicals (liquid) . Availability of a wide range of container sizes. Assistance in acquiring regulatory approvals. Label compliance with WHMIS regulations if required. Availability of Material Safety Data Sheets (MSDS). Competitive pricing”

Obviously, as anybody can tell, these do not match. In the years 2002, one would expect any reputable company who can negotiate a $250 Million or $1 Billion loan, and take over ten million dollars in commission, to have a website. However, not having a website does not indict the company. I did a Google Search also for both the said IFC and Chemac, and came out with a “GlobalProjectFunding.com” which was quoted as “Acting as agent for an international financial consortium that engages in large-scale project finance”. This is obviously not the same company IFC, LLP.

b. The words outlined, as “in cooperation with” is deceptive. The UN has no hand in this deal, and neither is the World Bank, as we read again on 2222-07-12.

News of 2002-07-12

Government Is "Hot".........
As World Bank Reacts To $1 billion Loan Bid The World Bank Office in Washington DC has formally reacted to ongoing debate on the proposed one billion dollar loan agreement between the government and the International Financial Consortium. The opposition National Democratic Congress held a press conference earlier this week and described the agreement as a sham. The NDC also noted that the agreement will cause financial loss to the state but the ruling New Patriotic Party hurriedly organized a press conference and denied the allegations made by the NDC. The NPP told the press that the Governor of the Bank of Ghana, Finance Minister as well as the Senior Minister, J. H. Mensah had conducted investigations into the dealings of International Financial Consortium and found it to be trustworthy.

Washington DC, July 12, 2002 -- Some reports have recently appeared in the Ghanaian Press suggesting that the International Finance Consortium, with which the Government of Ghana is negotiating a US$1 billion loan agreement, is an institution that is “recognized” by the World Bank. This is incorrect as the World Bank has no dealings with nor direct knowledge of the International Finance Consortium.

To be fair we a have to include this quote about the IFC from our friend Azar: --- Kwaku Azar wrote:
The Lawyer, April 3, 2000 Copyright 2000 Centaur Communications Ltd. SECTION: International; Pg. 7
City firms advise on water deal
City firms Sinclair Roche & Temperley and CMS Cameron McKenna have completed the first stage of one of the world's biggest water projects – advising the Municipality of Bucharest on a billion-dollar investment. The firms are advising the International Finance Consortium and the municipality on a project to supply water and sewerage services to 2.2 million people in the Romanian capital. French utilities conglomerate Vivendi has just successfully tendered to do the work.”

2. QUESTIONABLE and Vague Terms: (Again quoting from the Final Project Agreement as above).
2.3 Total Investment Capital up to US Dollars 350 Million, for a term of up to 25 (twenty five) years at an annual interest rate of 2.5% (two and one half), subject to adjustment in the event of term extension, after initial loan term has expired. A grace period of three years on repayment of principal (not of interest) is available for this loan. To assure this interest rate all documents must be completed and finalized before July 15 .2002 and the requisite Unconditional Soverei2n Government Guarantee must be issued and deposited by July 31st , 02

ANALYSIS: With the experience I have in business and the financial services business in the US, I can say that the words “up to” are not specific enough. In general, any credible source will specify not only the exact amount, but also the payments, when they are due, and any consequences of late payments or defaults. One needs a business calculator or computer spreadsheet to calculate a loan amortized over a time with a given rate of interest. E.g. Using HP 10B Business Calculator or TI, on the $350,000,000, interest only will be $729,167 (approx. C5,760,416,667 ) per month. The amortized (Principal and Interest) monthly payments for this loan, at a modest 2.5% rate and fully amortized over 25 years or 300 months, comes to $1,570,159 or C12,404,252,697 (C12.4Billion) per month.

Payment plan: Such monthly payments make clear our ability and means of paying back. If by the time our Ministers fly to America they do not have these details, then I can only attribute this to gross lack of experience, ignorance, or simple naivet? in business contracts. No payment plan is shown here, nor sources of funds to pay back. Ghana’s Parliament should make a law against any government incurring a loan with the burden of payment on another generation or government. If we do not have a clearly defined PAYMENT PLAN, no loan should ever be procured by government to encumber the people of Ghana.

Grace Period is a dangerous arrangement to stay away from. We hear it a lot, but it’s not good. It always shifts the burden of payment on another future government or generation. In 1993 time, Ghana was supposed to obtain a $4.2 Billion loan for road construction, under Kwesi Botchwey’s leadership and Jerry Rawling’s Presidency. Today Ghana has an accumulated (unpaid) $6.2 Billion, and the NPP is borrowing in darkness to pay the interest on that, whiles begging for forgiveness from the creditors. What a crock of an act to repeat to further burden the next generation!!

3. Questions:
3. MUTUAL UNDERTAKINGS 3.1 The Consortium will exercise due diligence to examine with the support of qualified experts and representatives of Borrower the existing plans and project viability. Cost estimates will be developed between Borrower and The Consortium, which will be verified for accuracy through independent audit. 3.2 Borrower undertakes that until the information as supplied in 3.1 above has been analyzed within a period of (8) eight weeks, reckoned from the signing date of this Agreement, whichever shall first occur, it will not invite and will not allow competitors of The Consortium to act towards the satisfaction of its requirements as outlined in the PREAMBLE and it will exercise its best endeavors to conclude and sign, as soon as possible, a loan agreement in final form with The Consortium.

4. DATA Borrower undertakes, that it will at an early date, free of cost, procure the supply of data, such as site plans, maps, surveys, architectural designs, layouts by it’s ministry or department and provide same to The Consortium. All data must be consistent with local zoning ordinances and building/construction/electrical codes (Local Standards) In the event of a lack of such codes and ordinances Borrower and The Consortium will implement the latest international standards applied for such projects.

NOTE: I can understand why no broker would want the client or borrower to shop around whiles the deal during the application process, but did the “qualified experts and representatives of Borrower”(Ghana) examine “the existing plans and project viability” and "Cost estimates" developed?

Can the government make these cost estimates and project viability by qualified experts open to the public? Thanks. This will avoid any doubts. 3. Room for Corruption, Conflict of Interest:

5. MECHANICS 5.1 Without detracting from 5.2, and once a formal agreement is signed, a joint company may be formed in GHANA to assist in the implementation, management and maintenance of the projects for the duration of the loan period. The share of ownership and modalities of operations of the joint company will be mutually determined within a period of ten weeks reckoned from the date of signing this F.P.A. 5.2 Other companies, either as associates or subsidiaries of the company referred to in 5.1, (with third party shareholders) may also have to be formed, and if so formed, will be formed in GHANA, to manage and maintain those activities and businesses ancillaries or incidentals to the efficient functioning of the entire project

Yes! Yes! This is where the doors for corruption is wide open. If a lender is lending us money, why do we form a joint company on the side to assist in the implementation, management and maintenance of the project? This is like self-monitoring, or self-auditing - in a Third World country! Are we crazy!!!? This is absolutely a corrupt intention and must be looked at as such. That is why in the 20 years under the Rawlings administration Ghana was so heavily indebted, and the current government cannot show where the moneys went and we have nothing much to show for it. Such agreements allow surrogate companies formed by the insider Ministers and friends, to be formed to siphon the money.

CONCLUSIONS:

My conclusions are very clear.
The contract is very questionable as to the net benefit to Ghana, but was rushed, with some members of the esteemed body of Parliament trying to bypass public scrutiny. A government representing a people bankrupted by previous government decisions owe its people at least an open debate and discussion before indebting them for $1 Billion or $350 Million. As much as I hate to say it, if anybody was evaluating it, this casts many doubts on the integrity of the NPP.

1. The IFC seems to be a questionable business entity in the US, based on the writer’s own limited research, and the public would like to know what the Hon. J.H. Mensah and co found to convince them. The reference to the UN was fraudulent, i.e. meant to deceive the borrower, unless proven otherwise by the UN. So far the World Bank has denied any knowledge and recognition of this IFC Consortium. NOTE: Let us remember that it was this same J.H. Mensah and the Finance committee, which secretly approved the interest Free $20,000 Free Loans for the MPs, and the NDC colluded quietly till it, was done. Note also for the record that the President of Ghana has remained quiet on this IFC issue, just as he did on the $20,000 Interest Free car loans. Future generations will not forget.

2. The way the contract was written does not appear to be from a company with experience in the finance business in the US. In fact the language does not seem to be from Legal mind trained in the US. Whiles that may not be that important, the INTENTION was clearly to form surrogate companies in Ghana to be used as channels of corruption. This will not be accepted, and any attempt by the government to borrow money to spend, at their discretion, on behalf of the people of Ghana without clear open disclosures and independent Project Management companies, will lead to Law suits that have never been seen in our history. The people will not forget that easily.

3. Within a matter of three days, the NDC seems to have agreed to the terms of the loan. This can be read and interpreted by the public as only when they were cut into the deal.

RECOMMENDATION:

To avoid any doubts, bad intentions, corruption, or room for corruption, it is strongly recommended that

A. This contract and any future such government negotiations be reviewed by independent legal and accounting firms, as well independent Project Management firms, and given adequate time of more than thirty (30) days to investigate and report publicly. The public must be given a minimum of another 30 days to discuss and evaluate. To rush through a loan of $350 Million in less than 60 to 90 days is very irresponsible, and there should be a legislative (Parliament) or executive (Office of the President) mandate against it to protect the future.

B. All cost estimates and feasibility studies must be done and open to the public before any such debts are incurred on behalf of the people of Ghana.

C. Only INDEPENDENT non-partisan companies should be allowed to manage and oversee any such contracts or projects emanating from such loans, and none of the negotiators, lender or borrower (government), should have any interest in such companies. Surrogate Companies as suggested in this IFC contract must be deleted from this one. No future government contracts should have such possibility of the lender or borrower (Government) or any of its agents, bid to manage and oversee the disbursement or project management.

D. Clear Payment Plan must be discussed and publicly debated, so we know what future burdens are being put on the shoulders of future generations.

E. And last but not the least, we should learn to live within our means, and stop borrowing. No nation reached any greatness by careless and irrational borrowing without clear plans and hard work. I will share with you some quotations from an article titled “The 10 Smartest Things Ever Said About Money” by Andrew Tobias in the San Jose Mercury News Parade Magazine, July 14, 2002: “There is no dignity so impressive, and no independence quite so important, as living within your means” – Calvin Coolidge, 30th American President (1872-1933, President of USA 1923-1929).

The future is the witness. God save Ghana. Long live Ghana. From California with Love and Goodwill,