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III. Background: The IMF and Angolan Government

The Angolan government and IMF have had a strained relationship since the mid-1990s. It has been characterized by periods in which the government has faced dire economic conditions and has appeared to sincerely negotiate a reform program1 with the Fund, followed by periods of improved economic conditions in which it abandons the reforms. The principal reason that reform programs have failed is the government’s lack of political will. Throughout this process, increased transparency has been a key condition for further cooperation with the IMF. There was some progress in 2000 when the government agreed to the Oil Diagnostic; a study to determine how much oil revenue is actually deposited in the BNA, as part of a larger economic reform program. However, that reform program collapsed in October 2001 after the government received repeated extensions, but still failed to implement promised reforms. Nevertheless, the Oil Diagnostic continued. But relations with the IMF were extremely strained, largely because of the government’s consistent inability or unwillingness to provide the IMF basic information to assess the state of the economy.

Staff-Monitored Programs: 1995-2001

Since 1995, there have been at least four Staff Monitored Programs (SMPs) negotiated between the IMF and the Government of Angola and three that were formally started. An SMP is typically a set of economic reforms that the government negotiates with the IMF, and then agrees to implement, while the IMF monitors its progress. Typically, an SMP is a six-month program that can be extended to give a government time to implement reforms. But it cannot be extended indefinitely because that would signal that reforms are not progressing. Successful implementation of an SMP is a precursor to formal IMF lending. If a government implements a successful SMP it is eligible for increased World Bank lending on favorable terms as well as debt rescheduling or relief. Successful implementation also enhances a government’s credibility in managing its economy.

The Angolan government’s decisions to negotiate agreements with the IMF consistently have been motivated by severe economic difficulties that inflicted severe hardship on Angolans as a whole. In 1994-95, the rapidly devaluating Kwanza and hyperinflation highlighted the dire economic circumstances. The situation further deteriorated in 1996, prompting further negotiations with the IMF even though a program had just expired.2 In 1997-98, the global price of oil collapsed, starving the government of its key source of revenue during a ceasefire with UNITA. Emmanuel Carneiro, the then Minister of Planning and Economic Development, outlined the government’s motivations to negotiate with the IMF in a 1998 speech he gave while he was in Washington, D.C:

New economic and political realities—namely the decline in world oil prices, deteriorating social conditions within Angola, and the continuation of the peace process—have created a new impetus to restructure our economy. We must move forward on economic reform, on an agreement with the IMF and with the peace process.3

However, each SMP failed because of the government’s unwillingness to either agree upon an SMP or implement the reforms once the program was underway. The first SMP began in July 1995 but was abandoned by the IMF in December 1995.4 Shortly thereafter, the economy further deteriorated and the government began preliminary negotiations for another SMP. In November 1997, the IMF sent a country representative to Angola in anticipation of a new agreement. The IMF believed that the period of relative peace was going to become a permanent peace and that an IMF program would facilitate much-needed reconstruction and reforms.5 A new SMP was negotiated in mid-1998, but was not implemented because of “presidential objections.”6 The IMF country representative at the time recalled the situation:

In 1997, people really believed, especially the IMF and myself, that there would be a real peace and that a major reconstruction program would be needed involving the [World] Bank and the Fund. But after three months, it was clear in Angola that there would not be peace. After six months, I joked with my colleagues in Washington that I wanted to leave…there was no commitment to reform.7

By the end of 1998, the ceasefire with UNITA had collapsed and the war began anew. Nevertheless, the government and IMF continued to negotiate an SMP. The two parties finally reached an agreement on April 3, 2000.8 It was an ambitious agreement scheduled to run until December 2000. The government committed to implement a wide range of economic and institutional reforms, including the Oil Diagnostic. These measures, if implemented, would likely have increased transparency and accountability particularly in the management of oil revenue and government expenditures. Successful implementation would have led to further lending and cooperation with the IMF and World Bank.9 However, by December 2000, the government was far behind schedule in implementing reforms. The IMF and government agreed upon an extension that effectively began another SMP scheduled to run from January to June 2001. The government partially implemented some important reforms; including continuing the Oil Diagnostic and conducting an audit of the central bank, but many others were incomplete or unfulfilled. For example, the government did not provide adequate data on revenues and expenditures. The IMF reported:

There has been some progress in the implementation of the structural measures under the program, namely the preparation of the reports from the diagnostic study of the oil sector…the completion of the external audit of the 1999 accounts of the central bank, and the liquidation of the CAP bank. Many of these and other measures, however, remain to be completed, and urgent action is required to improve the production and publication of data on government revenues and expenditures from all sources, including that on external debt transactions.10

The government also started a Ministry of Finance website that was intended to make public data on some oil production and revenues, but that website was not updated, nor was the information comprehensive.11

Although the government failed to adequately implement two consecutive SMPs, the IMF agreed to extend the program until October 2001, but with significant new requirements in order to increase transparency, including:

[I]dentifying and eliminating or including in the treasury account all extrabudgetary expenditures; strengthening the control of the treasury over fiscal operations and foreign debt transactions; publishing data on oil and other government revenues and expenditures, as well as on external debt; conducting a financial audit of the 2000 accounts of the central bank; hiring an independent international company to implement international accounting standards in Sonangol; and seeking the assistance of the World Bank for a complete overhaul of the procurement system.12

Despite the extension, the government again failed to implement many of the reforms, particularly those related to fiscal transparency. The government was less inclined to implement reforms by 2001 because the price of oil had rebounded and revenues had increased. Instead, the government wanted to do as little as possible in order to secure a formal program. According to a former IMF official, the government had various motivations for agreeing to an SMP, none of which involved transparency or accountability:

During 1997-1998, the government was not interested in real reform; it wanted the IMF program because it was short of cash while oil prices were low and because it wanted international approval to start the war again. They craved legitimacy for the war effort and this was never a sincere exercise in reform…now [in 2001] the motivations are different. The government is seeking international legitimacy again…it cannot use the war as justification for poor economic management. Discontent is growing and the international community is unconvinced of government performance…It also realizes that it needs money and debt relief. It cannot use oil-backed loans to finance itself.13

The lack of commitment to reform was also reflected in the government’s unwillingness to provide basic information to the IMF. The government would not provide key data such as full information on oil-backed loans, on unexplained expenditures, and on oil bonus payments.14 This led to an increasingly tense and strained relationship between the government and the Fund. Publicly, the IMF issued an unusually bleak statement after its annual visit to Angola during February 2002. The Fund noted that the economic situation had deteriorated “despite a massive increase in oil and diamond-related income over the last three years.”15 The Fund noted that poverty and humanitarian needs had increased even as government revenues, primarily because of growing oil revenue. The IMF attributed these problems to a lack of transparency and poor government management of revenue. The Fund noted:

Given that poverty indicators have shown no improvement in recent years and the humanitarian situation has reached dire proportions, there is an urgency to reallocate expenditures in favor of the social sectors, including humanitarian assistance. More broadly, cost-benefit analyses and public information would also help to ensure that major financial transactions (such as debt refinancing operations) and large infrastructure projects are both economically efficient and socially desirable.

In relation to the transparency of government operations, the discussions centered on the need to identify and eliminate or include in the treasury account all extrabudgetary and quasi-fiscal expenditures; record and transfer to the treasury all revenues, including the total amount of signature oil bonuses; ensure that all foreign currency receipts and government revenues, including Sonangol receipts, are channeled through the central bank as mandated by the law; eliminate all subsidy and tax arrears to and from Sonangol; publish data on oil and other government revenues and expenditures, as well as on external debt; and conduct independent financial audits of the 2001 accounts of Sonangol and of the central bank.16

The IMF did not suggest that a new SMP was imminent or even under negotiation, but only noted that it had “reviewed economic developments in 2001 and prospects for 2002, as well as progress made in the implementation of measures contemplated in the lapsed staff-monitored program for January-June 2001…The discussions did not involve the formulation of an economic program that could be monitored by Fund staff.” 17 For the IMF, it was an unusually blunt statement, but far more diplomatic than the private March 2002 Staff Report (see Section V below). That report was far more critical and provided far more detail on the state of the Angolan economy, the lack of transparency, and the lack of desire to implement reforms. The government did not authorize its public release and it remains a private and confidential document at this writing, another indication of the government’s hostility to transparency.

The Oil Diagnostic

The opaqueness of the Angolan government’s budget and expenditures has generated widespread concern both with and outside Angola that finances were being grossly mismanaged. Public funds, derived largely from oil revenues were used to secretly finance arms purchases and to mortgage future oil revenues in return for immediate oil-backed loans to the government. Under Angolan law (Decree 30/95), all oil revenue is supposed to be deposited in the BNA. However, oil revenues illegally bypassed the BNA and went through the state-owned oil company, Sonangol, or through the Presidency. These activities sparked allegations of official corruption. The Oil Diagnostic, promoted by both the IMF and World Bank, was meant to shed light on some of these practices as a starting point to press for greater transparency.

As early as 1996, the IMF wanted a full audit of incoming and outgoing oil revenues as part of an SMP. However, those negotiations stalled because the government would not agree to an audit and other reforms. The Oil Diagnostic represented a compromise between the IMF’s desire for an audit and the government’s desire to do nothing. 18 It was finally included in the April 2000 SMP. It was not a full audit, but a study conducted by an internationally recognized accounting firm to determine how much oil revenue is generated in comparison to how much oil revenue is actually deposited in the central bank. Although the initial agreement to carry out the Oil Diagnostic was reached in April 2000, procedural delays held up the announcement of the monitoring contract for several months. On November 20, 2000, the Angolan government announced that KPMG had been awarded the U.S. $1.6 million consulting contract to conduct the Oil Diagnostic. The government would pay 68 percent of the costs of the program while the World Bank would pay the remainder under a prior loan it extended to the Ministry of Finance.19 KPMG was given the following terms of reference:

  • Creation of a database that contains an assessment of proven and probable oil reserves, production, and exports.
  • Development of projections of export oil prices, production, exports, and subsequent revenues payable to the government on a quarterly basis from mid-2000 to the end of 2001, and annually until 2005.
  • Monitoring actual revenues received by the government and comparing these figures to the projections of revenues on a quarterly basis from June 2000 to December 2001. This includes signature bonus payments.
  • Assessing the government's existing monitoring of exports, data management, and financial and procurement procedures.
  • Providing recommendations to improve institutional and regulatory controls within the government to "support the sound management of oil revenues."
  • Designing and implementing a monitoring system for the government so that it can accurately assess oil revenues.
  • Training Angolan staff and providing proposals for institutional strengthening so that the government can continue monitoring oil revenues.20

The Oil Diagnostic leaves much to be desired: among other things, it does not provide for a comprehensive audit, despite persistent allegations of widespread government corruption and financial mismanagement. In fact, the agreement between KPMG and the government explicitly states that “the consultants [KPMG] shall not be expected or required to consider or investigate or conduct any form of enquiry into the conduct, practices, honesty, integrity or standards of, or nature or quality of work performed by, any person who has or may have had, any involvement in or connection with, directly or indirectly, the facts, matters, circumstances or events which shall be diagnosed, monitored, studied, assessed or considered by the consultants during the performance of these services.” 21

Despite these limitations, the Oil Diagnostic does, however, have a number of positive features and it remains in place today even as other aspects of the April 2000 SMP and other SMPs have fallen by the wayside. In its conception, if not in its execution (as described in Section IV below), the Oil Diagnostic marked a limited, but positive first step toward promoting transparency, accountability, and good governance in Angola and, ultimately, greater respect for human rights because it was the first time that there had been meaningful scrutiny of Angola’s oil revenues. At a minimum, it detailed the extremely poor accounting practices of the government as it managed the country’s oil and underscores the need for a full audit of Angola’s oil revenue and expenditures.

Delays in Implementation and a Failure to Publish Reports

The key to the Oil Diagnostic’s success would be government cooperation since the data KPMG required would have to come from the government, cross referenced by information from companies. Past efforts by the international financial institutions to monitor oil revenues in other countries had been unsuccessful because of the inability or unwillingness of governments to provide adequate information. This problem also plagued the Angolan Oil Diagnostic. For example, KPMG was awarded the contract in November 2000, but it was unable to complete its first report until July 2002. The IMF reported that the delay arose “mainly because the data on the central bank accounts and external loans was not provided to the consultants” in a timely manner.22

At this writing, there have been eight Oil Diagnostic reports: the Inception Report, six quarterly reports, and the final report with recommendations. Even though these reports have been completed, the results have been disappointing because the government has failed to make any of the Oil Diagnostic reports public. Instead, only the executive summary of the first report has been released on the website of the government’s U.S. embassy.23 In June 2001, Human Rights Watch asked Aguinaldo Jaime, then central bank Governor, when the government would publish the Oil Diagnostic reports. He replied: “the reports are public—the government has seen them.”24 It is unclear whether he actually saw the final versions of the reports, since the first report was only completed over a year later—in July 2002. Two years later, Jaime, now Deputy Prime Minister, told Human Rights Watch that the government had not committed to publishing the full reports.25

Instead, the government only committed to publish the executive summary of the first report by December 2002 and the final report’s executive summary shortly after it was finished.26 However, the government delayed publication of the first executive summary until July 2003 and has yet to announce when or if it will publish the final executive summary. Jaime told Human Rights Watch that the government had “technical differences” with KPMG over the final report and this was delaying its completion.27 Human Rights Watch believes that all of the quarterly Oil Diagnostic reports should be public, and not just the executive summaries. Availability of information, particularly information regarding government activity and spending is crucial for human rights. It allows individuals to exercise some oversight over government activity, informs public debate, and allows individuals to hold government accountable. At this writing, the government has not made any of the Oil Diagnostic reports public, nor has it committed to do so. However, Human Rights Watch has obtained the first Oil Diagnostic report and assesses its findings in Section IV.



1 The program of reforms included increased transparency and disclosure of incoming revenues and outgoing expenditures; assessing the function of government institutions; and widespread economic reforms.

2 Tony Hodges, Angola: From Afro-Stalinism to Petro-Diamond Capitalism (Bloomington: Indiana University Press, 2001), pp. 106-107.

3 Emmanuel Carniero, former Minister of Planning and Economic Development, speech before the U.S.-Angola Chamber of Commerce, Washington, D.C., August 27, 1998.

4 Angola: From Afro-Stalinism to Petro-Diamond Capitalism, pp. 106-107.

5 Human Rights Watch interview with Corentino Santos, Luanda, May 31, 2001.

6 Angola: From Afro-Stalinism to Petro-Diamond Capitalism, pp. 106-107.

7 Human Rights Watch interview with Corentino Santos, Luanda, May 31, 2001.

8 Government of Angola, “Government of Angola and International Monetary Fund Reach New Agreement,” press release, April 5, 2000.

9 In addition to the Oil Diagnostic, the monitoring program set out a series of ambitious reforms that the government must undertake before becoming eligible for Enhanced Structural Adjustment Facility loans from the international financial institutions, including: creating an integrated financial management system; eliminating domestic fuel subsidies; limiting subsidies to indebted state-owned enterprises; eliminating tax exemptions that are not a part of international agreements; eliminating import licenses and non-tariff barriers; simplifying commercial licensing; progressively adjusting tariffs for public services such as water and electricity to market levels; liquidate the Caixa de Credito Agropecuria (CAP); defining a strategy to deal with the country’s external debt; clearing arrears payments to multilateral financial institutions; gradually eliminating external commercial credits to the central bank; creating a register of debt service payments, including oil-backed loans; preparing a restructuring of the financial system, including privatization of state banks; revising of the special foreign exchange regime; presenting a policy document on privatization; implementing a pilot program involving the privatization of five state-owned companies; publishing comprehensive statistics on government accounts and macroeconomic indices; and preparing a plan for tax reform.

10 International Monetary Fund, “Angola: Preliminary Conclusions of the IMF Mission,” mission concluding statement, August 14, 2001.

11 See: www.minfin.gv.ao.

12 International Monetary Fund, “Angola: Preliminary Conclusions of the IMF Mission,” mission concluding statement, August 14, 2001.

13 Human Rights Watch interview with Corentino Santos, Luanda, May 31, 2001.

14 Human Rights Watch interviews with key officials who were part of those discussions, March 14, 2002 and November 27, 2002.

15 International Monetary Fund, “Angola—2002 Article IV Consultation: Preliminary Conclusions of the IMF Mission,” mission concluding statement, February 19, 2002.

16 Ibid.

17 Ibid.

18 Human Rights Watch interview with Corentino Santos, Luanda, May 31, 2001.

19 “Petróleos sob Auditoria Internacional,” Jornal de Angola, November 20, 2000; and “Angola Announces Audit of Oil Industry,” Associated Press, November 21, 2000.

20 Contract for the Oil Diagnostic between the World Bank, the Government of Angola, and KPMG, Appendix A, “Description of the Services,” p. 23. Human Rights Watch has confirmed with KPMG and oil companies that this document accurately details the services provided by KPMG.

21 “Description of the Services,” p. 24 (emphasis in original).

22 International Monetary Fund, “Angola: Staff Report for the 2002 Article IV Consultation,” March 18, 2002, p.18.

23 See: www.angola.org.

24 Human Rights Watch interview with Aguinaldo Jaime, the former central bank Governor of Angola and current Deputy Prime Minister, Washington, D.C., June 12, 2001.

25 Human Rights Watch interview with Aguinaldo Jaime, Deputy Prime Minister of Angola, London, June 16, 2003.

26 Government of Angola, Ministry of Finance, “Press Release by the Ministry of Finance on the Oil Diagnostic,” November 5, 2002.

27 Human Rights Watch interview with Aguinaldo Jaime, Deputy Prime Minister of Angola, London, June 16, 2003.


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January 2003