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VIII. International Initiatives to Promote Transparency

Since about 1999, the international community has increasingly recognized the need for transparency in natural resource rich states. In many countries, such as Angola, Azerbaijan, Chad, Equatorial Guinea, Kazakhstan, and Nigeria, oil revenues have been misused, undermining democracy, facilitating corruption, and depriving the public of important services. Five major initiatives to address this problem, described below, are the IMF’s transparency efforts; World Bank programs; the U.K.-sponsored Extractive Industries Transparency Initiative (EITI); the Publish What You Pay (PYWP) campaign led by George Soros’ Open Society Institute and an NGO-coalition; and the G-8 statement on corruption and transparency. All of these initiatives would have beneficial impacts on transparency, if implemented. However, the initiatives are at different stages of development and have differing potential for influencing practices in Angola.

IMF and World Bank

IMF and World Bank engagement with Angola is limited because of the government’s past history of noncompliance with Staff Monitored Programs. The World Bank, however, has lending programs within the country that are largely focused on humanitarian needs. Of the initiatives and institutions that could have a beneficial impact on transparency in Angola, the World Bank and IMF are the most promising, provided transparency is a foundation of their terms of engagement.

The IMF

Perhaps the best opportunity to press for increased transparency in Angola lies with the IMF. Although its relationship with the government has been strained and there is no formal program at the moment, the IMF is still crucially important for the government because the country has a considerable amount of debt, no access to financing or loans other than oil-backed loans, and the government has no credibility with the international community in terms of its economic management of the economy.²¹⁰ By mid-2003, there were also indications that the government might be ready to negotiate a new program with the IMF.

As noted above, the government historically has committed to transparency during periods of severe economic hardship, only to halt reforms when the country’s financial situation improves. However, the IMF has made transparency a key condition of further cooperation with the government, as it said in the March 2002 Staff Report:

[C]urrent problems related to the availability and quality of basic data make it very difficult to formulate a meaningful economic program. As a first step, critical transparency problems, particularly related to the disclosure of information on external debt operations, the amounts of oil-related flows, the management of foreign reserves of the central bank, and the nature of the large discrepancies in the fiscal accounts, would need to be addressed.²¹¹

The IMF also reported that the Angolan government was, “not interested in another SMP, in part because they preferred not to be tied to public commitments and timetables.” The IMF noted that, “[l]oose and informal monitoring by Fund staff, however, is not likely to provide a basis for establishing a track record that could lead to a Fund-supported program.”²¹²

It appears that the financial situation of the Angolan government has deteriorated considerably since March 2002 because of falling oil revenues, low foreign exchange reserves, high debt, and an inability to secure adequate financing or donor assistance.²¹³ A new economic team, led by Deputy Prime Minister Aguinaldo Jaime, was appointed in December 2002. As a result, the government has started negotiations with the IMF for a new SMP, an outcome consistent with its historical pattern of negotiating with the IMF when under economic duress.²¹⁴ Although a new program may well contain seemingly strong provisions aimed at increasing transparency, meaningful change will continue to depend on political will and the Angolan government’s desire to actually implement any relevant provisions. That may diminish by the third quarter of 2004, when oil revenues and production are expected to rise, easing the government’s tight financial situation.²¹⁵

One of the major priorities of the government has been to hold a donors conference after the end of the war with UNITA for the reconstruction of the country. The government hoped to secure as much as U.S.$1.5 billion in assistance from the international community for the reconstruction of the country and believed that donors would be readily provide funds. The conference was initially scheduled for July 12 and July 18, 2002 in Geneva.²¹⁶ However, donor governments did not agree to a conference, in part because of the government’s poor economic performance; its lack of transparency; allegations of corruption; a feeling that the government was not committing enough of its own funds for reconstruction; and its failure to reach an agreement with the IMF. At least two donor governments—the U.S. and U.K.—have told the government that they would not support a donor conference unless there was an agreement with the IMF that included measures to increase transparency and accountability.²¹⁷ The inability to secure a donors conference was a major embarrassment and disappointment for the government and it has repeatedly postponed the date and location of a donor conference, even though donor governments have been clear about the need for an IMF program.²¹⁸

It is too early to determine what steps will be implemented because the IMF and the government have not begun to negotiate a new SMP and because of the government’s historical failure to implement such reforms. As recently as July 2003, the IMF once again reiterated that, “[g]reater transparency lies at the heart of the reform process.”²¹⁹

There are already early indications of noncompliance. For example, the government publicly committed to publishing the executive summary by December 30, 2002.²²⁰ However, the government only published the executive summary of the first oil diagnostic report on July 17, 2003, eight days before a crucial IMF board meeting on Angola. The government has not announced when or whether it would publish the final oil diagnostic report’s executive summary as it had earlier said it would. Similarly, the government has only agreed to “limited reviews” of Sonangol’s accounts.²²¹ Even the 1999 and 2000 are troubling. The IMF reported that the key problems that the audits have identified include “an overriding lack of internal controls and…an incomplete/inadequate accounting of central bank foreign assets and liabilities…”²²²

Despite the government’s apparent lack of commitment, Human Rights Watch believes that a new SMP with strong provisions for transparency may be the best chance for greater transparency in Angola because successful implementation would require greater transparency and an increased allocation of resources towards social expenditures that could improve human rights. The first step is to increase transparency. In order to improve transparency and accountability in Angola, a new SMP should include, at a minimum: complete public disclosure of incoming revenues and outgoing expenditures; public disclosure of debt, including oil-backed debt; publication of all of the Oil Diagnostic reports; continued audits of the BNA; disclosing the exact amount and use of the expected U.S.$500 million bonus payment for Block 0; and a full and public auditing of the Sonangol.

The World Bank

Prior to 2003, the World Bank’s last loan to the government was a U.S.$33 million loan in 2000 primarily for assistance with education, water, and health projects. Most of the Bank’s lending took place between 1991 and 1999, but due to poor economic conditions and the resumption of the war, the Bank reduced its presence in the country by mid-1999. The International Finance Corporation (IFC) had one project with a soap manufacturer, and the Multilateral Investment Guarantee Agency (MIGA) had four projects insured. After the end of the war with UNITA, the World Bank and government agreed upon a new program, known as the Transitional Support Strategy (TSS), in March 2003.²²³

The TSS has three components: improving transparency and public resource management; providing services to vulnerable groups; and preparation for economic growth that could help the poor. The program covers a fifteen-month period and could be worth as much as U.S.$125 million.²²⁴ It is in part intended to provide the technical assistance the government needs in order to comply with a possible SMP, particularly in the area of transparency.

The first component includes completing the Oil Diagnostic; completing a Country Procurement Assessment Report (CPAR) that will help to establish procurement policies and procedures that are “consistent with international practice” in order to reduce mismanagement and corruption; conducting a Public Expenditure Management and Financial Accountability Review (PEMFAR) that begins in 2003 and ends in 2004; conducting a possible study on corporate social responsibility in the oil sector that will examine the “social development and community investment” programs of oil companies and to “sensitize oil companies to the importance of transparency and good governance with a view towards reducing that collective action problem that currently discourages greater transparency by any individual company;” and raising awareness of transparency and governance issues. These programs will be financed by a U.S.$17 million World Bank credit.²²⁵ While there are many encouraging aspects to the design of these programs, implementation will depend on the government’s will to act on them.

The second component of the TSS includes a U.S.$86 million Emergency Demobilization and Reintegration Program. U.S.$33 million will come from the Bank and the remaining U.S.$53 million will be paid for out of a donor trust fund. The goals of this project are to support a national effort to demobilize and reintegrate 105,000 UNITA and 33,000 FAA soldiers. It will also assist with agricultural rehabilitation, employment, job and skills training, medical services, and family reunification. The Bank will also request a U.S.$55 million credit to support an ongoing Social Action Fund in late 2003. Finally, a U.S.$20 million grant for an HIV/AIDS project will be disbursed.²²⁶

The third and final component does not initially involve any funding, but is focused on assisting the government in providing a framework for better governance and economic growth that benefits the poor. It includes drafting a Country Economic Memorandum, a document that comprehensively outlines the policies needed for adequate macroeconomic reform. It is supposed to be finalized in 2004. An ongoing study to identify the policies and other steps required allowing for more private sector participation in infrastructure. This includes electricity, downstream natural gas, water supply, sanitation, solid waste in Luanda, telecommunications, ports, airports, roads, and bridges.²²⁷

A full-scale lending program that would include a comprehensive Country Assistance Strategy is possible by 2005, but contingent on following criteria:

• A 50 percent reduction in extrabudgetary and quasi-fiscal outlays for 2003;
• satisfactory implementation of the first year of the Public Finance Modernization Program, including strengthening of the integrated financial management system;
• publication of all government tax revenues;
• completion of the Oil Diagnostic and ensuring that all oil revenues, except those pledged to oil-backed loans, are deposited in the Banco Nacional de Angola (BNA), the central bank; including those revenues in the BNA’s annual audit;
• satisfactory implementation of the ADRP, including issuing ID cards with photographs and transporting all ex-combatants to chosen areas by June 30, 2003;
• operationalizing the National AIDS Commission;
• a full Poverty Reduction Strategy Paper; and
• a formal IMF program.²²⁸

Human Rights Watch supports the Bank’s efforts to improve governance, provide humanitarian assistance, and press for policy reforms. But the program is still contingent on the government’s willingness to institute reforms, something the government has repeatedly failed to do in the past. Moreover, it does not specify that the Oil Diagnostic reports be made public, a critical step towards improving transparency and accountability. Unless these reforms are implemented it will not be possible for Angolan’s to hold their government accountable. Nor will it be possible to determine the full resources available that can be directed towards those institutions, such as the judiciary, or activities, such as greater spending on health and education, that will improve human rights.

The Extractive Industries Transparency Initiative (EITI)

The Extractive Industries Transparency Initiative (EITI) was launched by U.K. Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, South Africa on September 2, 2002.²²⁹ It is a voluntary initiative that aims to increase the transparency of natural resource revenues by developing standardized reporting requirements for companies and governments. The initiative has broad support from multinational and national companies, industry organizations, governments, NGOs, and multilateral institutions.²³⁰ Human Rights Watch has participated in this effort. At this writing, the reporting guidelines are still being revised.

Since it is a voluntary initiative, host governments and companies must agree to adopt the initiative before data can be published. Companies have generally refused to publish their payments to governments without approval of the host government. This stance is partly in response to BP’s experience in Angola as well as excessive caution towards contractual agreements. It is also not clear whether sponsoring governments, such as the U.K., U.S., or Norway, will forcefully press governments and companies to implement the guidelines. As of June 17, 2003 when a large formal meeting to endorse the process took place, only Timor-Leste, Azerbaijan, Ghana, Trinidad and Tobago, Indonesia and Nigeria have said that they would implement and pilot the initiative.²³¹ The Angolan government has refused to implement the initiative, even though Sonangol expressed a willingness to publish data.²³²

The Publish What You Pay Campaign (PWYP)

The Publish What You Pay Campaign is an NGO-led initiative that is pressing governments to require publicly traded natural resource extraction to disclose net payments, including taxes, royalties, fees and other transactions with governments and/or public sector entities for every country in which they operate. Global Witness, George Soros and the Open Society Institute originally started it. Human Rights Watch is a member of this coalition and the campaign is supported by more than one hundred NGOs throughout the world.²³³

The PYWP campaign addresses one of the main problems with voluntary initiatives: the real or perceived competitive advantage some companies may gain if they do not adopt standards. Governments may shun such companies in favor of companies that do not want to be more transparent. A regulatory approach would apply equally to all companies, thereby negating this problem. However, even if all publicly listed companies were required to publish payments to governments, it would not necessarily shed light on all extractive industry payments to governments. Private companies would not be covered by the same requirements as public companies, nor would state-owned companies. Because state-owned companies, in particular, would not be covered, a substantial amount of revenue would still be opaque. For example, the Inception Report of the Oil Diagnostic showed that in 2000, foreign companies paid approximately U.S.$1.65 billion to the Angolan central bank as required by law. Sonangol, however, underpaid the central bank by approximately U.S.$2.127 billion.²³⁴ Nevertheless, a regulatory requirement that applied to publicly listed companies would help to determine how much those companies paid governments. It would not be a solution in itself, but would contribute to a broader solution to the problem of revenue opaqueness.

The G-8 Statement

On June 2, 2003, the G-8 issued a declaration on “Fighting Corruption and Improving Transparency.” It noted that:

Transparency inhibits corruption and promotes good governance. Increased transparency of government revenue and expenditure flows, as well as strengthened enforcement efforts against bribery and corruption, will contribute to achieving these goals and to increasing integrity in government decision-making - thereby ensuring that resources, including development assistance, achieve their intended purposes.²³⁵

The G-8 member states committed themselves to press countries be more transparent; guide bilateral aid to governments that are committed to improve transparency, good governance, and rule of law; encourage publication of IMF Article IV Staff Reports; participate in reviews under the IMF Code of Good Practices for Fiscal Transparency; and incorporate anti-corruption plans into Poverty Reduction Strategy Papers (PRSPs).²³⁶

The G-8 member states also pledged to increase law enforcement by strengthening their own anti-bribery laws; accelerating peer reviews under the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials; encouraging the private sector to develop and implement anti-bribery compliance programs; completing the U.N. Convention Against Corruption; denying “safe haven” to corrupt officials and allowing for their extradition; encouraging wider accession and ratification of the U.N. Convention on Transnational Organized Crime; requiring financial institutions to conduct greater “due diligence” in regards to suspicious activities by government officials; implementing the recommendations of the Financial Action Task Force (FATF); and considering whether to include provisions that would require transparency in government procurement as part of bilateral and regional trade agreements. Based on this declaration, the G-8 committed to “commence negotiations aimed at achieving an inclusive multilateral agreement on transparency in government procurement.”²³⁷

In its provisions addressing corruption and transparency in revenue dependent countries, the prescriptions of the G-8 were similar to those of the EITI. The G-8 said that it would encourage governments and companies to provide aggregated data on revenue flows to a third-party such as the IMF or World Bank; provide technical assistance to governments; and encourage the World Bank and IMF to provide technical assistance to governments. However, the G-8 only committed to do this with governments that voluntarily agree to participate and it did not specify which governments would be involved in this effort or when it should begin.²³⁸ While a positive step forward, the declaration does not set up a new program to identify specific countries in need of improvement, imposed deadlines, or provide penalties for noncompliance. Instead, it complements the activities of governments and institutions.

The Soros Announcement

At this writing in mid-December 2003,the Angolan Government and George Soros’s Open Society Institute (OSI) appeared poised to announce a new transparency initiative. The initiative is intended to bring Angola into compliance with the EITI in exchange for technical assistance, OSI programmatic support, and possible investment from George Soros. Assistance and investment are contingent on the government’s compliance with the agreement. Secret negotiations for the agreement began in March 2003 and details of the agreement were made public in November 2003. Originally scheduled for a public signing on November 13, the initiative was delayed by the Angolan government. The official signing and start date remain unclear at this writing.

The draft agreement would require the government to take a number of steps to improve transparency within specified periods of time. The government is supposed to publish the “results of the oil diagnostic study” within sixty days after the signing of the agreement and participate in the EITI. It is to state its intention to publicly disclose all payments of “taxes, royalties, dividends, VAT [Value Added Tax], customs duties, bonuses and other similar revenues” that are paid by extractive industry companies to the government. The government and Sonangol are to waive any confidentiality clauses they have with companies so that the companies can disclose their payments to the government.²³⁹

In order to facilitate these commitments, the government and Soros are to create a task force to “assess the legal framework of existing agreements” in order to develop a strategy so oil companies can disclose their payments to the government. The task force is to be organized within thirty days after the agreement is signed and will have a mandate to complete its work and provide a recommendation on how to remove confidentiality agreements within ninety days of the signing. The government is to submit legislation and “use its best efforts” to alter relevant laws in order to waive confidentiality agreements within ninety days after the task force issues its recommendation. If legal impediments prevent company-by-company disclosure, the government is to aggregate that data and make it publicly available until confidentiality agreements are removed. Finally, the government is to set-up “advisory bodies” made up of government, NGO, and business representatives to review and assess the information disclosed.²⁴⁰

The draft agreement calls for Sonangol to publicly disclose on its website production levels, taxes, and transfers semi-annually beginning in 2003. It also is to disclose proceeds of oil-backed loans that are “transferred to the government or used to support projects or purposes that are customarily the responsibility of Government.” Sonangol is to provide its financial results beginning in 2003 and provide those results in a format compatible with international accounting standards (IAS) from 2004. Future contracts with Sonangol are not to have confidentiality agreements restricting the publication of revenues.²⁴¹

Soros and OSI are to provide assistance to the government as long as the previous requirements are met. They may provide consultants to assist the government with macroeconomic issues who can aid them in acquiring a debt rating or issuing debt. They may also help the government with reform of their budget policy; increasing Angolan employment in the oil industry; and possibly assisting with reducing the size of the military. Soros and OSI also are to publicize the agreement to international and bilateral financial institutions, NGOs, investors, and the U.S. government. If the government sufficiently complies and the “economic and investment climate improves,” Soros is to organize a group of international investors that could pursue projects within Angola.²⁴²

Overall, the agreement would be an important step forward since it provides meaningful incentives for the government to increase transparency. Soros and OSI are only required to provide assistance or organize investment if the government sufficiently complies with the agreement. However, there are some vagaries that need clarification. The draft agreement does not specify which of the eight oil diagnostic reports should be published to fulfill the terms of the agreement. That provision should be interpreted to include all of the Oil Diagnostic reports. Much of the information the government is required to disclose is contained within the Oil Diagnostic reports. Incoming revenues, taxes, royalties, bonus payments, loans, and Sonangol’s payments to government are all included in the Oil Diagnostic reports. The contract for the Oil Diagnostic includes provisions to develop and implement a model that allows the government to monitor all oil revenues and project future revenues. The World Bank is already providing some of the technical assistance proposed within the Soros agreement. Similarly, the final Oil Diagnostic report contains recommendations to improve management and monitoring of oil revenues. The Soros initiative does not specify whether the EITI reporting requirements will be harmonized with the model and recommendations that are part of the Oil Diagnostic or whether the technical assistance provisions will account for the World Bank’s efforts. Finally, the agreement does not require an audit of Sonangol. As noted earlier, Sonangol has never been audited and the IMF has insisted upon an audit as a condition of future cooperation. This is a critical step that would immensely improve transparency in Angola and should be part of this effort.

If the agreement is signed, remains in its current form, and the aforementioned issues are clarified, the key to success of the initiative will be the government’s willingness to implement its provisions. Historically, the government has made commitments to improve transparency, but then delayed or refused to implement measures necessary to fulfill those commitments.