Eurobond saga: Sarah Elderkin’s smoking guns are ‘bonoko’

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By Dannish Odongo

Jonathan Swift, a literary giant of his time, wrote the following words in 1710 in the newspaper known as “The Examiner”:

“…it often happens, that if a lie is believed only for an hour, it has done its work, and there is no further occasion for it. Falsehood flies and the truth comes limping after it; so that when men come to be undeceived, it is too late; the jest is over, and the tale has had its effect”

The Eurobond saga is a topic that I have studied ferociously. I’ve combed through the documents that have been provided both by Treasury and the CBK on their official websites. I have interviewed the treasury mandarins and had deep and lengthy discussions with professors, heads of departments at CBK as well as seasoned bankers and economists. I have attended public debates on the matter where the opposition, the civil society and the government were all represented. I have studied government press releases and the writings of various right wing and leftist authors and columnists and have obtained what I believe is a thorough understanding of the entire matter.

So, when I heard the news that Sarah Elderkin, a gifted and well experienced journalist on Kenyan socio political issues, would be doing a two part expose on the Euro Bond saga, I was excited. I anticipated a well-researched discourse calling the national government to give an account of how the proceeds of the Eurobond were appropriated. However, what I got after reading Ms. Elderkin’s literary offering on this subject was an ocean of disappointment. The intentional/ non intentional untruths that riddle her account of what transpired were too glaring to be ignored.

What this nation needs is an uprising of sentinels of the truth against the voices that misrepresent the facts. I like to think that I am one such sentinel and as such find myself unable to betray the truth by failing to offer a cogent rebuttal to Ms. Elderkin’s treatise. As a journalist, Sarah Elderkin understands the concept of right of reply and will no doubt appreciate this article. Today, with the precision of a surgeon’s scalpel, I will dissect Ms. Elderkin’s “4 smoking guns” article which was published last week and one by one expose the factual errors that lie latent in it.

Error Number One – That the syndicated loan was paid at source as part of the pre-negotiated expenses and the Controller of Budget did not authorize the transactions.

According to the documents that have been availed to the public by the Treasury, the Central Bank of Kenya (CBK) and the Controller of Budgets the only pre-negotiated expenses were commissions, charges and other similar disbursements. Nowhere is the syndicated loan mentioned in the list as part of the pre negotiated expenses. The syndicated loan was settled from an account held by the Government of Kenya at JP Morgan after the Controller of Budget gave the green light for this remittance. This can be verified from the JP Morgan bank statement issued to the Government of Kenya’s for the account held at the international bank. This statement can be accessed on Treasury’s website.

According to the prospectus issued to investors in respect of the Euro Bond, one of the intended purposes of the proceeds of the bond was the making of payments on the syndicated loan which was incurred in the financial year 2011/2012 to supplement the budget. The Controller of Budget has over and over again reiterated that she indeed authorized the payment of the loan in accordance with the law. She has confirmed this under oath before the Public Accounts Committee of the National Assembly but despite this, Sarah Elderkin’s article appears to be aimed at painting the Controller of the Budget as a puppet of the Treasury at all costs.

Sarah Elderkin’s sensational claims that the office holder has contradicted herself severally is simply untrue. Some of the said inconsistencies were blamed on misreporting.

Error Number Two – The offshore accounts were opened illegally partly because they stayed without signatories for two weeks.

This assertion is not only untrue but also a clear indicator of Ms. Elderkin’s limited understanding of how the banking industry works. It’s an internationally accepted practice for any nation to open an account anywhere and in any currency based on need as long as such account opening is done in line with lawful procedure. Kenya has always operated offshore accounts and as such the account was opened for purposes of banking the Eurobond proceeds. It was by no means the first governmental offshore account to be opened. I therefore cannot understand why the opening of this specific account generated a lot of hullabaloo. Not a single coin can be transferred from such government-owned accounts without proper approval from relevant authorities. Trying to trivialize the manner in which one can operate accounts in global banks such as JP Morgan and Citi Bank (which operate in a much tighter legal environment than that offered by our local regulatory framework) is quite unfortunate.

In the banking industry, a bank account is only considered operational when the relevant documents have been provided. For one to transact with it e.g. deposit money and withdraw, one must provide all the relevant documents e.g. referee details, utility bills, signatories, their identification documents etc. Regardless of when the JP Morgan account was opened, it only became operational when the above conditions were met. Trying to look for smoke where there is none is a dangerous scavenging attitude.

Error Number 3: The Euro Bond proceeds were never ‘felt’ in Kenya. The money therefore didn’t come home.

According to information from the Bureau of Statistics, CBK, Treasury and Thomson Reuters, Treasury bill interest rates declined from 9.8 to 8.3 between June 2014 to May 2015. The CBK’s foreign reserves rose from US$ 6,498 M to US$ 8,555 M in June 2014, reflecting the $2B deposit from the Eurobond proceeds.

The Kenya shilling exchange rate depreciated less than many other currencies. In the period between January 2014 and September 2015, the Kenya shilling depreciated by only 22.1% compared with 36.9 % for the Tanzania shilling, 45.2% for the Ugandan shilling, the Brazilian Real depreciated by 60% and the Turkish Lira by 85.1%.
Inflation in the 2014 period remained low, stable and within the target. Overall month to month inflation declined from 8.36% in August 2014 to 5.5% in January 2015.

Despite these facts, Sarah Elderkin went ahead to sensationally allege that the money was misappropriated or stolen. Yet four independent bodies confirmed that the money that was received from Euro Bond proceeds had a real effect in Kenya.

Error Number 4: The opening of accounts by the Government at JP Morgan & Citi Bank was done in contravention of the law

It is standard international practice for governments to open international currency accounts for the purpose of receiving Euro Bond proceeds. The Treasury, in line with Section 45(d) of the Central Bank of Kenya Act and Section 28 of the Public Finance Management Act 2012 instructed the Central Bank of Kenya as the banker of government to open an international account for receiving the proceeds of the sovereign bond.

The first amount ($2B) was deposited in a CBK Account held at JP Morgan Chase Bank, New York on 27.06.2014. The bank statement issued by JP Morgan and published on Treasury’s website confirms this position. The statements were also presented to the Public Accounts Committee of the National Assembly and the Senate Finance Committee when Treasury mandarins appeared before them.

The tap sales proceeds ($ 815 Million) were credited to Central Bank of Kenya’s account held at Citibank, New York on 17.12.2014.

All the banks that won the tender to be transactional advisors of the floatation process were picked after responding to a Request For Proposal that was published in both local and international dailies. Their applications were subjected to thorough evaluation in line with the Public Procurement Act. Furthermore, the process was carried out above board and any institution that felt unfairly left out should have sort redress in our courts. Not a single bank went to court over the process.

Standard Bank acted as an African advisory bank, Qatar National Bank acted as the transaction advisor in relation to the Middle East, JP Morgan represented the USA and also banked the proceeds of the first Euro Bond proceeds of $2 B. Citi Bank received he proceeds of ‘Tap Sales’ and Barclays Bank and represented Europe. The process that led to their selection was done in public.

Error Number 5: We over borrowed to pay a loan and also to overspend. And the money was released to Kenya in batches and not as a whole.

The Euro Bond was borrowed to fund Government Budget deficit of about 65%. For the government to borrow, Parliament must approve a budget, treasury would then go ahead to plug any deficit through borrowing. The claim that we have over borrowed is merely alarmist. Our economy currently has a sustainable debt to GDP ratio. The World Bank report for 2015 confirms that position.

There’s nothing peculiar about a Government Deficit. If you plan your projects and salaries to exceed what KRA collects, you must find funding for the difference.

And funds are in most cases released in tranches. That doesn’t prove any malpractice.

There are numerous other errors in Sarah Elderkin’s article. If she needed to unearth the truth, walking to CBK and the Treasury to get the relevant documents would have been easier than penning a 5800 word article that was full of errors. The question that all Kenyans should ask is, what specific projects did the Euro Bond proceeds fund? That’s a fair accountability question that needs to be answered.

I will finish my article with the words of Thomas Franklin:

“Falsehood will fly, as it were, on the wings of the wind, and carry its tales to every corner of the earth; whilst truth lags behind; her steps, though sure, are slow and solemn, and she has neither vigour nor activity enough to pursue and overtake her enemy…”

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