The Portuguese Escudo Monetary Zone: Its Impact in Colonial and Post-Colonial Africa [1st ed.] 9783030338565, 9783030338572

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PALGRAVE STUDIES IN ECONOMIC HISTORY

The Portuguese Escudo Monetary Zone Its Impact in Colonial and Post-Colonial Africa Maria Eugénia Mata

Palgrave Studies in Economic History Series Editor Kent Deng London School of Economics London, UK

Palgrave Studies in Economic History is designed to illuminate and enrich our understanding of economies and economic phenomena of the past. The series covers a vast range of topics including financial history, labour history, development economics, commercialisation, urbanisation, industrialisation, modernisation, globalisation, and changes in world economic orders. More information about this series at http://www.palgrave.com/gp/series/14632

Maria Eugénia Mata

The Portuguese Escudo Monetary Zone Its Impact in Colonial and Post-Colonial Africa

Maria Eugénia Mata Nova School of Business and Economics Universidade Nova de Lisboa Carcavelos, Portugal

ISSN 2662-6497     ISSN 2662-6500 (electronic) Palgrave Studies in Economic History ISBN 978-3-030-33856-5    ISBN 978-3-030-33857-2 (eBook) https://doi.org/10.1007/978-3-030-33857-2 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To my father’s memory. To my mother.

Preface

The Portuguese decolonisation of the 1970s broke the monetary ties that existed between the Mainland and each of its former colonies, whose names (before and after independence) are always spelled in Portuguese, in this book: • Portuguese India began to use Indian currency (rupee) after it was occupied by India, partly in 1954 (Dadrá and Nagar Havely), partly in 1961 (Goa, Damão and Diu). • São João Batista de Ajudá began to use Dahomean currency (CFA franc) after it was occupied by Dahomey (today Benin) on 27 July 1961. • Guiné-Bissau (Guiné, before de independence) replaced the Portuguese escudo by the Guinean peso after independence, proclaimed on 26 September 1973, was recognised by Portugal on 10 September 1974, and the whole territory came under Guinean administration. • Cabo Verde replaced the Portuguese escudo with the Cabo Verdean escudo after independence on 5 July 1975. • São Tomé e Príncipe replaced the Portuguese escudo with the Santomean dobra after independence on 12 July 1975. • Moçambique replaced the Portuguese escudo with the Mozambican metical after independence on 25 July 1975. • Angola replaced the Portuguese escudo with the Angolan kwanza after independence on 11 November 1975. vii

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• Portuguese Timor began to use the Indonesian currency (rupiah) after it was occupied (December 1975) and annexed (17 July 1975) by Indonesia. • Macau went on using the Macanese pataca after it became a special administrative region of China on 20 December 1999, but its currency was already separated from the Portuguese escudo and pegged to the Hong Kong dollar. This radical monetary decolonisation may be explained by two main reasons: The first is that there was a conflictual character of Portuguese decolonisation in general, which, in most cases, involved either occupation by a foreign power (as in India, São João Batista de Ajudá, and Timor), or conflict with local liberation movements (as in Cabo Verde and São Tomé e Príncipe), leading to protracted colonial wars involving terrorism and guerrilla actions (as in Angola, Guiné, and Moçambique). The only exception is Macau, where long standing tension with China was resolved amicably. The second reason is the fact that the attempt to build a Portuguese monetary area embracing all of the territories under Portuguese sovereignty was already faltering when the decolonisation process peaked in the mid-1970s. Leaving aside the first reason, which is political in nature, this research will examine: • Firstly, the reasons for the failure of the attempt to build a Portuguese monetary area between the early 1960s and mid-1970s. • Secondly, the processes of monetary decolonisation of the various territories of the Portuguese colonial empire. As a consequence, beyond the present introduction, this book is divided into four parts: • Part I deals with the origin of the Portuguese Escudo Monetary Zone. It is divided into three chapters that correspond to a chronological analysis of the periods of legislative efforts and implementation for launching the Escudo Monetary Zone, also introducing the reader to the political dimension of the financial difficulties resulting from the colonial war.

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• Part II deals with the difficulties of the Escudo Monetary Zone, the technical discussion on its financial problems, and the introduction of the 1971 reform. • Part III deals with the Portuguese monetary decolonization upon the military revolution of 25 April 1974, which put and end to the prevailing political regime. Decolonization agreements dictated main conditions on the end of the colonial escudo, to establish national monetary units and national banking systems. • Part IV deals with the rise of the new monetary and financial systems in the new independent countries. It analyses the various territories that comprised the Portuguese colonial empire. The newly independent countries preserved their names in Portuguese, and they are referred to as such in this book. Guiné became Guiné-Bissau, and it is referred to as such throughout this book. The names of the banks are also expressed in Portuguese, and this book respects their names. The analysis covers the last quarter of the twentieth century and the first decade of the second millennium. The new-millenium years are too close to the present day to allow an objective full analysis for the purpose of historical perspectives, and many sources are not yet available in the archives, because they are considered to be useful for current-day technical purposes. Only remarkable aspects that frame the international monetary relationships will be mentioned. They are the monetary agreements (namely with Cabo Verde and S. Tomé e Príncipe, which continue in force), and the opening of stock markets. A conclusion offers some lessons regarding the functioning and dismantling of monetary areas, and on the importance of central-banks’ co-operation. Carcavelos, Portugal

Maria Eugénia Mata

Acknowledgements

In 2015, on the occasion of the 40th anniversary of the independence of the former Portuguese colonies of Angola, Moc¸ ambique, Cabo Verde and S.  Tomé e Príncipe, and the establishment of their central banks, the Portuguese Central Bank (Banco de Portugal) decided to promote and fund a research project on the inter-territorial payment system that was in place before the independence (the so-called Escudo Monetary Zone), as well as on the process of monetary transition after the independence.1 I was invited to lead the project and I felt most honoured by this proof of trust. In particular, I am very grateful to Governor Carlos Costa and his continued support during my research. I would also like to thank Maximiano Pinheiro and Maria João Azevedo, of Banco de Portugal, who patiently read my draft and provided very useful comments. Moreover, I am truly indebted to the Historical Archives of Banco de Portugal, particularly to António Gil Matos, Maria do Carmo Rogado, Filipe Fernandes for the high quality technical support when accessing historical sources, and Vera Lory Dantas for images. I am also grateful to BNU-CGD Historical Archives (Rui Lopes Costa, Nuno Carvalho, Filomena Rosa, Ana Monteiro, Helena Gomes and Sónia Borracho), Torre do Tombo National Historical Archives (Silvestre Lacerda, Anabela Borges Ribeiro), Arquivo Histórico Ultramarino (AHU), Arquivo Histórico Contemporâneo do Ministério das Finanças (João Sabino and Ana Gaspar), and Arquivo Histórico das Alfândegas (Isabel Benholiel Silva) for facilitating the consultation of very relevant documents. I want to express my gratitude to my school and alma mater, Nova School of Business and Economics (Faculdade de Economia), and its xi

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Research Center hosting the project. I also feel indebted to the many who discussed with me the research topics and kindly gave their advice and stimulus to write the book, particularly Luís Catela Nunes (my co-author in a paper on the Escudo Monetary Zone), António Agostinho, who provided me many balances of inter-territorial payments, Luís Saramago, for sources and discussion on the monetary agreement with Guiné-Bissau, Nuno Valério, who patiently read my draft and provided very useful comments, José Rodrigues da Costa, for information and bibliography on stock exchanges in the new countries, Luís Campos Cunha, for decisive aspects on the monetary agreement with S. Tomé e Príncipe, António Pinto Barbosa, José Tavares and Jorge Braga de Macedo, with whom I discussed several African issues, Robin de Andrade, who explained me the construction contracts of Cahora Bassa, João Ferreira do Amaral, to whom I am indebted on exchange paralell markets in Guiné, and David Justino, who shared information on this period. John Huffstot, who corrected my English, and Mário Roldão, who received a one semester scholarship to help me in processing the data, should also be thanked. As regards the transition period following the independence of the territories, I benefited enormously from the discussions and co-operation with research teams working on similar issues for Cabo Verde and Moc¸ ambique, namely with João Estevão, José Cláudio Mandlate, and Napoleão Gaspar. Last but not the least, I thank my family for their unconditional love and support. Any errors, omissions or misunderstandings are my responsibility.

Note 1. As part of the same research initiative, in October 2017 Banco de Portugal organized, jointly with the European Association of Banking and Financial History (EABH) the conference “Money in Africa - Monetary and financial decolonisation in Africa in the twentieth Century”.

Contents

1 Introduction: Why to Study “The Portuguese Escudo Monetary Zone and its Impact in Colonial and Post-­ Colonial Africa”  1 Part I  The Origin of the Escudo Monetary Zone   9 2 The Escudo Monetary Zone 11 3 The Difficulties in Launching the Escudo Monetary Zone 25 4 War, Confidence, and Expectations. Adjusting the Rules of the Escudo Monetary Zone 51 Part II  The Transition to a Revised Escudo Monetary Zone  69 5 The Heritage from the 1963–1968 Period. Marcelo Caetano and the Decision of Asking for Studies 71 6 The Technical and Political Discussion of the Escudo Zone Problems, and the Reform of 1971 85

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7 The Results of the 1971 Reform of Escudo Monetary Zone Union. The Angolan and Mozambican Divergence101 Part III  The End of the Revised Escudo Monetary System 121 8 Decolonisation and Independence Agreements. Retornados and Difficulties of the Banking System123 9 The Genesis of the New Currency Units and Banking Systems in the Portuguese-­Speaking African Countries. The Co-operation with Portugal133 10 The End of the Escudo Monetary Zone Fund in 1980. The Continuation of Co-operation151 Part IV Co-operation from Independences to the End of the Millenium 161 11 The New Currencies in the West-African Portuguese-­ Speaking Countries and the Portuguese Co-operation163 12 The Angolan Kwanza and the Portuguese Co-operation193 13 The Mozambican Metical and the Portuguese Co-operation213 14 Final Remarks: Conclusions235 Sources243 Index263

List of Figures

Fig. 2.1

Fig. 3.1 Fig. 5.1

Fig. 5.2 Fig. 6.1 Fig. 7.1

Fig. 7.2

Manuel Jacinto Nunes, Vice-Governor (1960–74), and acting Governor of Banco de Portugal (1963–66), Chair of the Board of Directors of the Monetary Fund of the Escudo Zone. (Source: Banco de Portugal, Gallery of Governors) 16 Rafael da Silva Marques Duque, Governor of Banco de Portugal (1957–63). (Source: Banco de Portugal, Gallery of Governors) 28 Net cumulative positions of all overseas territories and the Mainland, for the 1963–1971 period. (Source: Relatórios Mensais do Agente, from Arquivo Histórico do Banco de Portugal (AHBP). Unit: Million escudos) 77 Annual Military Expenditure. (Source: Madeira, 2008, pp. 266, 285) 78 António Manuel Pinto Barbosa, Governor of Banco de Portugal (1966–1974). (Source: Banco de Portugal, Gallery of Governors) 95 Overall balance (change in the reserve assets): total, with OECD European countries, USA, Canada, and the rest of the world. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal. Unit: Million escudos)102 The relative importance of the trade with regional partners of the EMZ. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal) 102

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List of Figures

Fig. 7.3

Fig. 7.4

Fig. 7.5 Fig. 7.6

Fig. 7.7

Fig. 7.8

Fig. 7.9

Fig. 10.1

Fig. 11.1 Fig. 11.2

Change in the reserve assets of each EMZ partner toward the Rest of the World. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal. Unit: Million escudos)103 Overall accounts (or change in reserve assets of each overseas territory) with the Mainland, and of Mainland with the overseas territories as a whole. (Source: Estatística de pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal. Unit: Million escudos)104 The Angolan annual net debit positions in a monthly cumulative accounting. (Source: Relatórios Mensais do Agente, Arquivo Histórico do Banco de Portugal. Unit: million escudos)107 The Mozambican annual net debit positions in a monthly cumulative accounting. (Source: Relatórios Mensais do Agente, Arquivo Histórico do Banco de Portugal. Unit: million escudos)108 Angolan overall account (changes in reserve assets). (Source: Estatísticas dos Pagamentos Interterritoriais, Informações estatísticas da Metrópole e Ultramar, Sistemas de Pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal) 109 Mozambican overall account (changes in reserve assets). (Source: Estatísticas dos Pagamentos Interterritoriais, Informações estatísticas da metrópole e Ultramar, Sistemas de Pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal) 110 GDP per capita in Angola, Cabo Verde, Moçambique, and Mainland. (Source: Author’s calculations based on GDP, Population and Inflation taken from Nunes et al. (2011) and Madeira (2008)) 114 Liabilities and Equity of the EMZ Fund over time, by Stakeholder and Distributed Profits. (Sources: Balance sheets and accounts of the Escudo Monetary Fund. Relatórios do Conselho de Direcção do FMZE 1963–74, ARQUIVO HISTÓRICO DO BANCO DE PORTUGAL 7450011 para o período 1963–74 and Relatórios do Conselho de Direcção do FMZE 1975–1979, Arquivo Histórico do Banco de Portugal 7450011) 154 The headquarters of BNU/Banco de Cabo Verde in Cabo Verde, Praia city. (Source: BNU Historical Archives in Arquivo Histórico da Caixa Geral de Depósitos) 165 The headquarters of BNU in Bissau. (Source: BNU Historical Archives, in Arquivo Histórico da Caixa Geral dos Depósitos) 171

  List of Figures 

Fig. 11.3 Fig. 12.1 Fig. 13.1

The headquarters of BNU in S. Tomé. (Source: BNU Historical Archives in Caixa Geral dos Depósitos) The headquarters of Banco de Angola in Luanda. (Source: Arquivo Histórico do Banco de Portugal) The headquarters of BNU in Lourenço Marques (Maputo) inaugurated in 1964. (New headquarters are now available). (Source: BNU Historical Archives in Arquivo Histórico da Caixa Geral dos Depósitos)

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179 195

216

List of Tables

Table 2.1 Table 2.2 Table 2.3 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 4.1 Table 4.2 Table 4.3 Table 6.1 Table 6.2 Table 7.1

The issuing of the 1.5 billion escudos of the capital of the Monetary Fund of the Escudo Zone 15 Ceilings for the automatic loans for each of the territories in Decree-law 44703 15 Ceilings for the special loans to each of the territories defined by Decree-­law 44703 17 Value of currencies in the Foreign Exchange Management Funds on 1 March 1963 26 Available metropolitan escudos from the Foreign Exchange Management Funds of other territories before 1 July 1963 26 Loan needs in Guiné in 1963 27 The interest rates approved on 11 November 1964, for loans borrowed from the EMZ Fund 37 The Moçambican Foreign Exchange Management Fund positive position (1959–1963) 55 The interest rates approved on 28 June 1967 for loans borrowed from the EMZ Fund 59 The interest rates approved on 28 November 1968 for loans granted by the EMZ Fund 60 Participation of the territories in the capital of the Fund (Decree-Law nr. 479/71 of 6 November 1971) 94 Settlement distribution of the new amount of capital for the Escudo Monetary Zone Fund, proposed on 22 February 1972 95 Mozambican debt to the Mainland on 30-11-1973 in thousand escudos113

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List of Tables

Table 10.1 Table 10.2 Table 10.3 Table 10.4 Table 12.1 Table 12.2

Balances of the escudo accounts at the Banco de Portugal, belonging to the overseas territories’ Foreign Exchange Management Funds (1973–1976) Remaining debts of the territories’ Foreign Exchange Management Funds to the Escudo Monetary Zone Fund at the moment of the Fund extinction. Unit: Escudos Ceilings of medium to long-run credit lines awarded to the Portuguese-­speaking African countries for Portuguese exports Amount of accumulated debt to Portugal on 31 December of 1988, 1989, 1990, and 1991 Credit lines to BNA by several Portuguese banks (1980) Financial situation of credit ceilings and credit awarded to BNA on 7 March of 1990 (in USD million)

152 155 155 156 199 203

CHAPTER 1

Introduction: Why to Study “The Portuguese Escudo Monetary Zone and its Impact in Colonial and Post-Colonial Africa”

Waves of globalisation connected European countries with all regions of the world. Thanks to sailing abilities and technological superiority, Portugal and other European powers established not only trade connections but also European presence in all continents under great competition for the control of trade and territories over the centuries. The independence of some territories in the late eighteenth and early nineteenth century resulted into a new political map of mixed-migration nations particularly in the American continent, which used their Metropolises’ languages (namely English and French in North America, and Spanish in South America). The late nineteenth-century globalisation framed new colonial empires under the Berlin conference agreement to share territories, in Africa. Economic integration of Metropolis territories (the Metropolises) and their colonised territories built great empires for the U.K., Belgium, France, the Netherlands, Germany, Italy, Spain, and Portugal.1 Many of these empires established monetary zones where the absence of exchange rate risks was a major aspect to implement businesses and economic integration, not only with Metropolises but also among them.2 The Portuguese empire survived consequences of the First World War as a reward for the Portuguese participation in the conflict as a member of the Allies. It also survived the Second World War because of Portugal’s neutral position in this conflict. The study of the Portuguese monetary zone is an issue of interest, both for international comparative history on economic © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_1

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integration patterns, and for domestic purposes related with economic efficiency in currency areas. From the late 1950s, the Portuguese link to the European Free Trade Association (EFTA) for economic integration purposes led to commitments with the General Agreement on Tariffs and Trade, GATT. The free-­ trade philosophy was very useful to the increment of trade with other European partners, to where it was possible to export tropical commodities produced in the Portuguese empire. The Escudo Monetary Zone (ZME, Zona Monetária do Escudo) was founded in this historical context, in order to also improve the economic integration of Portugal and the territories of the empire, and to take advantage of the new international opportunities created by the European economic integration.3 As trade always means economic co-operation and peaceful relationships, the EMZ was considered to be a very important instrument to keep the political ties between the Mainland and the territories of the empire. When this purpose began to be implemented in 1963 seven territories were under Portuguese political rule, five in Africa: Cabo Verde (4000  km2), Guiné (36,000), S.  Tomé e Príncipe (1000), Angola (1,247,000), Moçambique (802,000), and two in Asia, Macau (less than 1000), and Timor (15,000). In 1954 the Portuguese empire had lost Dadrá and Nagar Aveli in India, in July 1961 the African fortress of S. João Baptista de Ajudá, and in December 1961 the small territories of Goa, Damão, and Diu, in India, which were conquered by the Indian Union. The development levels of the Portuguese colonial territories were quite different at that time: In the Metropolis (Portugal-Mainland and the Adjacent Islands of Azores and Madeira) was about 2000 USD per capita, in Angola and Moçambique were about one half of that value, and Cabo Verde was about ¼. Maddison 2001 has no data for other territories, which were presumably poorer. According to the official political philosophy expressed by Oliveira Salazar, the Prime-Minister (more precisely, the President of the Board of Ministers, Presidente do Conselho de Ministros), Portugal was a multi-­ continental country, using a same language (Portuguese), and working under a same flag, as it had always been for centuries, since the early times of the Portuguese nationality in medieval times. He considered education and economic growth as instrumental to integrate the nation:

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As territories will develop and education will spread, local elites will become more numerous and able to assume increased tasks without risk, and advantage, for the national community.4 We have been criticized for our persistent commitment to the ideal multiracial society in the tropics, as if such an idea was opposite to the human nature, the universal moral order or the interests of people, but it is the contrary that happens. Without discussing this problem, I will say that we, the Portuguese, don’t know how to be in the world in a different way, even because it was in a kind of multi-racialty in which we framed our nation eight centuries ago, after the end of several invasions, coming from the East, North and South, that is to say, from Africa itself. From then we preserve a natural trend – which we quote at ease, as it has been recognised by remarkable foreign sociologists – for contacts with other people, from where any concepts of superiority or racial discrimination have been always absent.5

With exaggeration, this political speech was produced in 1962, in the context of the colonial wars against the Portuguese rule and administration, and disregarded the traditional colonial pact practices of protectionism to favour the production of commodities in the Mainland. The Mainland’s exports to colonised territories lost weight in 1960 and 1961. From 23.83% in 1955 they steadily increased to 28.91 until 1959. The decline to 25.57 and 23.23 in 1960 and 1961, respectively, in contrast with increasing exports to foreign countries (including USA, EFTA and ECC partners), was a worrying development that was considered to be the proof for the need of greater economic cohesion. In the 1960s Mundell “supported the idea of a monetary union in Europe”. On the one hand, Europe was a promising continent for the purpose of economic integration following the ravages of the Second World War, and the success of the reconstruction plans, thanks to the Marshall Plan. European empires of victorious nations in the First World War had been enlarged with the German defeat, thanks to sharing the German empire among them, and all the empires offered extension opportunities for economic integration after the Second World War.6 The focus of Mundell’s theories for the European continent is historically understandable. All American attention was devoted to European integration under trade liberalisation. In the context of the Cold War this was a strategic vision. Optimum currency areas were conceived to benefit from geographical scale, and also included geopolitical consideration. In Mundell’s (1961) mindset, which reflected his British education, the International

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Monetary System needed a stable monetary anchor (which was the dollar), because currencies pegged to precious metal recalls the desire of stability, which had been expressed in the earlier historical experiences of the gold-standard (before 1914, and even after the First World War).7 Mundell’s theories did not refer to the growing desire for independence that colonies expressed in all European colonial empires in the world after the end of the Second World War, in the historical context of the Cold War clash between the USA and the USSR, the two global powers. They consider, however, that all European countries were suffering from the extensive destruction that resulted from the ravaging military conflict of 1939–45.8 However, a European common currency unit also had a role to perform. In the cold war context, any US difficulties might have a counterbalance to the dollar if two major currencies existed in the Western civilisation.9 Indeed, since 1965 Mundell had envisaged a European monetary area that “would parallel the dollar and the sterling areas”.10 These areas were defined after the monetary agreements of 1946 and 1947 that followed the Bretton-Woods system foundation. Soon “British governments learned that the management of sterling as an international currency was constrained by American and European attitudes”, because of the British decline in the context of decolonisation: the sterling area included all members of the Commonwealth except Canada, all British colonies and Iraq, Kuwait, other Persian Gulf sheikdoms, Libya, Jordan, Burma, Iceland, and Ireland.11 According to Schenk (2010:132), the UK feared the co-operation with the six founders of the European Economic Community (Belgium, the Netherlands, Luxembourg, France, Germany, and Italy): closer British “co-operation with the Six on reforming the international monetary system was rejected, and instead it was agreed that collaboration with the United States should continue”. The economic philosophy for free circulation of Portuguese commodities throughout the empire was linked to the Portuguese decision to frame a currency zone with the overseas territories under Portuguese political sovereignty, while joining EFTA, “which is of the highest importance for Portugal”, because of “the smallness of Portugal’s market in terms of actual and potential demand”.12 It is the purpose of this study to focus on the Escudo Monetary Zone (EMZ), the framework of its multilateral compensation system, organisational difficulties, and problems at work. The sustainability of a monetary zone is a high-interest issue, from a global perspective. A coloniser rule

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over overseas territories provides enlightenment for studying the instruments of imperial constructions. The sterling, the franc, and the escudo areas, broadly coincided with colonial empires.13 The case of the Escudo Monetary Zone illustrates the consequences of a war for an entire financial and monetary system. High indebtedness of some territories in the context of the Escudo Monetary Zone illustrate saving-investment imbalances associated with decreased confidence in the presence of military events, terrorism, and guerrilla actions.14 Although it was a war made only of insurrections, local guerrilla actions, and terrorism, its purpose was challenging the political sovereignty of the overseas territories aiming at breaking the colonial ties. It is a case of interest because, as Grauwe (2014) says, “There have been few attempts ever to introduce a monetary union without the force of arms”.15 Lessons may be learned from this historical perspective. The Portuguese Escudo Monetary Zone (EMZ) was undoubtedly a macro-political experiment, drawn to promote economic growth and integration of the Portuguese empire. In such an historical context, trust and confidence in the future political control over the territories were major issues. Monetary authorities clearly recognised these features at the time: “Any policy that separates people, discourages entrepreneurship and expels capital, compromising confidence, is undoubtedly wrong”.16 Positive investors’ expectations on the credibility and sustainability of the political framework, against negative investors’ expectations on possible results of explicit conflicts, must be considered. The international background also does matter. In the case of the Escudo Monetary Zone, negative investors’ expectations certainly considered the rising success of local political movements in obtaining funding for guerrilla activities and terrorism from great global powers that supported decolonisation and new political frameworks for Africa. The way to independence and the break from previous ties among the territories of the empire will be studied as a transition to the birth of new currency units. Decolonisation models have meant political independence patterns, and may be associated with keeping or breaking with the strong monetary relationships with the old coloniser Metropolises. The study of the Portuguese-speaking countries in Africa is very significant to add information and historical evidence in order to understand global patterns of monetary behaviour amongst decolonised countries.

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Notes 1. Bonin 2014; Maddison 2001; Newit 1995, p. V; Alexandre 1979. Bettencourt and Curto 2007. 2. Bonin and Valério 2016. 3. The founding instrument was decree-law nr. 44,016 of 8 November 1961. Free trade would be accomplished until 1 January 1972 (article nr. 1). 4. Salazar 1962, pp. 4, 6, Arquivo Histórico Ultramarino, (AHU). 5. Ibid, p. 6. 6. On the wartime escalation of white-settler nationalism in Africa, Rathbone, and Killingray (eds) 1986. 7. Swoboda 1999, p. 4. 8. On the ways that the War contributed to decolonization in Africa, Rathbone and Killingray 1986. 9. For the consequences on the British imperial financial relations, Krozewski 2001. 10. Swoboda 1999, p. 3. Mundell 1973. 11. Schenk 2010, pp. 21–22, 83. 12. Pintado 1964, p. 32. 13. On the franc area see Banque de France 2012. On the sterling area see Schenk 1994; Schenk 2010. 14. Nautz 2015. 15. Grauwe 2014, p.ix. 16. BNU Boletim Trimestral, 2° e 3° Trimestres de 1966, p. 26.

Bibliography Akita, Shigeru, Krozewski, Gerold, Escobar,ita Watanabe Shouchi, (eds), The transformation of the International order of Asia, Decolonisation, the Cold War and the Colombo Plan, London, Routledge, 2014. Alexandre, Valentim, Origens do colonialismo Português moderno: 1822–1891, Lisbon, Sá da Costa, 1979. Banque de France, Direction Générale du Trésor avec recherche historique par Vincent Duchaussoy, Zone franc, 40 ans de coopération monétaire, Paris, 2012. Bettencourt, F., Curto, Diogo R. (eds), Portuguese Oceanic Expansion 1400–1800, Cambridge, Cambridge University Press, 2007. BNU Boletim Trimestral, 2° e 3° Trimestres de 1966. Bonin, Hubert, Banque et identité commerciale. La Société générale, 1864–2014, Paris, Presses Universitaires du Septentrion, 2014.  Bonin, Hubert and Valério, Nuno (editors), Colonial and imperial Banking History, Abingdon, Routledge, 2016.

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Grauwe, Paul, Economics of Monetary Union, Oxford, Oxford University Press, 2014. Krozewski, Gerold, Money and the end of empire: International economic policy and the colonies, 1947–1958, Basingstoke, Palgrave Macmillan, 2001. Maddison, Angus (2001). The World Economy. A Millennial Perspective. Paris, OECD. R. Mundell, “Uncommon Arguments for Common Currencies,” In: H. Johnson and A.  Swoboda, Eds., The Economics of Common Currencies, Allen and Unwin, London, 1973, pp. 114-132. Nautz, Jürgen, the Damin Workshop ‘Conflict potentials in monetary unions’, Warburg, 2015. Newit, Malyn, A History of Moçambique, London, Hurst & C°, 1995. Pintado, V.  Xavier, Structure and Growth of the Portuguese Economy, Lisbon, ICS, 1964. Rathbone, Richard, and Killingray, David (eds), Africa and the Second World War, Basingstoke, Palgrave Macmillan, 1986. Rathbone, Richard, and Killingray, David (eds), Africa and the Second World War, London, Palgrave Macmillan, 1986. Salazar, António de Oliveira “Problemas Portugueses em África, Entrevista concedida pelo Senhor Presidente do Conselho à revista norte-americana LIFE”. Boletim Geral do Ultramar, Lisboa, 38 (443), 1962, R7, Arquivo Histórico Ultramarino, (AHU). Schenk, Catherine, Britain and the Sterling Area, London, Routledge, 1994. Schenk, Catherine, The Decline of the Sterling: Managing the Retreat of an International Currency 1945–1992, Cambridge, Cambridge University Press, 2010. Swoboda, Alexandre, “Robert Mundell and the theoretical foundation for the European Monetary Union”, International Monetary Fund, December 13, 1999.

PART I

The Origin of the Escudo Monetary Zone

CHAPTER 2

The Escudo Monetary Zone

The Escudo Monetary Zone (EMZ, Zona Monetária do Escudo) was launched in 1961.1 In the next year, three decree-laws of 17 November 1962 framed the background for the new monetary regime.2 A first decree regulated the monetary conditions for payment settlements, imports, exports, and private capital flows; the second decree regulated these aspects among national territories using bank accounts of economic agents living in different territories; the third created Foreign Exchange Management Funds, Fundos Cambiais, in the territories where they did not yet exist, and regulated them in the overseas territories. A workgroup headed by Alberto Ribeiro Queiroz gave a technical approval to the system, and prepared the legal framework.3 Macau and Timor were geographically inserted in the piaster zone, but the accounting currency unit was the escudo, and banks should always use it as the standard value in spite of the presence of Hong Kong dollars.4 The entire Portuguese intelligentsia in the political regime defended the economic integration with the overseas territories, and a single currency unit was seen as a very important feature of political unification.5 The established rules of the compensation system among inter-­ territorial payments used the 1:1 parity, to begin on March 1963.6 All payments of all transactions of commodities and capital flows, which were authorised amongst the different national territories, were under the regulation of this multilateral clearing system. © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_2

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Considerable political propaganda accompanied the decision to launch the EMZ.  The Portuguese Adjunct Minister of the Board of Ministers, Correia de Oliveira held a conference, and the daily press announced that 24 million Portuguese (the sum of people living in the entire Escudo Monetary Zone) would benefit from greater economic development.7 The abolition of tariffs on all commodities of national origin, until the end of 1972, was pointed out as a major step for the economic integration with the empire, although the intention was to implement it under a slow path (of 20% of reduction in the first year).8 An analogy with the European Union of Payments was also considered as very hopeful for the same purpose.9 The inter-territorial system of payments was carefully explained in the press, including the 1:1 parity in the context of differentiated local escudo currencies.10 The philosophy for free circulation of commodities and the need for an inter-regional settlement system in the Portuguese space were carefully explained.11 The Banco de Portugal was the agent and reserve bank of the system. A Monetary Fund for the escudo zone was created in the Banco de Portugal to enable the concession of loans to overseas provinces, if necessary, in order to make possible the inter-territorial and international payments of all the territories under Portuguese administration. The Banco de Portugal benefited from a fiscal exemption for operations related with the Escudo Zone Monetary Fund, but not for operations as central bank and reserve bank of mainland Portugal and Adjacent Islands.12 The main features of the payments settlement system were the following: 1. Each territory but Macau were to have a local Foreign Exchange Management Fund (Fundos Cambiais). Macau had no Foreign Exchange Management Fund, and the corresponding duties were entrusted to the local branch of the overseas issuing bank, Banco Nacional Ultramarino (BNU). 2. “Reserve accounts” existed at the Bank of Portugal for each of the overseas territories, held by the respective issuing bank of the territory, “broken down into sub-accounts depending on whether the entries were to be made in escudos, stipulated foreign currencies, or gold”.13 These were to fund possible negative month positions of the respective territory. 3. Reciprocal bilateral accounts were at work in the name of the three issuing banks: Banco de Portugal, the issuer for the mainland Portugal and the Atlantic islands of Madeira and Azores, Banco de

2 THE ESCUDO MONETARY ZONE 

13

Angola, the issuer for Angola, and BNU, the issuer for all other territories, as agents of the Foreign Exchange Management Funds that existed for each of the territories; these were the settlement accounts (contas de compensação). 4. The balance of these bilateral accounts produced surpluses or deficits that were calculated monthly. 5. An automatic multilateral settlement of surpluses and deficits was then taking place monthly, a multilateral clearing proceeding, at the 1:1 parity rate among the Mainland escudo and the different colonial escudos. 6. In this way, net positions for each of the territories could be established monthly in Mainland escudos “by means of suitable entries in the corresponding reserve accounts”.14 7. The Escudo Monetary Fund (EMF) was designed to facilitate the operation of the system by means of automatic loans, or special loans, to enable each Foreign Exchange Management Fund of an overseas territory to balance its inter-territorial and international payments. Automatic loans were allowed up to an amount of 1/3 of the concerned territory Escudo Monetary Fund’s capital, and were automatically granted whenever a territory had a net debt balance greater than the escudo reserve of this territory (unless the local issuing bank, as agent of the Foreign Exchange Management Fund of this territory, were to give notice on the possibility of selling gold or foreign exchange to the Banco de Portugal to be used for this purpose). Special loans could be made available when the ceiling of automatic loans was reached, but the Board of Directors’ authorisation depended on detailed justification by the Foreign Exchange Management Fund of the territory. Economic integration under a common currency was a well accepted paradigm. Theoretical foundations for monetary unions were established. Mundell’s theories were applied to the foundation of the European Monetary Union and later won him the Nobel Prize in 1999 for his work on currency areas.15 In this paradigm, free trade, free labour, and free capital movements were considered to be the conditions for automatic adjustments toward international co-operation and productive specialisation, which promoted economic integration, efficiency, growth, and development. These were also the stated principles for the Portuguese escudo zone currency area.

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Fears about possible problems of indebtedness of some territories toward the Mainland and the EMZ were already expressed, and the example of the UK toward IMF was cited.16 The amount of monetary circulation, discount rate, and the escudo definition in gold were considered to be important instruments of control.17 The participation in two free trade zones, EMZ and EFTA, was considered to be very strategic and favourable to Portuguese consumers, and the stimulus to banks to establish national networks was also expected to be remarkable.18 Luso-tropicalism theories supported the EMZ project. The term colony had been dropped in the 1951 revision of the Portuguese Constitution, “emphasizing the claim that the African territories and Portugal formed a single indivisible country”.19 In 1954 the Ministry of the Overseas had implemented citizenship rights to the local populations under a special citizenship statute for natives (estatuto do indigenato),20 for the purpose of free circulation of people and access to education. The new political-­ administrative statutes that were published in 1963 for the five African territories (Cabo Verde, Guiné, São Tomé e Príncipe, Angola, and Moçambique) accommodated the new financial framework of the EMZ.21

The Operation of the Compensation System in the Escudo Monetary Zone The Monetary Fund of the Escudo Zone had capital amounting to 1.5 billion escudos, 1/3 of which was allocated to the concession of automatic loans to the overseas territories in case of difficulties in meeting net debt positions. The remaining 2/3 could fund loans for the same purpose or any transaction between two territories. Exceptionally, and with the authorisation of the Banco de Portugal, the remaining 2/3 of the Fund capital could also be used in obtaining international means of payments for international transactions. The issuing of the 1.5 billion escudos of the capital of the Monetary Fund of the Escudo Zone (Table 2.1) was authorised through the emission of 1500 debentures of 1 million escudos each, with the Portuguese central state as guarantor.22 Casa da Moeda, was the printer, under the rule of the Administrator-Engineer Tavares Fernandes. The contributions should be:

2 THE ESCUDO MONETARY ZONE 

15

Table 2.1  The issuing of the 1.5 billion escudos of the capital of the Monetary Fund of the Escudo Zone Fazenda Nacional Treasure Banco de Portugal BNU

Banco de Angola Total

500 million escudos

500 million escudos 250 million escudos (In compensation BNU was authorised to increase equity to 500 million escudos. 22° Relatório Trimestral confidencial do Comissário do Governo junto do BNU. PT/CGD/ BNU/01OA/5CG/3/3/02022. BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos.) 250 million escudos 1500 million escudos

Table 2.2  Ceilings for the automatic loans for each of the territories in Decree-law 44703

Cabo Verde Guiné S. Tomé e Príncipe Angola Moçambique Macau Timor

20 million escudos 45 million escudos 20 million escudos 250 million escudos 150 million escudos 7.5 million escudos 7.5 million escudos 500 million escudos (1/3 of the fund capital)

Ceilings for the automatic loans for each of the territories were established (Table 2.2)23 According to the rules, automatic loans had no specific deadlines by which to be repaid, but any payment surplus obtained by the borrowing territory would be used for the loan repayment. Moreover, whenever a debtor territory had reserves, foreign currency, or even Mainland escudos, all incentives were given to the territory to use these funds for the repayment of outstanding loans. There was a Board of Directors of the Monetary Fund of the escudo Zone.24 Manuel Jacinto Nunes, chaired this Board (Fig. 2.1). Other members were the Governor of the Banco Nacional Ultramarino, the Governor of the Banco de Angola, the General-Director of the Secretariado Técnico da Presidência do Conselho, the General-Inspector of Credit and Insurance, the Chief of the Repartição de Finanças, the

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M. E. MATA

Fig. 2.1  Manuel Jacinto Nunes, Vice-Governor (1960–74), and acting Governor of Banco de Portugal (1963–66), Chair of the Board of Directors of the Monetary Fund of the Escudo Zone. (Source: Banco de Portugal, Gallery of Governors)

General-Director and another member of the Economics Commission of the Ministry of Overseas Affairs. Jacinto Nunes presided over all but one of the 122 meetings of the Board of Directors.25 The grant of special loans was a decision of the Board of Directors of the Escudo Monetary Zone, subject to the confirmation of the Minister of Finance. With the approval of this Board, any of the Foreign Exchange Management Funds (Fundos Cambiais) could cede its total or partial capacity for obtaining loans to any other Foreign Exchange Management Fund in need, for a given period of time, according to those needs. Ceilings for the special loans to each of the territories were also established (Table 2.3)26:

2 THE ESCUDO MONETARY ZONE 

Table 2.3  Ceilings for the special loans to each of the territories defined by Decree-­law 44703

Cabo Verde Guiné S. Tomé e Príncipe Angola Moçambique Macau Timor

17

40 million escudos 95 million escudos 40 million escudos 500 million escudos 300 million escudos 12.5 million escudos 12.5 million escudos 1 billion escudos (2/3 of the fund capital)

Overseas territories’ Foreign Exchange Management Funds could also grant temporary loans to the Banco de Portugal, (which was the monetary authority for the entire escudo zone), but these could not amount to more than ¾ of the total amount of automatic loans that the territory could be afforded by the escudo monetary zone. The Banco de Portugal was the central institution for gathering and handling gold and other international means of payment for the whole system. From 1961 on there was an international central banking cooperation to stabilize the price of gold expressed in dollars, because the gold-­ dollar parity was the main basis on which the entire international monetary system was built. This attempt was labelled Gold Pool. It consisted of operations for purchasing and selling gold in London in a coordinated way, increasing gold demand and supply, in order to keep stable the dollar price of gold. So, the international common sense supposed that central banks were the institutions that gathered and handled the entire amount of gold reserves in each national economy.27 In Portugal, and in spite of the existence of issuing banks for the overseas territories, in all territories with the exception of Macau, gold and other international means of payment were collected by the respective local Foreign Exchange Management Funds, under the administration of each of the territories’ Inspecção de Crédito e Seguros e do Comércio Bancário (Inspection for Credit, Insurance, and Banking). The local Exchange Management Funds would sell (and buy) international means of payment to (and from) the local commercial banks and other institutions legally authorised for the business of money exchange,28 according to the needs of local operations in the economies of the territories.

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According to a determination from the Ministries of Finances and the Overseas territories, all the gold and international means of payment that were obtained by the Foreign Exchange Management Funds in the territories were to be deposited at the Banco de Portugal, as agent of the entire payment settlement system. Deposits would be made in accounts of reserves for each of the territories in the name of the issuing bank of each of those territories, as agents of the local Foreign Exchange Management Funds (Fundos Cambiais). The issuing banks of the territories could maintain Exchange Management Funds expressed in international means of payment for current payment operations. The overseas issuing banks were the agents of the territories’ Exchange Management Funds, making all the territorial payments and issuing money for these Funds to buy gold and other international means of payments that were necessary throughout the year. On the first day of every month the overseas issuing banks were to report to the Banco de Portugal on the state of the settlement accounts of each territory. If negative, they should disclose if the territory had reserves to meet the difference and if the local Foreign Exchange Management Fund wished to use them to settle the debt, or if an automatic loan was required.29 Only then could the Banco de Portugal specify a date for the multilateral compensation and settlement, and check the balances of its own books to have the net statement of each territory. If negative, the Banco de Portugal could sell any international means of payments of the overseas fund in deficit against metropolitan escudos. The Banco de Portugal could purchase the gold reserves or the foreign currencies of the territory that the Foreign Exchange Management Fund desired to dispose of, or would record the necessary entries in the accounts of the monetary zone fund to grant an automatic loan.30 The official international price of gold of the Bretton-Woods/IMF international monetary system, to which Portugal had adhered in 1961, was 32,351.990 escudos per Kg. Historically, gold reserves under the custody of central banks have been a decisive feature of any national economy for the setting of the exchange operations, particularly in fixed exchange-­ rate monetary regimes.31 The international Gold Pool system was already considered to be the most ambitious historical cooperation amongst central banks of the Western world.32 In spite of that, there never existed any direct obligation of BNU or Banco de Angola to sell gold to the Mainland. All selling operations to obtain metropolitan escudos resulted from proposals of the local Foreign Exchange Management Funds, for the purpose of

2 THE ESCUDO MONETARY ZONE 

19

settling payments related with imports from the Mainland and transfers. Moçambique was the territory with the closest access to gold, thanks to Mozambican emigration to South Africa, namely for gold mining. As a conclusion, the creation of the EMZ and the new role of the Bank of Portugal in gathering the entire stock of gold reserves of the EMZ, as agent of the entire system, obliged the transfer of gold stocks from BNU-­ Moçambique, as agent of the local Foreign Exchange Management Fund to Banco de Portugal-Lisbon. The accounting system of the EMZ Fund records gold prices that were negotiated with BNU. The fact that BNU could decline the sales proves the existence of a competitive international market for gold.33 According to historical sources,34 after 11 previous operations of this kind since 1959, the Moçambican gold-selling operations were frequent in the context of the creation of the Escudo Monetary Zone. Ships belonging to the two navigation companies (CNN and CCN) or airplanes belonging to the Portuguese airlines (TAP) transported the gold bars in boxes, from Moçambique to Lisbon. Letters from BNU to the Banco de Portugal asked what price the Banco de Portugal offered for gold respecting the London “good delivery” requisite, transported to Lisbon, with insurance for risk on the seller side. BNU had the capacity to negotiate the price with Banco de Portugal, and thereby the possibility to defend the interests of Moçambique.35 From late 1961 to September 1963, earmarked good delivery 26,780 tons of gold were moved, at prices in the interval [32.410–32.428] escudos per gram, above the official price of gold.36 All of this sought to contribute to the unification of the Portuguese markets and the national economic integration. In this context, and thanks to the decrees of 1961 and 1962, the Banco de Portugal assumed much wider functions in order to be the central bank of the whole system of payment settlements amongst all territories under Portuguese political sovereignty and administration. For this purpose, a new charter for the Banco de Portugal was issued,37 and a new contract was signed with the Portuguese Treasury on 1 March 1963.38 Contracts between the overseas issuing banks and contracts between them and the Portuguese Treasury were also signed.39 Banco de Angola and BNU lost some of their local functions of central banking in the overseas territories in favour of the Portuguese central bank, Banco de Portugal, although retaining the issuing monopoly under the directives of the monetary policy set by the Banco de Portugal. BNU was founded in 1864 as a private bank, and Banco de Angola was formally created during the 1923

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M. E. MATA

Angolan inflationary disarray.40 However, the role of Banco de Angola actually began in 1926, when it replaced BNU in the privilege of money issuing in Angola.41 From then on, the local Foreign Exchange Management Funds had legal entity status, and became agents of the respective issuing bank. Choices between priorities and objectives such as price stability, economic growth targets, micro efficiency, and distributional effects always existed for central banking.42 These were now centralised in the Banco de Portugal.

Notes 1. Decree-law nr. 44016 of 8 November 1961. 2. Decree-laws nr. 44698, 44701, 44702, with detailed instructions: Instruções a que se refere o art° 28° do Decreto-Lei n° 44698, de 17 de Novembro de 1962, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 4. 3. Other members were Arménio Fonseca Lopes, Álvaro Ramos Pereira, Joaquim Nunes Mexia, João Silva Guerra, Nuno Gomes da Silva, Augusto Lucas, and Victorino António Bento. 4. According to Bases 73ª, 76ª of the 1953 Lei Orgânica do Ultramar, and a monetary reform for Timor by decree-law nr. 41428 of 6 December 1957 41680. BNU/01OA/5CG/1–333, BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. Pataca was the Portuguese translation for piaster. Valério, 2016. See also Portaria 7299 of 21 August 1963. 5. Oliveira, 1961. Parecer do Conselho de Administração do BNU, BNU/01OA/5CG/1–333, BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. An attempt was pursued to uniform coined currency in the entire Portuguese space, in April–July 1965, but it was not successful. Uniformização da moeda metálica em curso no espaço português, PT/CGD/BNU/01OA/5CG/1–74, BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 6. Decree-laws from 17 November 1962. Valério 2001, pp. 262–64. 7. Jornal do Comércio, 6 September 1961. 8. Pacheco de Amorim, Comércio do Porto, 12 September 1961. Jornal do Comércio, 13 September and 20 October 1961. 9. Comércio do Porto, 26 September 1961. 10. Pacheco de Amorim, Comércio do Porto, 3 and 10 October 1961. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português, Pasta n° 1. 11. Oliveira, 1961.

2 THE ESCUDO MONETARY ZONE 

21

12. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português, Pasta n° 11. Valério, 2015: 9–37. 13. Annual report of the Banco de Portugal to the Board of Directors of the International Monetary Fund, regarding the year of 1963, p. 120. 14. Annual report of the Banco de Portugal to the Board of Directors of the International Monetary Fund, regarding the year of 1963, p. 121. 15. Mundell 1961. 16. Pacheco de Amorim, Comércio do Porto 18 October 1961. Diário Ilustrado of 22 October 1961. 17. Pacheco de Amorim, Comércio do Porto, 14 November 1961. 18. Jornal do Comércio, 8 Nov 1961. Correia de Oliveira presented the EMZ project in EFTA, at the meeting of 20 November 1961, in Geneve. Jornal do Comércio, 21 November 1961. O Comércio, 15 November 1961. 19. Newit 1995, p. 473. 20. Coming from decree-law of 20 May 1954. See also Azevedo 2017, p. 11–12. 21. Decree-laws 45371 to 45375 of 22 November 1963. 22. Decree-law nr. 45146 of 20 June 1963. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português, Pasta n° 17. 23. Decree-law 44703. 24. According to art. 55 of the decree-law 44703 of 17 November 1962. 25. The exception was meeting nr. 24, on 9 February 1965, in which he was replaced by the Vice-Governor of the Banco de Portugal, João Augusto Dias Rosas (Actas do Conselho de Direcção do Fundo Monetário da Zona do Escudo, pp.  36 verso-44 verso, vol 2). Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1964–1965. FMZE/Dir/001/002. This meeting was devoted to the appraisal of the Agent’s monthly report of December 1964. 26. Decree-law 44703. 27. Bordo; Naef, 2017. 28. The Decree-law nrs. 44699 and 44700 of 17 November 1962 regulated business of money exchange in the Metropolis and in the overseas territories, respectively. (They replaced the prescriptions of the decree-law nr. 41403 of 27 November 1957 and the decree-law nr. 42461 of 12 November 1959, after the main regulations of the Decree nr. 10071 of 6 Sept 1924). 29. Fundo Monetário da Zona do Escudo, Notes on the system for compensation and inter-territorial payments, 1963. 30. Articles 25 and 26 of Decree-law 44703.

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M. E. MATA

31. Kock 1982, 121. 32. Bordo; Naef, 2017. 33. Telegram of 25 February 1963 from BNU to the Banco de Portugal proposed to sell 990,088.797 gr. of fine gold, and asked for the price. The price proposed, of 32,380 escudos per Kg to BNU, by letter of 28 March 1963 was rejected, and the operation was cancelled. Movimento da espécie ouro, Banco de Portugal/Banco Nacional Ultramarino, Aquisições n°s 1 a 25, 1959.03.06–1963.04.24. Portugal. Arquivo Histórico do Banco de Portugal. Banco de Portugal. Contabilidade com o Exterior. Movimento da espécie ouro. Aquisições de ouro ao BNU, 1959–1963. BP/ CExt/012/23. 34. Movimento da espécie ouro, Banco de Portugal/Banco Nacional Ultramarino, Aquisições n°s 1 a 25, 1959.03.06–1963.04.24, Portugal. Arquivo Histórico do Banco de Portugal. Banco de Portugal. Banco de Portugal. Contabilidade com o Exterior. Movimento da espécie ouro. Aquisições de ouro ao BNU. 1959–1963. BP/CExt/012/23. 35. BNU letter 6461 Direcção-FD./JG of 4 November 1961. BNU letters nr. 6702Direcção-FD./JG., of 15 November 1961, 6917 Direcção-FD./JG of 27 November 1961, 3917 Direcção-FD./JG., of 27 November 1961, and nr. 7 Direcção-FD./JG of 2 January 1962. Movimento da espécie ouro, Banco de Portugal/Banco Nacional Ultramarino, Aquisições n°s 1 a 25, 1959.03.06–1963.04.24, Portugal. Arquivo Histórico do Banco de Portugal. Banco de Portugal. Contabilidade com o Exterior. Movimento da espécie ouro. Aquisições de ouro ao BNU, 1959–1963. BP/ CExt/012/23. 36. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Sistemas de compensação e pagamentos interterritoriais. Ouro. 1963–1969. Cópia do Diário extraordinário feita em 31 de Março de 1959, Movimento da espécie ouro, Banco de Portugal/Banco Nacional Ultramarino, Aquisições n°s 1 a 25, 1959.03.06–1963.04.24, Portugal, Arquivo Histórico do Banco de Portugal. Banco de Portugal. Contabilidade com o Exterior. Movimento da espécie ouro. Aquisições de ouro ao BNU, 1959–1963. BP/ CExt/012/23. 37. Decree-law nr. 44814 of 28 Dec 1962. 38. Published in the official record Diário do Governo, of 8 March 1963, II series. 39. Respecting decree-law nrs. 44891 and 44892 of 20 February 1963. 40. For the advent of banking in Africa, Uche, C. U., 1999. For other African currency crises Maxon, R. M. 1989, and Gardener, Leigh, 2015.

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41. Decree nr. 364 of 14 September 1923. Decree nrs. 12124 and 12131, of 14 and 16 August 1926, authorised money-issuing functions, to replace BNU in this privilege, in Angola. This privilege was renewed until 17 September 1976, according to the statutes of decree nr. 43963 of 10 October 1961, and Decree 44479 of 26 July 1962. Sousa, 1967, pp. 103–106. 42. Goodhart 2003, p. 65.

Bibliography Azevedo, Ário L., “Depoimento 2009” in Conferência de homenagem a Ário Lobo de Azevedo, ISA, Universidade de Évora. Lisboa, INIAV, SCAP, 2017. Banco de Portugal, Annual report of the Banco de Portugal to the Board of Directors of the International Monetary Fund, 1963. Bordo, Michael and Naef, Alain, “The Gold Pool (1961-1968) and the fall of the Bretton Woods system. Lessons for central bank cooperation”, Discussion Papers CEPR, DP 12425, Nov 2017. Fundo Monetário da Zona do Escudo, Notes on the system for compensation and inter-territorial payments, 1963. Gardener, Leigh, ‘The curious incident of the franc in the Gambia: exchange rate instability and imperial monetary systems in the 1920s’, Financial History Review, 22, 3, 2015: 291–314. Goodhart, Charles, “Whither Central Banking?” in Altig, David; and Smith, Bruce, Evolution and Procedures in Central Banking, Cambridge, Cambridge University Press, 2003: 65–92. Kock, M.  H., A Banca Central, Lisboa, Banco de Portugal, 1982 or Banca Central, Mexico, Fondo de Cultura Económica, 1995. First edition Central Banking, 1939. Maxon, Robert M. ‘The Kenya currency crisis, 1919-21 and the imperial dilemma’, Journal of Imperial and Commonwealth History, 17, 3, 1989: 323–348. Mundell, R.  A. “A theory of optimum currency areas”, American Economic Review, Nov 1961: 657–665. Newit, Malyn, A History of Moçambique, London, Hurst & Co, 1995. Oliveira, José Gonçalo da Cunha Sotomaior Correia de, A livre circulação de Mercadorias e o Sistema de Pagamentos Inter-regionais no Espaço Português, Lisbon: Presidência do Conselho, 1961. Portuguese National Library. Uche, Chibuike Ugochukwu (1999), ‘Foreign banks, Africans, and credit in colonial Nigeria, c. 1890-1912’, Economic History Review 52, 4, 669-691. Valério, Nuno, The Escudo, the Portuguese currency unit 1911-2001, Lisbon, Banco de Portugal, 2001.

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Valério, Nuno, “Monetary Decolonisation: Breaking or preserving colonial monetary áreas?” Paper presented at the Damin Workshop ‘Conflict potentials in monetary unions’, Warburg, 2015a, 2016 for the revised version. Valério, Nuno, 2015b, “Political Independence and Technical Independence of Central Banks: A Crucial Distinction for European Monetary and Banking Union”, The Journal of European Economic History, XLIV, 2: 9–37.

CHAPTER 3

The Difficulties in Launching the Escudo Monetary Zone

The Escudo Monetary Zone system began operating on 1 March 1963.1 The implementation and management of the Escudo Monetary Zone were tremendously difficult for many reasons, which can explain the long delay from 8 November 1961 to the actual start of its operation on 1 March 1963: (a) International means of payments in the local Foreign Exchange Management Funds of the colonies were short. It took some time to set the territories’ reserve accounts. It was necessary to account the balances of their Foreign Exchange Management Funds by currency. On the starting date, 1 March 1963, the value of currencies in the Foreign Exchange Management Funds was very low (Table 3.1). With the exception of Moçambique, where foreign transactions afforded rands, pounds, Rhodesian dollars, and marcs, existing balances were made only of metropolitan escudos, on the eve of the implementation of the EMZ (28 February 1963).2 In metropolitan escudos they amounted to: These were the initial values. Only the Foreign Exchange Management Funds of Moçambique (and Timor, on a much smaller scale) had surpluses (saldos credores) in foreign currencies. The first reserve account to be set was the Mozambican.3 © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_3

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Table 3.1  Value of currencies in the Foreign Exchange Management Funds on 1 March 1963

Guiné S. Tomé e Príncipe Moçambique Timor

23,696,688$78 11,729,293$72 50,885,512$37 5,247,811$84 91,559,306$71

Source: Saldos credores dos “Fundos Cambiais” no Ultramar em escudos metropolitanos. Arquivo Histórico do Banco de Portugal

Table 3.2 Available metropolitan escudos from the Foreign Exchange Management Funds of other territories before 1 July 1963 Cabo Verde (on 31 May 1963) Guiné (on 31 May 1963) S. Tomé e Príncipe (on 31 May 1963) Timor (on 28 February 1963) Moçambique

5,716,185$25 16,733,902$58 5,616,445$80 5,247,811$84 50,000,000$00, (an amount based on the balance to be estimated)

Macau had no Foreign Exchange Management Fund (Fundo Cambial), and the corresponding functions rested on to BNU. For the creation of a Foreign Exchange Management Fund in Macau, the reserve account was to receive funding from other territories’ Foreign Exchange Management Funds.4 BNU planned to move the available metropolitan escudos from the Foreign Exchange Management Funds of other territories before 1 July 1963 (Table 3.2). Five other territories were supposed to lend the amounts of their surpluses to Macau for this purpose, to be repaid by Macau later on5: TOTAL value for Macau’s Foreign Exchange Management Fund 83,314,345$47. In practice, BNU went on assuming Foreign Exchange Management Fund functions in Macau.6 (b) It was difficult to settle the capital of the EMZ Fund. It was difficult to issue and settle the capital of the Escudo Zone Monetary Fund. In August 1963 no part of the capital of the Fund was yet

3  THE DIFFICULTIES IN LAUNCHING THE ESCUDO MONETARY ZONE 

27

paid up.7 The net positions of current account balances were then transferred to the territories’ reserve accounts.8 The capital of the Fund was issued according to the needs of loans for the territories. The issuing banks should have contributed to the Fund by using their funds in the Mainland, where they had agencies as commercial banks.9 Pressing needs to award loans to Guiné and Angola demanded settling some of the capital of the Fund: The Decree-law nr. 45146 of 20 July 1963 authorised the issue of 1500 debentures (obrigações) having a nominal value of one million escudos each, having the same guarantees of all other Portuguese Treasury bonds. In the meeting of 21 August 1963 the Board of Directors decided to issue 500 million escudos in a first step. Only in September 1963 did this amount become available for providing automatic loans to Guiné and Angola. Needs in Guiné were related to the end of the circulation of the Senegal franc, which was useful for imports from this French colony (Table 3.3).10 The second issue of 150 million escudos, in a second step, on 11 November 1963, completed 43.3% of the total capital of the Fund. The contribution of participating institutions to the paid up capital was made according to the share established for each of them in the total amount of the Fund capital. The Exchequer (Fazenda Nacional) had some difficulty in achieving its own underwriting position for the issues of capital for the Escudo Monetary Zone. The 50 debentures of the Treasury were made available only on 11 January 1964.11 A three-month special loan amounting to 100 million escudos was also awarded to Angola on 20 November 1963 at a 3% interest rate, according to the Angolan credit ceiling.12

Table 3.3  Loan needs in Guiné in 1963

To Guiné: On 16 August 1963 On 15 October 1963 On 21 November 1963 To Angola: On 15 October 1963 On 21 November 1963

13, 513,813$98 21,706,613$58 15,887,029$01 51,107,456$57 95,411,153$60 154,588,846$40 250,000,000$00

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M. E. MATA

(c) Legal, organisational, and administrative matters took time to be implemented. The EMZ legal details were carefully negotiated. Several text-improved versions for the 1962 decrees were prepared and are preserved.13 The Banco de Portugal sent technical corrections to the projects of the decrees to the Ministries of Finance and Overseas, on 22, 29, and 30 August 1962. Comments received from these Ministries evoked the Governor’s preference to promote understandings, which reveal difficulties in drawing borders between the rule of these two Ministers over the system of inter-­ territorial payments (Fig. 3.1):

Fig. 3.1  Rafael da Silva Marques Duque, Governor of Banco de Portugal (1957–63). (Source: Banco de Portugal, Gallery of Governors)

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29

“As for the Ministers’ competencies the Bank said what seems the better (…) the Bank always intended that Ministries of Overseas and Finance were not bargaining, but both co-operated for the good implementation (funcionamento) of the system”.14

Procedural details for launching the accounting system and to record the operations of the Escudo Monetary Zone were needed.15 At the meeting of 23 March 1962, of the Board of Directors of the central bank, headed by the Governor Rafael Duque, and membres of the Board Álvaro Ramos Pereira, Joaquim Nunes Mexia, and João da Silva Guerra it was decided to create a group of experts (made up by Fonseca Lopes, Gomes da Silva, Saldanha do Valle, Rómulo Rodrigues, and the Adjunct Minister Correia de Oliveira, assisted by Canelhas Correia and Nogueira Santos), with the mandate to come up with practical details to the more general provisions of the founding decree-law 44016 of 8 November 1961. As for the accounting rules, another working group with that specific mandate was created on 13 September 1963. The co-heads were Victorino Bento and Ramos Pereira. Santos de Almeida drafted the instructions for the experts and specialised staff that would be in charge to accomplish this task.16 The Banco de Portugal also created a new administrative office, the Accounting Service of the Escudo Monetary Zone with strict rules.17 Monthly and annual reports were to be produced for submission to the Board of Directors of the Escudo Zone Monetary Fund. This Accounting Service was also in charge of keeping the accounting books and an archive of all documents regarding any and all operations.18 The Board of Directors was to make an annual report to the Minister of Finance and the Board of Ministers for Economic Affairs.19 These monthly and annual reports, which are available today in the Historical Archives of the Banco de Portugal, are the main sources for the present research. The monthly reports gave place to quarterly reports as a result of a decision of the section of Monetary Policy of the Board of Ministers on 20 September 1973. As the last monthly report was dated June 1973, only one quarterly report was ever written, because of the revolution of 25 April 1974 and the end of the Portuguese political regime. Archiving letters and recording meeting was a task belonging to the administration general offices (Direcção de Serviços de Expediente Geral). (d) Reliable statistical information was scarce.

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M. E. MATA

To give the example of GDP, in 1961 BNU was co-operating with a workgroup in charge of estimating national revenue and GDP in overseas territories, namely Guiné.20 The implementation of the 1961 and 1962 decree-laws on the EMZ was urgent. New instructions on the collection of exchange statistics were disseminated on 1 April 1963.21 The intention was to have that information available before the 15th of each month following the one to which the information was related, but in practice the information was not reported on time. Information pertaining to the behaviour of the balance of payments of overseas territories was late due to several difficulties in gathering and checking data.22 Only in July 1963 was it possible to determine the current account balances of the reserve accounts of each of the overseas territories. In September 1963 statistics on the last three months of 1962 were not yet available.23 In June 1964 the Board of Directors acknowledged that instructions and rules had been established much later than the official starting date of the EMZ, and recalled the difficulties of installing the required public offices in most of the territories.24 Information about the working balances of the credit institutions authorised to perform exchange business (comércio de câmbios) in the overseas territories was also released late. Lateness in knowing the territories’ special accounts in the BNU prevented the accounting estimation of currency positions of the local Foreign Exchange Management Funds. Delayed reporting of data regarding availability of international means of payments was the cause. The Banco de Portugal gave instructions to commercial banks and the overseas issuing banks to send monthly tables of statistical information. This information should cover their responsibilities toward citizens in the overseas territories, expressed in metropolitan escudos, on the last day of the month (including bank deposits, private capital operations, transfers, and the balances of other accounts). The overseas issuing banks should send tables detailing all exchange operations. Two other tables should summarise their stock of foreign currencies, and the overseas Foreign Exchange Management Funds’ stocks of foreign currencies, respectively. Other tables should report data on responsibilities toward non-residents (by country), coined and not-coined gold available, and foreign currencies available, on the last day of the month. The trade balance tables should contain the value of exports and imports, and the tables for the balance of services should also include freight and passenger transportation, insurance, and re-insurance (for commodity transportation), tourism and other revenues (such as storing, commissions, or ship

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31

repair), by country and by territory. The current account balance should include interests paid abroad for the public debt service, and private and public transfers (pensions, emigrants’ remittances, and wages paid abroad or received from abroad by residents in Portuguese territories). The capital account should include data on foreign investment in Portuguese territories, and Portuguese investment abroad, bills of exchange or other payment orders, and loans and borrowing repayment.25 All such information was to reach the Banco de Portugal before the 15th of the month following the reference date, and should also be sent to the General Inspection of Credit and Insurance (Inspecção Geral de Crédito e Seguros). Detailed instructions on the statistical criteria were also provided.26 They recalled all the obligations set in 1961 and 1962: All agencies of the Banco de Portugal were contacted to spread these instructions on inflows and outflows, for the exchange statistics (Estatísticas Cambiais).27 Each Credit Inspection of overseas territories had to summarise all the information in the tables of the balance of payments of each territory, and send a copy to the Banco de Portugal. The deadline for submitting annual information for each year was 31 March of the following year.28 The Banco de Portugal was to inform the Ministry of Finance and the Ministry of the Overseas on the situation of the balances of payments of each territory. The balance of payments of the whole Escudo Monetary Zone was to be estimated on a three-month quarterly basis.29 It was recognised that the amount and complexity of these tasks required four more employees to be recruited for the accounting services of the Banco de Portugal, who were recruited to have substantial expertise in currency exchange transactions.30 In the absence of available statistical information on the balances of payments for the first years of the EMZ, the Board of Directors of the EMZ Fund expressed great concern about the condition of the overall EMZ balance of payments situation throughout 1964. At the time, the technology available for communications was very slow and time-consumming in comparison to today’s facilities. It was based on printed forms to be filled out by hand or typewriter. Computation facilities included only desk manual calculators. Only telegrams were used for important long-distance communications. Telephones were few, and calls were expensive, especially for intercontinental calls, and proved to be challenging to work with.31

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M. E. MATA

(e) There was a tremendous unbalance in monetary operations amongst the different territories. Due to the different degrees of development, the economies of the territories were rather closed and only about 4–5% of the total value of transactions were carried out between overseas territories, and about 2/3 of these operations were between Angola and Moçambique or Angola and Macau (1/3 for each).32 There were also permanent and large credit positions of Metropolitan Portugal toward all territories, with the exception of Guiné and S.  Tomé e Príncipe.33 These two territories usually had surpluses in their payments with the Mainland. This fact may result from their productive specialisation in groundnuts, tropical oils, cashew nuts, rice, coconuts, and cacao, as a result of a long-run process of trade specialisation and monetary economic integration.34 In the case of Guiné, when the war required large military operations, the presence of troops was a very important contributor to the surplus in payments, because they were partially paid in local escudos. There was a permanent and large debt position in the cases of Angola and Moçambique.35 In these two territories, important corporations spent large amounts of their revenue. In the case of Diamang in the Angolan district of Lunda: “the Company leaves in the Province [of Angola], in practice, everything she obtains”.36 After paying for all production costs in prospecting and mining diamonds, the Company allocated resources to local investment, and paid taxes to Angola, which amounted to 50% of the profits.37 The net profits also rewarded shares of residents in this territory (200,000 shares), and the company granted important loans to the local government, beyond offering donations for military buildings, local health units, and for Angolan social assistance institutions. Imports of technology did not come from other colonial territories, but from the Mainland, and the payment of dividends to shareholders also added to the demand of transfers to the Mainland, because they did not live in other colonial territories, but in Lisbon. In one way or another, there was a tremendous asymmetry in the reciprocity of monetary operations between the colonial territories and Metropolitan Portugal. (f) The Escudo Monetary Zone had no central bank before 1963.

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Although BNU and Bank of Angola were to answer to the Banco de Portugal, a report of the BNU Board of 12 September 1963 tells of “a structural senseless inter-territorial payment system”.38 Reccommendations by the BNU Governor Francisco José Vieira Machado were implemented39: In order to unify the credit system and frame a coherent monetary union “for the creation of favourable conditions to finance overseas’ economic activities” the banking rules that prevailed in the Metropolitan Portugal were extended to the overseas areas.40 This extension was a clarification for Portuguese banks’ agencies to operate in the territories. BNU and Banco de Angola were quasi-public institutions, with a mission in terms of contributing to the development of the colonies, and monopoly rights for issuing banknotes. They were the government’s bankers and agents, and banking supervision historically appeared when other commercial banks began operating in the territories, an aspect pertaining to central banking functions.41 Other aspects also accompany the definition of central banking, such as banking regulation, financial crisis prevention policies, control of credit, lending of last resort, exchange-rate policy, and monetary policy anchoring, but were transferred to the Banco de Portugal, the Portuguese central bank.42 The inspection functions of the National Board of Credit (Conselho Nacional de Crédito) were reinforced to control credit in the entire system.43 There is an important role of bank lending in any national economy.44 The control over Banco de Angola and BNU belonged to representatives of the government, and their administration boards had the participation of a member designated by the Ministry of Overseas, another from the Ministry of Finance, and government’s confirmation was required for the appointment of Governors, Vice-Governors, and Chairmen of Audit Boards.45 Instructions on bank credit policy issued by the Banco de Portugal faced some resistance in the overseas territories, at least in the beginning of the system implementation, when they tried to impose restrictions on credit expansion. Comments by the overseas issuing banks argued that these instructions were quite severe46: “We should not create barriers to imports of fertilisers and insecticide”. (…)

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M. E. MATA

“In what respects credit for exports, bank loans shall be provided to facilitate, protect, and stimulate exports of commodities produced in the Province. It is a BNU tradition to provide credit to producers (…) considering a determined percentage of the current prices of each product”.

BNU and Banco de Angola Governors were always supportive of credit expansion to local economic activities.47 This is a widely recognised role. For historians this role concerning BNU arguments also considered that “One should continue to grant credit to the acquisition (…) of production means for the development of local activities”. “Credit to agricultural campaigns will continue to be granted”.

BNU and Banco de Angola annual reports carefully describe the evolution of territories’ productions and prices. Although the documents acknowledge that public works should be financed by the respective amounts in the government budget, as for ongoing operations, they expressed the opinion that one should “not force repayments and amortisation that may lead to the asphyxia of healthy firms, in spite of their cash-flow difficulties”.

It was very difficult for the government to control the credit expansion promoted by overseas issuing banks while operating as commercial banks, in spite of acknowledging banks’ effectiveness “as centres of economic power and promoters of industrial growth”.48 Amongst all African territories, Moçambique had the highest propensity for consumption in the early 1960s, for geographical reasons. The highest revenues were generated in the Southern region, namely in the capital city and outskirts of Lourenço Marques (Maputo, following independence), and were strongly influenced by the standards of living in South Africa and Southern Rhodesia (now Zimbabwe). Although with lower income, people in the district of Beira (centre of Moçambique) were also familiar with the consumption standards of South Africa and Southern Rodhesia. Moreover, remittances from emigration to these countries and Nyasaland (now Malawi) stimulated local consumption.49 On the contrary, the population enjoying the highest income in Angola lived on the sea coast, far away from any

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developed country, and imitation effects for consumption were more limited.50 In any event, urbanisation put local populations in touch with Western standards of life, attracted people from the Mainland, and increased private consumption standards and aspirations everywhere. On consumer loans for refrigeration and air conditioning, it was said that they represented comfort and attractiveness, because (…) “the migration flow of families from the Metropolis is due, largely, to the high standards of life enjoyed there by people, who lived very modestly in Portugal. It is traditional for life in Africa to be easier and more comfortable than in the Metropolis, and to have some luxuries and prodigality. It is enough to recall life in Angola during “rubber times”, in S. Tomé in the coca epoch, and in Zambezi until quite recently”. It continues saying that “luxuries (…) consisted of extraordinary abundance on “table”, the number of domestic servants, and certain prodigality (perdularidades) and ostentation” to conclude that “there are habits that are difficult to break (desenraizar)”, and “the determination of what is or is not an essential consumption good raises problems, such as, to know if automobiles, preserved fruits, or canned, condensed milk, or powdered coffee, are essential commodities. It may be considered that for those living in the interior, all of this, and much more, is essential. The impossible sociability (convivência), isolation, and the absence of certain resources may make imperative a certain number of things that in important population centres are considered, naturally, superfluous”.51

The argument of isolation makes sense, particularly for Portuguese peasants and their families, settled on river banks for farming.52 To conclude the argument, it was said that some of these commodities should be produced in Moçambique (such as maize, wheat, eggs, flowers, powdered milk) – and credit was required – to substitute imports, and to export. Whenever overseas issuing banks expressed arguments of this kind (or made suggestions resulting from local social pressure), which did not coincide with proposals to be approved, the Chairman of the Board of Directors of the EMZ postponed decisions, stressing that those were issues deserving further reflection. The following meetings always approved the proposals, revealing the Banco de Portugal’s capacity to determine the decision-making process. All minutes of the Board of the EMZ were sent to the two other issuing banks (BNU and Banco de Angola), as well as monthly reports of the EMZ, and balances of international payments of the Mainland and each of the overseas territories.53 This dominance of the decision-making process is confirmed by

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M. E. MATA

instructions from BNU’s Governor to overseas branches (namely Moçambique) to follow prudent credit policies in order “to keep the monetary circulation within the authorised limits, and prevent inflationary outcomes” from loans granted to the territories. Credit to import automobiles was not authorised, as this was a non-locally produced commodity that would contribute to deteriorate the balance of payments, and was classified as a luxury. However, BNU-Lisbon argued that commercial banks operating in Moçambique could do it, for not being in charge of the local monetary policy.54 BNU’s Governor also appealed to the Government representative, noting that in his own opinion, “which is very well-known by the board of directors, that it would be politically inconvenient”, and: “[I] would be very grateful to your Excellency if you could clarify whether I should modify the orders sent to Lourenço Marques”.55

A central bank may be considered to be technically independent whenever it pursues its goals without government interference. While the political independence is concerned with goals, technical independence is concerned with policy instruments.56 Some instruments of the Banco de Portugal’s technical independence also raised problems in the EMZ. BNU and Banco de Angola benefited from imposing 2 per mille fees on all operations involving transfers from the local Foreign Exchange Management Funds, to compensate for their role as agents of these Funds, according to contracts signed with the central state. Railway companies and other transferers refused to pay these fees, which ended up being paid by the Foreign Exchange Management Funds. Maximising their revenues, the two local issuing banks also applied the fees on state transfers, and fees for telegraph communications. Foreign Exchange Management Funds complained, because only payments to foreign countries should give origin to the payment of fees. Issuing banks even petitioned the General Inspection of Credit (Inspecção Geral do Crédito) to be reimbursed for the cost of telegrams their agencies needed to send to satisfy the requirements of the General Inspection, because these were services necessary for the performance of their mission as agents of the Foreign Exchange Management Funds. However, the Minister of Overseas determined that telegrams were costs covered by the banks’ 2 per mille fees.57 It was also difficult to negotiate the interest rate to be paid by territories with payment deficits, which borrowed from the EMZ Fund. Although

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Table 3.4  The interest rates approved on 11 November 1964, for loans borrowed from the EMZ Fund

For the first 3 months For the 4th, 5th, and 6th months For the second semester For the third semester For the 4th semester For following semesters

37

0% 2% 2.5% 3.25% 4% 4 plus 1% more for each additional semester

proposed at the meeting of 21 August 1963 of the Board of Directors, they were approved only at the meeting of 11 November 1964 (Table 3.4)58: The Overseas General Inspection supported the local issuing banks’ arguments, and also contested some operations of the compensation mechanism, particularly transfers from the territories’ Foreign Exchange Management Funds to the territories’ accounts at the Banco de Portugal, because of the existence of delays in transfers to Metropolitan Portugal or other territories (namely Macau) that could not be accomplished.59 The Portuguese EMZ illustrates the difficulties of monetary unions having several issuing banks, because of the need for a centralized decision process over local specific developments and all issuing sources.60 It also illustrates the difficulties of controlling credit creation and distribution, which is critical in a fixed exchange rates regime, and its effects on the political control of the overseas territories.61 (g) Problems had earlier roots.62 In 1956 travelers from Moçambique could transfer only 2500 escudos, and above this ceiling there was a 9% premium paid when exchanging Mozambican to metropolitan escudos.63 When the EMZwas launched, some territories such as Angola and Moçambique already had payments in arrears, the so-called “atrasados”, which were accumulating and queuing because these territories lacked the means to fully settle the payments to Metropolitan Portugal. Some of these debts resulted from imports of equipment during the Second Plan of Development (Plano de Fomento), others from increasing imports of consumption goods in the context of improving standards of life of a fast expanding population.64 The more liberalised trade rules within the EMZ had led to accumulation of arrears,

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M. E. MATA

because of delayed payments. By December 1963 the authorisations for settlements from Angola were still being issued for operations which took place before the implementation of the EMZ in March of that year. For the other territories BNU asked for a setting of priorities, recommending that monthly and travellers’ transfers were considered as top priorities.65 Solving this problem of delayed payments was a “must”. However, at the time it was feared that settling the arrears, thanks to special loans of the EMZ Fund to Angola, could also stimulate more and more transfers, which would trigger even higher amounts of arrears in a process that the EMZ Fund would not be able to manage.66 (h) The geopolitical context of the 1960s, and the need for large public expenditure. In 1962 it was recognised that “Africa actually lives a troubled period, where neo-nationalism, tribal rivalries, and the conflicts between the great economic powers create less convenient conditions for progress”.67 Claims for decolonisation and military insurgency began in 1961, although local Portuguese General-Governors (such as António Augusto Peixoto Correia in Guiné, Venâncio Deslandes in Angola, and Sarmento Rodrigues in Moçambique) were prone to figure out and implement “a progressive and irreversible” autonomy for the future economic development of the colonial territories. BNU and Banco de Angola set up networks of local branches functioning as commercial banks, employing qualified staff that lived in rent-free housing. Detailed information was collected by the local branches throughout the empire, on all aspects of local economic activities “to better define the policy of the bank”, and special visits could occur for inspection of these branches. In spite of the great size of BNU operations in the Mainland, military actions in Angola, Guiné, and Moçambique contributed to solve the financial problems of these territories. Missing opportunities for troops´ local consumption during the military conflict led them to partially transfer savings to the Mainland, partially offsetting the local demand of Metropolitan escudos. The portfolios of the overseas issuing banks included assets of firms doing business in the overseas territories.68 The relationships were conspicuous, as retired staff of these banks were often appointed to the management boards of local companies.69 The military problems increased in the late 1960s, especially because of the international support to the

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39

independence movements from the global powers in terms of provision of military equipment. Evidence on terrorist attacks against safari businesses in Moçambique, SAFRIQUE (Safaris en Afrique), and the increased international visibility of colonial fighting is available in BNU archival documents.70 However, it was in Guiné, the smallest Portuguese territory in continental Africa, where the military situation was the most serious. The political problems in controlling the territory are visible in the BNU archival sources, as the BNU Board of Directors approved in 1973 a proposal from Guiné’s Governor, General António de Spínola, to offer rent-free farming of 17 BNU estates with a total area of 43,916.7 hectares in the Fulacunda region in Guiné to local populations, for 15  years. Their value was accounted at only 731,000 escudos in the balance sheet of BNU, because the estates were under the military control of the local independence movement PAIGC. Ownership of these estates since 1927 had resulted from mortgage lending unpaid to BNU by the tropical agribusiness sector, and was perceived as requiring some proactive action in the context of the 1973 political situation in Guiné.71 Colonial wars may explain some faltering hesitation in the implementation of the EMZ. In spite of the eruption of military operations, public works in the African territories were pursued to stimulate and support private economic activities. Road networks were built and paved. Urban centres received infrastructures. Local economic growth after the implementation of the EMZ was impressively successful thanks to government action plans, and fully acknowledged by economists.72 An increase in government spending (including military expenditure, government consumption, and investment) also gave a significant boost to domestic economic activity. Education was considered to be a priority to increase the average quality of the labour force, especially in the rural world, where literacy depended on the teaching services available in religious (Christian, not always Catholic) missions. The first step, in 1964, was a reform of primary schooling in the overseas territories, and the establishment of schools to produce teachers to literate common people.73 Schooling benefited from the creation of high-schools (liceus), in the district capital cities. Nursery and Social Service schools were also founded. Since 1961, scientific studies on Soils and Pedology, headed by highly-­ trained agronomic institutions from the Mainland were promoted in Angola and Moçambique. They led to the availability of morphological

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M. E. MATA

descriptions and taxonomy of water, mineral, and chemical nature of soil profiles, increasing scientific knowledge on these territories. Scientific units of research supported this effort, as well as soil corrections. (The desalinisation of lands in the sugar Cassequel plantations was very successful, for example).74 University studies were established in Angola and Moçambique, in 1962, as part of the public Portuguese university framework.75 They were launched to support the local scientific research (namely in Engineering, Agronomics, and Veterinary science), and provided three-year long degrees, to be completed in the Mainland as five-year long programmes. In all, eleven scientific fields were covered: Pedagogics, Medicine, Veterinary, Engineering (Civil, Mining, Mechanics, Electronics, Chemical-­ Industrial, Agronomics, and Silviculture), and Economics was added in 1970.76 In the academic year of 1966/67, 602 students attended university studies (Estudos Gerais Universitários) in Moçambique.77 The label as University of Angola, and University of Moçambique followed up in 1968,78 as “a belated response to the demands of African radicals and an attempt to buy time amid the rising tide of nationalism”.79 All these efforts related with the political circumstances required large-­ scale public investment and imports, and translated into high indebtedness toward the Mainland, which the size of EMZ Fund could not accommodate. (i) Arrears were a cumulative process Angola pioneered the foundation of local political movements for the independence amongst Portuguese territories in Africa. Terrorism and guerrilla actions in the North of Angola followed rebellions in prisons in Luanda in 1961, and led the Portuguese government to increase the military presence with a large compulsory recruitment of soldiers in the Mainland, who were sent to fight for two years. The beginning of the military conflict was a surprise regarding the circumstances. It had been foreseen, however, by some intelectuals, because it began at Cassanje, where cotton plantations (Cotonang, Companhia Geral dos Algodões de Angola) used an abundant low-paid labour force, and raised problems of access to land, which clashed with consuetudinary rights.80 The continuation of the conflict led to a tremendous effort that required great public spending for military purposes. No rules were established to constrain territories’ public deficits or balances of payments.

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The territories which had cumulative net debtor positions benefited from automatic loans from the Escudo Monetary Zone Fund. The cumulative debtor positions soon exhausted the allowed recourse to automatic credits, bringing up the need for special loans, which demanded new issuances of capital by the EMZ Fund. Fears existed about the ability of the whole system to meet the challenge posed by the Angolan and Mozambican situations. The Mainland had provided bilateral credits to all overseas territories, and the Angolan accumulated demand of transfers included dividends and revenues from local investment to residents in the Mainland, private transfers of families living in Angola to relatives living in the Mainland, and payment of imports. The capital of the EMZ Fund proved to be too small to face the challenge of supporting the entire system. The next chapter will detail other aspects of the political dimension of the financial difficulties in the EMZ, in considering the ongoing effects of war on confidence and expectations about the EMZ.

Notes 1. According to art. 1 of Decree-law nr. 44828 of 31 December, 1962. 2. The Mozambican Exchange Management Fund was created on 22 April 1932 (Decree nr. 21154). 3. PT/CGD/BNU/0/AO/5CG/1–025. BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 4. PT/CGD/BNU/0/AO/5CG/1–025. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 5. PT/CGD/BNU/010ª/5CG/1–005. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 6. Consulta (to attorneys Fernando Olavo and José M. Galvão Teles) on 14 April 1967 on a doubt for the concession of a 50 million escudos loan: should it be awarded to this Province, or to BNU for having exchangefund functions? The first option was elected, but the Bank asked for its renewal in the same way as Exchange Management Funds in other territories. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 16. 7. Acta nr. 1 (of the meeting of 21 August, 1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), p.  3 verso. Portugal. Arquivo Histórico do Banco de

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Portugal. Fundo Monetário da Zona do Escudo. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 8. According to article 18 of Decree-law 44703. 9. Acta nr. 1 (of the meeting of 21 August, 1963, of the Board of Directors of the Escudo Monetary Zone, p. 5, recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 10. Relatório Trimestral do Comissário do Governo, 4° Trimestre de 1963, dated 21 January 1964, PT/CGD/BNU/01OA/5CG/1–005. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. Carvalho 2014, p. 59. 11. FMZE, Relatórios do Conselho de Direcção, Gerência de 1963, p. 1. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Relatórios do Conselho de Direção. 1963–1974. FMZE/ Dir/003/0001. 12. Ceiling defined in art. 9 of Decree-law 44703. This loan was renewed several times: 13 November 1968, 29 October 1969, 29 October 1970, 30 October 1972. Acta nr. 93 of the meeting of the Board of Directors of 26 November 1970, vol. 7, p. 98. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 13. Sistema de Pagamentos Inter-regionais. Portugal. Arquivo Histórico do Banco de Portugal. Departamento dos Seviços Jurídicos. Espaço Económico Português. Pasta n° 3. 14. Sistema de Pagamentos Inter-regionais. Portugal. Arquivo Histórico do Banco de Portugal. Departamento dos Serviços Jurídicos. Espaço Económico Português. Pastas n° 3 e 4. 15. Despacho de 23 de Abril de 1962, Sistemas de Pagamentos Inter-regionais. Portugal. Arquivo Histórico do Banco de Portugal. Departamento dos Serviços Jurídicos. Espaço Económico Português. Pasta n° 1. 16. Instruções e Execução dos Princípios Reguladores das Operações de Pagamentos Interterritoriais, Plano de Contas e esquemas de contabilização: p. 1. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Contabilidade. Plano de Contas e Contabilização. 1963. FMZE/Cont/001/0002. 17. Contabilização do Fundo monetário da Zona do Escudo, Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Plano de Contas e Contabilização. 1963. FMZE/Cont/001/0001. 18. Relatórios Mensais do Agente, 1963–1973. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. FMZE/ER/001.

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Relatórios Trimestrais do Agente, 1973–1974. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. FMZE/ER/002. 19. According to article 48, g), of Decree-Law 44703 of 17 November 1962. 20. 15° Relatório trimestral do comissário do governo, 1° trimestre de 1961, PT/ CGD/BNU/010ª/5CG/3/3/02015. Caixa Geral de Depósitos Historical Archives. 21. Circular 1/63 DEE, de 5.8.63. Circular 2/63 DEE de 4.9.63. 22. Act n° 1 s do Conselho de Direcção do Fundo Monetário da Zona do Escudo, p. 1 (verso). Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–64. FMZE/Dir/001/0001. 23. Acta nr. 2 (of the meeting of 11 September1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), p.  9, recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–64. FMZE/Dir/001/0001. 24. Acta n° 16, 5 June 1964, vol. I, p. 83 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–64. FMZE/Dir/001/0001. 25. Estatística de Pagamentos Interterritoriais, Circulares, Instruções, Portugal. Arquivo Histórico do Banco de Portugal.Departamento de Estrangeiro. Arquivo do Administrador António Alves Salgado Jr. Pasta n° 82. 26. Instruções a que se refere o art° 28° do Decreto-Lei n° 44,609, de 17 de Novembro de 1962 para Execução Dos Princípios Regulagores Das Operações De Pagamentos Interterritoriais. Circular n° 1/63 de 5 Agosto 1963, e Circular n° 2/63 de 4 Setembro 1963. Portugal. Arquivo Histórico do Banco de Portugal.Departamento de Estrangeiro.Arquivo do Administrador António Alves Salgado Jr. Pasta n° 82. They replaced previous instructions from 20 July 1961, which required weekly information, and the internal Circular nr. 99 of 19 August 1961 (based on the art 3 of the Decree-law nr. 43024 of 22 June 1960), which was addressed to all credit institutions, by the Banco de Portugal. 27. Portugal. Arquivo Histórico do Banco de Portugal.Departamento de Estrangeiro.Arquivo do Administrador António Alves Salgado Jr. Pasta n° 38. 28. According to Decree-law nr. 44700. See also Ministério das Finanças, Inspecção Geral do Crédito e Seguros, Boletim de Crédito, 1967. 29. Decree-law nr. 44702. Available at Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 4.

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–– Est. Pag. Internacionais, Balança de Pagamentos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de Pagamentos. 1966. –– Bal. Pag. Interterritoriais. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de Pagamentos. 1965–1975. –– Sistema de Pagamentos Interterritoriais, Execução do Sistema 2.A, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de Pagamentos. 1969–73.

30. Relatório dos Serviços de Estatística e Estudos Económicos,de 9 Abril 1963, Portugal. Arquivo Histórico do Banco de Portugal.Departamento de Estrangeiro.Arquivo do Administrador António Alves Salgado Jr. Pasta n° 82. 31. Aragão 2012, p. 58. 32. Acta nr.32 (of the meeting of 30 August 1965), of the Board of Directors of the EMZ, p.  95 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1964–65. FMZE/Dir/001/0002. Banco de Portugal, Relatórios do Agente, Sistema de Compensação Interterritorial, Banco de Portugal (1963–1971). 33. Acta nr.32 (of the meeting of 30 August 1965), of the Board of Directors of the EMZ, p.  96 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1964–65. FMZE/Dir/001/0002. 34. Bohannan 1959. 35. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de pagamentos. 36. Companhia de Diamantes de Angola 1963, p. 10. 37. For fiscal capacity building in British and French Africa see Frankema, E., Waijenburg, M., 2014. 38. PT/CGD/BNU/010ª/5CG/1–025. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 39. Apontamentos sobre o projecto de decreto-lei relativo à organização bancária do Ultramar, and Considerações gerais do projecto de decreto-lei sobre a reorganização do sistema de crédito e da estrutura bancária nas províncias ultramarinas pelo Governador do BNU, Francisco Machado, 27 de Agosto de 1963, PT/CGD/BNU/AG/058/01/23. 40. Decree-laws 45296 and 45297 of 8 October 1963. 41. Agglietta and Mojon 2010, pp. 239–53. 42. Pateguana 2016, p. 51. 43. Diário do Governo, I Série, Número 236. 44. Peek and Rosengren 2010, Barbosa 2012.

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45. Banco Nacional Ultramarino, Gabinete do Vice-Governador, PT/CGD/ BNU/D, AG,061.03/23, BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 46. Letter of the Governor of BNU-Moçambique to the government representative (Comissário) at the bank, dated 10 October 1963, containing a 13-page report of the local Board of the Bank to comment on the resolutions of 14 October 1963 of the Secretary of State of Overseas Development (Secretário de Estado do Fomento Ultramarino) PT/CGD/ BNU/01OA/5CG/1–026. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 47. BNU/010ª/5CG/3/2–01, Relatórios anuais do Governador, Vice-­ governador e Administrador por parte do Estado, 1973. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 48. Feiertag and Minoglou 2009, p. 19. 49. In 1970 113,000 emigrants left Moçambique to work in South African mining. Private transfers to Moçambique amounted to 434 million escudos in 1969, 559,000 in 1970, 618,000 in 1971, and 1,177,000 in 1972. Mosca 2005, pp. 111, 117, 123. 50. According to Sousa 1970, pp. 159–166. 51. Letter of the Governor of BNU-Moçambique to the government representative (Comissário) at the bank, of 10 October 1963 PT/CGD/ BNU/01OA/5CG/1–026. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. Banco Nacional Ultramarino (BNU), 1963–1974. 52. In the Mozambican district of Cabo Delgado the density of shops was extremely low in 1966, 560 km2 per shop, in Niassa it was 316 km2 per shop. In the district of Maputo, with the capital city of Lourenço Marques, the density was 31 km2 per shop. Mosca 2005, p. 109. 53. Accompanying letters are available in PT/CGD/BNU/061.06/23. 54. Letter to the Lourenço Marques branch, Aumento da circulação fiduciária de Moçambique - política de crédito, PT/CGD/BNU/01OA/5CG/1–025. 55. Letter S.G. 91/63, PT/CGD/BNU/01OA/5CG/1–026. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 56. Valério 2015, p. 9. 57. Processo n° 61: Aplicação da nova legislação sobre pagamentos inter-­ territoriais. PT/CGD/BNU/O1OA/5CG/1-O40. Caixa Geral dos Depósitos Historical Archives. Ofício n° 187/64, Processo n° 60, Comissão do agente do Fundo Cambial e questão referente às transferências do Estado”. PT/CGD/BNU/ O1OA/5CG/1-O39. Caixa Geral dos Depósitos Historical Archives. 58. Acta nr. 1 of the meeting of 21 August, 1963, of the Board of Directors of the Escudo Monetary Zone, p.  5 verso. Portugal. Arquivo Histórico do

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Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 59. Letter from Inspecção Geral do Ultramar, of 28 April 1967, Apreciação do Relatório Mensal do Agente do sistema de compensação e de pagamentos interterritoriais respeitante ao mês de Janeiro de 1967. PT/CGD/ BNU//061.06/23. And Espaço Económico Português, FMZE, Macau, Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 16. 60. For taxonomy of historical monetary unions and technical control see Valério 2015. 61. This has been established since long ago. Kock 1939, 1995: 134–135; 1982: 194. 62. As several decree-laws can prove: 19973 of 27 May 1931, on the Angolan Exchange Management Fund and imports, 36827 of 12 April 1948, on previous registration of foreign trade operations, 37084 of 4 October 1948 on Angolan and Mozambican payments to foreign countries, and 40483 of 31 December 1955, on transfer priorities. 63. Ofício O-829/AB de 12 Junho 1956 do Vice-Governador do Banco de Portugal Carlos Soares Branco ao Director Geral do Fomento sobre um pedido do BNU. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Arquivo do Administrador António Alves Salgado Jr. Pasta n° 77. 64. According to Dr. Vasco da Cunha d’Eça, Director-General of the Secretariado Técnico da Presidência do Conselho. Acta nr. 4 (of the meeting of 8 November, 1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), p. 14, verso. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. INE, Recenceamento Geral da População, 1960. 65. Letter of 14 November 1966 commenting on the minutes of the meeting nr. 46 of the Board of Directors of the EMZ. PT/CGD/BNU/061.06/23. 66. According to the Director-General of the Secretariado Técnico da Presidência do Conselho, Vasco da Cunha d’Eça. Acta n°. 4 (of the meeting of 11 September1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), p. 14, verso. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 67. Ibid. 68. For example, beyond credit to road networks construction and railway equipment, BNU had financial participations in Mozambican safari (SAFRIQUE), sugar (Açucareira de Moçambique), beer (Cervejas e Refrigerantes Mac-Mahon in Moçambique, and Cicer in Guiné) hotels

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(Nuno Tristão, in Bissau), electricity and communications in Macau, for example. Relatório do Governador, do Vice-Governador e do Administrador do Estado, do Banco Nacional Ultramarino, referente a 1973, pp. 20–39. PT/CGD/BNU/010A/566/3/2–01. 69. Namely in S.  Tomé e Príncipe cacao farming firms. Dependências do Ultramar,063.20/142. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 70. Relatório do Governador, do Vice-Governador e do Administrador do Estado, do Banco Nacional Ultramarino, referente a 1973, p.  24.PT/CGD/ BNU/010A/566/3/2–01. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 71. PT/CGD/BNU/01OA/5CG/3/2–01, Relatórios anuais do Governador, Vice-governador e Administrador por parte do Estado, 1973. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 72. Rocha 2018, p. 68. República Portuguesa, III Plano de Fomento para 1968–1973, Vol. V, Pareceres da Câmara Corporativa, Províncias Ultramarinas, Secretaria da Assembleia Nacional, 1968. Presidência do Conselho, III Plano de Fomento para 1968–1973, Moçambique, Lisboa, Imprensa Nacional, 1968. 73. Decree 45908, of 10 September 1964. 74. Junta de Investigação do Ultramar, and Centro de Estudos de Pedologia Tropical, headed by Ário de Azevedo. Azevedo 2017, pp. 23, 24. 75. Decree-law 44530, of 21 August 1962, launching the so-called Estudos Gerais Universitários. 76. Decree-law 45180, of 5 August 1963. In Angola, the inauguration of the first academic year (1963/64) deserved the presence of the President of Republic, Américo Thomaz, the Minister of Overseas, Peixoto Correia, and the general governor of Angola, Silvino Silvério Marques. Rocha 2018, pp. 73, 74. 77. Presidência do Conselho 1968, p. 80. 78. Decree-law 48790 of 11 December 1968. 79. Newit 1995, p. 481. 80. Azevedo 2017, pp. 11, 12. For Sub-Saharan settler and plantation economies, see Austin 2007, p. 610, and Mseba 2016.

Bibliography Agglietta, Michel and Mojon, Benoit, Central Banking, The Oxford Handbook of Banking, eds, A. Berger, P. Molyneux & J. Wilson. Oxford, Oxford University Press, 2010.

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Aragão, Maria Luzia, “Criação do Banco de Moçambique e do metical incluindo o processo de troca”, Histórias Vividas 1975-2010, Depoimentos, Maputo, Banco de Moçambique, 2012. Austin, Gareth, “Resources, techniques, and strategies south of the Sahara: revising the factor endowments perspective on African economic development, 1500-2000”, Economic History Review, 61, 3, 2007: 587–624. Azevedo, Ário L., “Depoimento 2009” in Conferência de homenagem a Ário Lobo de Azevedo, ISA, Universidade de Évora, Lisboa, INIAV, SCAP, 2017. Banco de Portugal, Relatórios do Agente, Sistema de Compensação Interterritorial, Banco de Portugal (1963-1971). Banco de Portugal, Fundo Monetário da Zona do Escudo, Plano de Contas e Esquemas de Contabilização, Arquivo Histórico do Banco de Portugal, 46, mimeographed, 1963. Banco Nacional Ultramarino (BNU), Boletim da Câmara do Comércio de Lourenço Marques, 1963-1974. Barbosa, António Pinto, Macroeconomia, Lisbon, Fundação Calouste Gulbenkian, 2012. Bohannan, Paul, “The impact of Money on an African subsistence economy”, Journal of Economic History, 19 (4), 1959: 491–513. Carvalho, Nuno Fernandes, A Coleção de Notafilia da CGD, Angola, Cabo Verde, Guiné, Índia, Macau, Moçambique, São Tomé e Príncipe, Timor. Lisbon: Caixa Geral de Depósitos, Gabinete de Património Histórico, 2014. Companhia de Diamantes de Angola, Lisboa, Tip. Silvas Lda, 1963. Feiertag, Olivier and Minoglou, European Banking Historiography, Past and Present, Athens, ALPHA Bank, 2009. Frankema, E., Waijenburg, M., “Metropolitan blueprints of colonial taxation? Lessons from fiscal capacity building in British and French Africa c. 1880-1940”, Journal of African History, 55, 3, 2014: 371–400. INE, Recenceamento Geral da População, 1960. Kock, M. H., A Banca Central, Lisboa, Banco de Portugal, 1982. Ministério das Finanças, Inspecção Geral do Crédito e Seguros, Boletim de Crédito, Lisboa, Tipografia A Triunfadora Lda, 1967. Mosca, Economia de Moçambique no século XX, Lisboa, Instituto Piaget, 2005. Mseba, Admire, ‘Money and autonomy in a settler colony: the politics of monetary regulation in colonial Zimbabwe, 1930s-1965’, in Chia Yin Hsu, Luckett, Thomas M, and Vause, Erika (eds) The cultural history of money and credit: a global perspective, Lanham: Lexington Books, 2016:133–148. Newit, Malyn, A History of Moçambique, London, Hurst & C°, 1995. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Master Thesis, University of South Africa, 2016.

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Peek and Rosengren, “The role of banks in the transmission of monetary policy”, in Berger, Allen, Molinewx, Philip, Wilson, John (editors), The Oxford Handbook of Banking, Oxford, Oxford University Press, 2010: chapter 19. República Portuguesa, III Plano de Fomento para 1968-1973, Vol. V, Pareceres da Câmara Corporativa, Províncias Ultramarinas, Secretaria da Assembleia Nacional, 1968. Presidência do Conselho, III Plano de Fomento para 1968-1973, Moçambique, Lisboa, Imprensa Nacional, 1968. Rocha, José Alves da, “Introdução do Ensino da Economia em Angola”, in Jorge Braga de Macedo, Ensino e Prática da Macro de Economia Aberta depois de Abril, Working Paper 619, Nova School of Business and Economics, 2018: 66–88. Sousa, Alfredo de, Fonctions de Consommation dans les Economies Africaines, Paris, Cujas, 1970. Valério, Nuno, “Monetary Decolonisation: Breaking or preserving colonial monetary áreas?” Paper presented at the Damin Workshop ‘Conflict potentials in monetary unions’, Warburg, 2015, 2016 for the revised version.

CHAPTER 4

War, Confidence, and Expectations. Adjusting the Rules of the Escudo Monetary Zone

The EMZ inter-territorial financial operations with Angola suffered from the political context at the time. In 1964 not only did Angola have deficits in its current account balance, but also experienced considerable outflows of capital. The Angolan problems were related with severe financial conditions that revealed the political problems that were faced. The automatic loans from the EMZ Fund to Angola had reached the authorised ceiling (250 million escudos), the granted special loan of 100 million escudos1 was not enough, and the territory asked for 500 million escudos more. In order to dissuade Angola from applying for more special loans, the Board of the EMZ summoned the president of the Angolan Foreign Exchange Management Fund (Fundo Cambial de Angola), Morais Caldas, to Lisbon for a special meeting. Constraints on imports were considered to accommodate the difficulties arising with the military conflict against Portuguese sovereignty over the territory in several Angolan regions. The colonial war in Angola had begun in 1961. Terrorism disturbances in Guiné (supported by Senegal) and the lack of coordination amongst NATO partners were mentioned to explain terrorism events in Angola, at the hands of people trained in the ex-Belgian Congo. In the context of the cold war, “signals of disaggregation” of Soviet and Chinese communism were also mentioned in BNU’s annual reports as having led to the construction of the Berlin wall to prepare an extension of communism to the western world and the European empires.2 © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_4

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Expectations about the independence of African territories under colonisation by European powers had been formulated earlier at the Bandung conference (1955). According to Morais Caldas, the Director-General of the Angolan Foreign Exchange Management Fund (Fundo de Maneio Cambial de Angola), investors and managers moved to the Mainland while continuing their businesses in Angola. An increasing number of people lived in the Mainland benefiting from profits, dividends, or other revenues from their businesses in Angola. Moreover, many people continued to travel to Angola but only for short stays. “Angola has almost no residents”.3 The idea was to live there for a given period of time, but to send the savings to the Mainland for safety reasons. Some moved to Angola, but with residence certificates of dependents in the Mainland, to which they transferred pensions, a practice that was accepted under the rules of the system. The ceiling for pensions had been increased from 350 to 2000 escudos. Expectation of improvement in the payment arrears resulting from the implementation of the monetary zone also stimulated this behaviour. In Moçambique the war for independence began in 1964.4 Monthly transfers were authorised from the 100,000 military personnel of the army, navy, and air force who were fighting the war to their families in the Mainland. If the military personnel were accompanied by their wives, who usually also had some professional activities in the overseas territories, they were authorised to transfer savings at the end of their husbands’ two-year military deployments.5 All these savings were transferred through the local Foreign Exchange Management Fund, Fundo Cambial. The Military Administration Agency received the transfers from the Exchequer to pay the troops locally, as well as transfers from the territories to the Mainland.6 It had to report the data on these accounts monthly.7 However, the Agency was always late in fulfilling its reporting obligations, impeding the ability to access critical information on the balances of payments, and to manage the entire settlement system.8 The Agency was organised in such a way that there was a branch per territory, which further consisted of several smaller branches (three in Cabo Verde, four in Guiné, two in S.  Tomé, nine in Angola, 13  in Moçambique, three in Timor, and two in Macau). The accounts of the military agency for the year of 1962 were made available only in February 1965.9 In a letter of 4 September 1963 from the Vice-Governor of the Banco de Portugal to the Ministry of Overseas one may read: “Your Excellency, it is useless to stress the convenience it would bring if it were possible to report in a uniform

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way the information (…) that the Military Agency is required to send monthly to the General-Direction of the Economy, of your Ministry”.10 People also used postal transfers to send money to the Mainland, and the postal services were very late in communicating to the Banco de Portugal the amounts transferred.11 The Portuguese maritime (and air) transportation tickets sold in Angola also had to be paid for in Metropolitan escudos. Delayed payments to transportation companies amounted to 193 million escudos in October 1963.12 These companies were suffering from financial distress to meet their payroll obligations as a result of the delays.13 The obsession for transfers led any maritime passengers having transfer rights (of 8000 escudos) to use them whenever possible, even if there were no personal need. Such ticket holders could also sell the rights to whomever wanted them, without any interference from the authorities. Such structural difficulties led to the conclusion that time would not lead to a resolution of the Angolan payments deficit. Monthly private transfers amounted to 100 million escudos; profits, dividends, and other revenues to about 200 million. The Escudo Monetary Zone was not able to sustain the situation: if the 500 million escudos special loan were to be authorised for Angola, it would be exhausted in two months. It was also useless to define precise reimbursement conditions. However, there was also a political motivation to this issue of granting a further special loan to Angola: “The entity who will suspend transfers from Angola to the Metropolis, because of the scarcity of means of payment, will assume the entire responsibility for the loss of Angola”.14 The Angolan problem exceeded the capacity of the EMZ Fund. Quantitative restrictions on imports were required. The EMZ Fund should issue an additional 400 million escudos of capital for a new special loan to Angola, and only after realising the effects of restrictions on imports would it be possible to consider conditions for reimbursement. By the end of January 1964 the point was to avoid a suspension of payments to foreign countries, in order to avoid unfavourable consequences abroad for Portugal, in the context of the General Agreement on Tariffs and Trade, GATT. As a result of these difficulties, the Fund distributed no dividends for 1963 to the underwriters of capital.15

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The Need to Adjust the Rules of the Escudo Monetary Zone Until March 1963 the Angolan Foreign Exchange Management Fund had no foreign currencies. The Fund had only metropolitan escudos, with which it was possible to buy foreign currencies from the Banco de Portugal in order to settle payments resulting from operations with other countries. To centralise payment capacities, the Monetary Fund of the Escudo Zone was to deposit the available funds at the other two issuing banks, BNU and Banco de Angola, and at the state-owned bank CGD, Caixa Geral dos Depósitos. The monthly term deposits received the interest rate of 2%.16 Six-month term deposits received 3% interest, and sight deposits 1.25% (or at least the minimum rate of 1%).17 The Angolan difficulties continued. In November 1963, the Angolan reserve account in the Banco de Portugal was exhausted.18 The reimbursement conditions for the Angolan automatic loans were defined.19 However, the reimbursement was postponed for three more months, following the communication of the impossibility of payment received by telegram (of 31 January 1964 to the Undersecretary of State for the Development of Overseas Territories (Fomento Ultramarino). The Angolan Foreign Exchange Management Fund (Fundo Cambial) signed a new contract with the EMZ Fund for this purpose.20 All these difficulties led to the following decisions: (a) To interrupt the transfer of profits and dividends from Angola; (b) To interrupt transfers to importers’ and exporters’ offices in the Mainland; (c) To interrupt reimbursements of investment in Angola; (d) To constrain new monthly payments from Angola; (e) To restrict private transfers to 500 escudos per year per resident; (f) To restrict imports with deliberation based on the GATT rules; (g) To limit the imports of foreign commodities to the ceiling of 43.4 billion escudos.21 The planned collection of regulations for the EMZ Fund was issued, but the interest rates paid by the territories Foreign Exchange Management Funds to the EMZF were not loudly advertised or even made public.22 Inflows of foreign capital to Angola were liberalised.23 Some of these decisions were at odds with the Portuguese commitment to

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the GATT Treaty, and breached the rules on the liberalisation of capital flows within the Portuguese territories that were communicated to the OECD. Angola was opening a Pandora’s box of disrespect toward the EMZ regime, which could bring unfavourable reactions from foreign capital markets. An auditing mission went to Angola to collect statistical information and assess the problem, as it was considered that not enough information had been given to the Board of Directors of the EMZ. Moreover, trade relationships between Angola and Moçambique, which were the most significant flows amongst the overseas territories, were creating difficulties to Moçambique. Moçambican exporters to Angola suffered the contagion resulting from the constraints imposed on Angola, and the Mainland faced the Mozambican authorities’ complains against those constraints.24 Although trending downward, the Mozambican Foreign Exchange Management Fund had maintained a positive position since 1959 (Table 4.1)25: The solution envisaged by the EMZ managers was the concession of a loan by the Mozambican Foreign Exchange Management Fund to the Angolan Foreign Exchange Management Fund, at a zero interest rate, as Moçambique was quite willing to finance its exports to Angola.26 Thereafter, the Angolan financial situation improved slightly, according to the monthly report of March 1964 (discussed at the Board of Directors’ meeting of 4 May 1964), and the payments to Moçambique were in good order. New special loans for future bilateral debts were refused in order to avoid discriminatory practices.27 In May 1964, a second renewal for the special loan of 100 million escudos, was awarded to the Angolan Foreign Exchange Management Fund, for an additional six month period.28 In June 1964 Angola used the automatic loans up to the established ceiling.

Table 4.1 The Moçambican Foreign Exchange Management Fund positive position (1959–1963)

31 Dec 1959 31 Dec 1960 31 Dec 1961 31 Dec 1962 31 Dec 1963

1715.9 million escudos 1382.7 million escudos 1054.8 million escudos 965.2 million escudos 496.8 million escudos

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M. E. MATA

The situation was again becoming “difficult”, according to the Board of Directors of the EMZ Fund.29 Worries were expressed because of the intensity and time persistence of the Angolan financial problems, which led to continued support from the EMZ Fund, revealing the insufficient nature of the policies adopted. Previous improvements were assessed as little more than luck, without leading to a real recovery, given the structurally unbalanced Angolan finances in the long-run perspective. This alert from the agent of the system, the Banco de Portugal, shows that the latter was fulfilling its statutory mission.30 Banco de Portugal was the central bank of the EMZ, and also the reserve bank of currencies for mainland Portugal and the empire.31 In August 1964 automatic loans were awarded to Cabo Verde (4,258,089$67) and Guiné (289,350$43), while the deficits of Angola and Moçambique grew significantly: “The evolution of the Angolan external payments (…) seems to put in risk the equilibrium of the whole system of payments”.32 However, it was decided to withhold the facts of the situation from the public opinion because of the political sensitivity of the situation, “in spite of unfair accusations against the Banco de Portugal”.33 The Ministers of Finance and the Overseas decided not to submit the EMZ problems to a plenary meeting of the Government members because the Banco de Portugal had not recommended any measures, policies, or intervention to be discussed and approved by the government. Because of upcoming investments in the territories, according to what was established in the Plan, Plano Intercalar de Fomento, in November 1964 the Ministers of Finance and the Overseas approved the creation of a technical task force to estimate the Angolan, Moçambican, and Guinean balance of payments over the previous years. This task force held 78 meetings.34 For each territory the Commission was to meet with the representatives of the Foreign Exchange Management Funds.35 Regarding the bilateral credits, there was always a large credit position of Mainland Portugal, especially toward Angola.36 While other territories in the future could use reserves, sell gold, sell currencies, or ask for automatic loans from the Escudo Zone Monetary Fund to settle for their debts, Angola could not, and accumulated great debt position(s).37 In 1964 Angola was on a very worrying path with consequences for the exchange position of this territory, in spite of strong coffee production exports, which reached 3 billion escudos. In December 1964 credits to Angola stood at one billion escudos and the Board of Directors considered that this was a threatening situation.38 Any improvements in the current account

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were used to settle payments in arrears. The average delay was of 60 days for transfers. The position of the agent of the system, the Banco de Portugal, was considered to be “delicate”.39 In February 1965 the backed up payments amounted to 630 million escudos, and a loan of 60 million escudos obtained from the Banco de Fomento Nacional came due for payment.40 The special loan of 100 million escudos, awarded to the Angolan Foreign Exchange Management Fund for six months was renewed in successive contracts, because this territory was unable to repay it.41 When the renewed loans exceeded the two years of duration that were established for special loans (in decree-law 44703), only the Ministries of Finance and Overseas could authorise one more special renewal. The two-year initial maturity of special loans was extended to four years.42 All Angolan capital transfers over 60,000 escudos per year, per transferor, and per receiver, had to be authorised by the Angolan Exchange Board, Conselho de Câmbios.43 Solidarity within the EMZ did work. When Banco Comercial de Angola needed to underwrite part of the capital of the Bank of Lisbon and South Africa in October 1965, the Moçambican Foreign Exchange Management Fund lent 600,000 rands (equivalent to 23.982 million escudos) to the Angolan Foreign Exchange Management Fund for this purpose.44 This loan was repaid in December 1965. Special authority on credit policy was given by law to the Minister of Finance, who became authorised to impose credit limits to banking institutions, after consulting the Banco de Portugal and the National Board for Credit (Conselho Nacional de Crédito).45 Angola reached the ceiling for automatic loans in July 1964 and the ceiling for special loans in September 1967, when a 500 million escudos special loan for one year was awarded.46 Moçambique also reached the ceiling for automatic loans in May 1966. (The ceiling for special loans would be reached in September 1969.) Imports of commodities considered as luxuries, such as automobiles, were restricted, as well as bank loans for this purpose.47 From November 1965 on, the settlements of monthly Angolan debtor positions were postponed to the following months.48 Political authorities seemed to pay attention to the problems. The available capital of the Escudo Monetary Fund was applied to deposits in the BNU, Banco de Angola, and Caixa Geral de Depósitos. The Board of Directors of the EMZ Fund insisted on obtaining from these banks the

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M. E. MATA

same interest rates they were granting to other depositors for deposits having the same term.49 Both the BNU and the Banco de Angola were mute on this issue, and a 2.5% interest rate was agreed.50 A decision from the Board of Ministers for the Economic Issues of 24 August 1966 created a task force to monitor the problems of the inter-territorial payments and propose appropriate regulation for fixing them.51 Sanctions and penalties to punish payments within the EMZ disregarding the established rules were also approved. For the purpose of exchange transfers, the condition of “resident in a territory” was redefined for individuals and “collective persons”, and required at least one year of residence. Priorities for the authorisation of imports became more detailed. The number of applications for authorisations increased, and they were granted by the Inspection-­ General of Credit and Insurance (Inspecção de Crédito e Seguros), and by Banco de Portugal.52 Such a package of regulations aimed at avoiding collective pressure on exchange orders, and at preventing opportunistic behaviour related with the use of triangular schemes to transfer assets and savings to the Mainland. They also reveal generalised preference for the Mainland escudo, and no confidence in the exchange-parity principles of the EMZ. The EMZ Fund automatic loans (250 million escudos), plus the special loan of 100 million escudos, plus debts waiting for settlement, plus the amount of delayed transfers waiting for the settlement of their payment amounted to about 1.5 billion escudos.53 The Government of Angola, headed by Camilo Rebocho Vaz, sent a letter to Salazar to complain about this 1967 package of additional regulations. The suggestions put forward in an appendix to the letter of Rebocho Vaz consider that for supporting the economic development of Angola, Portugal should promote the automatic transfer of profits and capital revenues originated in that territory to bank accounts in the territories of residence of their owners, without any constraints, particularly in the case of foreign companies operating in Angola.54 In order to help the indebted territories, the interest rates for the EMZF automatic loans conceded were decreased in 1967 (Table 4.2)55: The possibility of partial or total pre-payment for imports between any one of the territories of the EMZ became much more difficult after September 1967, because of “possible constraints in the respective balances of payments”. Moçambique required special loans to settle debt positions: 150 million escudos by contract of 11 September 1967, and 50

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Table 4.2  The interest rates approved on 28 June 1967 for loans borrowed from the EMZ Fund For the first quarter For the second quarter For the third quarter For the fourth quarter For the third semester For the fourth semester For following semesters

0% 1.5% 2% 2.5% 3% 3.5% Plus 0.5% more for each additional semester, up to 1.5% above the Banco de Portugal’s discount rate.

million escudos by contract of 30 December 1969, which were renewed several times.56 In October 1968 Angola asked for another special loan of 50 million escudos from the Monetary Fund of the Escudo Zone. The Board of Directors asked for the opinion of the Minister of the Overseas, and a resolution from 19 December 1968 refused this loan under the terms which it had been formulated by Angola. The solution was to set 100 million escudos as a ceiling for the resources of the Angolan Foreign Exchange Management Fund, and to define a 1.5 percent fee to be applied to all inter-territorial transfers (prémio de transferência), with the exception of capital movements from the Mainland to Angola, in order to generate additional revenues for the Fund.57 The growing difficulties of Angola and Moçambique led to the need for sweeping and far-reaching comprehensive reforms. The Board of Directors sent repeated alerts to the Minister of Finance on the persistence of the debt positions in the two largest territories (on 29 April 1966, 16 July 1966, 16 May 1967, 24 August 1967, 12 January 1968, and 3 June 1968). Only a 50 million escudos special loan conceded to Macau on April 1967 was reimbursed in two phases: 10 and 40 million, both in 1968.58 To stimulate repayment capacity, interest rates for the EMZF special loans was reduced from 3% to 2%. For automatic loans the interest rates were again decreased in 1968 (at the meeting of the Board of Directors of 28 November), as follows (Table 4.3):

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Table 4.3  The interest rates approved on 28 November 1968 for loans granted by the EMZ Fund For the first quarter For the second quarter For the third and fourth quarter For the third semester For the fourth semester For next semester

0% 1.5% 2% 2.5% 3% 3.5 plus 1 percentage point more for each additional six-month period

On 17 March 1968 it was decided to end the Gold Pool operations and a double market for gold was created, which allowed the co-existence of the official market and a free market for gold, the latter with prices which were higher than in the official segment.59 Because of the IMF rules, to which Portugal was tied up, the official gold price continued in use whenever overseas territories sold gold to Banco de Portugal to obtain Metropolitan escudos for settling their payment orders. This was also the price for South African gold when bought by Moçambique.60 The year of 1968 was a turning point for the Portuguese EMZ because of the cumulative financial difficulties in clearing the system, and it was also a turning point for the political regime, because of Prime-Minister Salazar’s illness. Expectation on his health recovery failed. Salazar was mentally disabled. Portugal had a new head of government, from whom the EMZ awaited guidelines and instructions, and from whom the nation expected more freedom and democracy.

Notes 1. Resolution (despacho) 19-11-1963 from the Ministry of Finance. 2. BNU’s annual report of 1961, pp. 2, 3, 4. 3. Acta nr. 6 (of the meeting of 16 September1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol.,1 p. 27 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 4. For details, Pateguana 2016, p. 49.

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5. Which could reach 300,000 escudos, in the case of medical physicians, for example. 6. Decree-law nr. 43914 of 15 September 1961. 7. According to art 13 of decree-law 44701 of 17 November 1962. 8. Acta nr. 19 (of the meeting of 12 October 1964, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 2, p. 37 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 9. Acta nr. 24 (of the meeting of 9 February 1965, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 2, pp. 3–4. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 10. Banco de Portugal Historical Archives, Direcção de Serviços de Estatística e Estudos Económicos, Estatística Geral, Estudos-Projectos-Instruções-­ Circulares – 4-376/4. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Estatística cambial/estudos projectos/ instruções e circulares. 1959–1960. 11. Acta nr. 20 (of the meeting of 3 November 1964, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 2, p. 12. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 12. Relatório mensal do Agente relativo às operações de Outubro de 1963. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. Relatórios Mensais do Agente. 1963–1964. FMZE/ER/001/0001. 13. Acta nr. 6 (of the meeting of 16 September1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 1, pp. 26–27. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 14. Morais Caldas, Acta nr. 6, of the meeting of 16 September 1963, of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo, vol.,1, p. 28 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 15. The distribution of profits was regulated in art. 46 of decree-law 44703. 16. Acta nr. 11, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 1 p.  55 recto. Portugal. Arquivo Histórico do Banco de Portugal.

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Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 17. Acta nr. 16, on the Board of Directors meeting of 5 June 1964, p.  88 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 18. Acta nr. 75, on the Board of Directors meeting of 28 January 1969, vol. 7, p. 1 verso, in a speech by the Governor of the Banco de Angola, Carlos João da Silva Moreira Rato. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/ Dir/001/0007. 19. In the Board of Directors meeting of 28 January 1964. The deadline for the reimbursement of the three-month special loan of 100 million escudos was 17 February1964, and its interest rate was 3 percent. Acta nr. 6, Conselho de Direcção do Fundo Monetário da Zona do Escudo), vol. 1 p. 39 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 20. Acta nr. 10, of the extraordinary meeting of the Conselho de Direcção do Fundo Monetário da Zona do Escudo), 15-2-1964, vol.1, pp.  52–54. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 21. Rules on the discipline of the Angolan foreign trade already existed since 1948, obliging to the previous registration of all operations for the control of the value of imports/exports. The decree-law 44698 of 17 November 1962 confirmed these rules. Acta nr. 75, on the Board of Directors meeting of 28 January 1969, vol. 7, p.1 verso, in a speech by the Governor of the Banco de Angola, Carlos João da Silva Moreira Rato. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. 22. Acta nr. 18, of the meeting of 26 August, 1964, p.  94–95. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 23. Acta nr. 11, Conselho de Direcção do Fundo Monetário da Zona do Escudo, 10 March 1964, vol.1, p. 62 verso. Decree law 46312 of 28 April 1965. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 24. Acta nr. 12 Conselho de Direcção do Fundo Monetário da Zona do Escudo), 8-4-1964, vol.1, p.  65 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001.

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25. Authorised lower limits were 618 and 1370 thousand escudos, for Moçambique and Angola, respectively. Government decision by Portaria 14 August 1963, and Despacho of 6 September 1963. ­ PT/CGD/ BNU/01OA/5CG/1–026. BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 26. Following art. 8, n, of decree-law nr. 44702, and according to PT/CGD/ BNU/01OA/5CG/1–026: BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 27. Acta n° 13, P. 70 verso, Conselho de Direcção do Fundo Monetário da Zona do Escudo. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 28. Contract dated 22 May 1964, according to art 41 of decree-law 44703 of 17 November 1962, with an interest rate of 3 percent. Acta nr. 13, pp. 75–77 verso, and nr. 14, p. 80 verso. Conselho de Direcção do Fundo Monetário da Zona do Escudo. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 29. Acta nr. 17, of the meeting of 30 July, Conselho de Direcção do Fundo Monetário da Zona do Escudo, 1964, p.  94 recto. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 30. According to article 58 in decree-law nr. 44703. Acta nr. 17, of the meeting of 30 July, 1964, p. 94–95. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0001. 31. For the Moçambican perspective on the effects of this centralisation see Pateguana, 1997, p. 49. 32. Acta nr. 19, of the meeting of 12 October, 1964, p.  9–10. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 33. Acta nr. 19, of the meeting of 12 October, 1964, p. 9 verso. Acta nr. 20, of the meeting of 3 November 1964, p.  17 verso. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0001. 34. The minutes of all 78 meetings are available at Espaço Económico Português, FMZE, Transferências e Pagamentos das Províncias Ultramarinas, Actas do Grupo de Trabalho. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 5. For the purpose of estimating the balance of capital, and repeating instructions from 1 August 1961, on 5 August 1963, Banco de Portugal, Estatística Cambial, Circulares, Normas para a elaboração da Estatística

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Cambial, gave detailed instructions to commercial banks, investment banks, and exchange houses, to send monthly reports (according to attached forms 1, 2, 3, 4, and 5, duly completed) describing gold and exchange operations, by country and currency, as well as amounts in favour of domestic or foreign residents. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Arquivo do Administrador Alves Salgado Jr. Pasta 82. 35. Acta nr. 22 of the Board of the Escudo Monetary Zone Fund, held on 15 December 1964, pp.  22, 23. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. 36. Acta nr. 22 of the Board of the Escudo Monetary Zone Fund, held on 15 December 1964, p.  24 verso. Acta nr. 23 of the Board of the Escudo Monetary Zone Fund, held on 13 January 1965, p. 31 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0002. 37. Acta nr. 22 of the Board of the Escudo Monetary Zone Fund, held on 15 December 1964, p. 29. Acta nr. 23 of the Board of the Escudo Monetary Zone Fund, held on 13 January 1965, p.  33 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0002. 38. Acta nr. 24 of the Board of the Escudo Monetary Zone Fund, held on 9 February 1965, p.  43 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. 39. Acta nr. 24 of the Board of the Escudo Monetary Zone Fund, held on 9 February 1965, p.  44 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. 40. Acta nr. 24 of the Board of Directors of the Escudo Monetary Zone Fund, held on 2 February 1964, pp. 37 and 38 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. 41. From the contract of 20 November 1963, according to art. 41 of decree-­ law 44703 of 17 November 1962, whose interest rate was 3%. Renewals dated from: ––   26 February, 1964, for three months; ––   22 May, 1964, for six months; ––  13 November 1964, for six months. Acta nr. 21, on the meeting of the Board of Directors of 11 November 1964, p.  9 verso. Acta nr. 20, on the meeting of 3

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November 1964, pp. 9–21. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. ––  12 May 1965, for six months. Acta nr. 35 of the meeting of 3 December1965, p. 22 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0003. ––  8 November 1965, for four years, extending the established deadline of two years for the repayment of special loans of Decree-law 44,703, art. 41. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. ––  13 November 1968, for one year. Acta nr. 77 of the meeting of 5 March 1969, vol 7, p. 9 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/ Dir/001/0007. ––  29 October 1969, for four years. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1968–1969. FMZE/Dir/001/0007. ––  29 October 1973, for one year only, with the authorisation from the section of Monetary Policies of the government Board of Ministers, because the age of the loan was above four years, a deadline to be respected according to decree nr. 553/71 of 15 December 1971, reinforcing decisions from Acta nr. 119, vol 3, p. 70 verso-71. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. FMZE/Dir/001/0003.

42. Decree-law 46632 of 8 November 1965. Acta nr. 39 of the meeting of 9 March 1966, vol 3, p. 55 verso. 43. Acta nr. 28 of the Board of Directors of the Escudo Monetary Zone Fund, held on 5 May 1965, p. 68 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0002. 44. According to art. 45 of decree-law 44,700 of 17 November 1962. Actas nr. 36 and 37 of the Board of Direction, vol. 3, pp. 33 and 39 verso. Acta nr. 38, p.  47 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. 45. Decree-law nr. 46492 of 18 August 1965. 46. By contract of 11 September 1967. When the loan reached the deadline for reimbursement it was renewed on 6 September 1968, 11 September 1969 (with interest rate reduced to 2%, and thanks to a Moçambican commitment for restricting this province’s access to special loans), 11 September 1970, September 1972, September 1973, and 27 November 1974. Acta nr. 82 of the meeting of the Board of Directors of 16 September 1969 vol. 7, p.  41, 93 of the meeting of the Board of Directors of 6 November 1970 vol. 7, p. 94 recto, and 108 of the meeting of 11 September 1972, vol. 8, pp.  48–51. Portugal. Arquivo Histórico do Banco de Portugal.

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Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007 and 0008. Acta Provisória nr. 128 of the meeting of the Board of directors, of 27 November 1974, Banco de Portugal Historical Archives, FMZE/Dir/002. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processos de Atas. 1968–1975. FMZE/ Dir/001/0002. 47. Acta nr. 36 of the Boards of Direction of the Escudo Monetary Zone Fund, held on 7 Jan 1966, p. 37 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. Inspecção Geral do Crédito e Seguros, Boletim de Crédito,1967. 48. Acta nr. 37 of the Board of Directors of the Escudo Monetary Zone Fund, held on 1February 1966, p. 40 recto. Acta nr. 40 of the meeting of 7 April 1966, p.  66 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. 49. Acta nr. 33, pp. 8–9, Acta 34 pp. 16–17, vol. 3. Acta nr. 36 of 7 January 1966, pp.  36–37. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. 50. Acta nr. 37 of the Direction Board, of the meeting of the 1st of February 1966, p.  38 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003. 51. It was made of technicians from Banco de Portugal (Álvaro Ramos Pereira), the Ministry of Overseas, the General Inspection of Credit and Insurance, the Ministry of Finance, and the Technical Secretariat of the Presidence of the Board of Ministres. All minutes of the 76 meetings of this group are available at Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Arquivo do Administrador Alves Salgado Jr. Pasta 22. 52. Decree-law nr. 47917 of 8 September 1967, revising decree-law nr. 44698 of 17 November 1962 (art. 10), and Decree-laws nr. 47918, 47919, and 47920, respectively. A deposit could be required for imports from other territories (Decree 47925 of 8 September 1867). Priorities included consumption goods for foreign diplomatic representations, and religious missions, for example. Diário do Governo, I Série, n° 210, of the same date. 53. Several Actas do Conselho de Direcção do FMZE.  Boletim Trimestral do BNU, 1° trimestre, 1968, p. 27. 54. Letter of 5 May 1968. Portugal. ANTT.  AOS/CO/UL-56, Pt. 14, 579–585.

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67

55. Acta nr. 57, of the meeting of 28 June, 1967 of the Board of Directors of the Escudo Monetary Zone, Conselho de Direcção do Fundo Monetário da Zona do Escudo). Transmitted to the other issuing banks. P ­T/ BNU/061.06/23. 56. The renewal of the 150 million escudos (contract of 11 September 1967) occurred by contracts of 26 September 1968, 11 September 1969, 11 September 1970, 16 September 1971, and 29 October 1972, thanks to a special authorisation from the Board of Ministers for Economic Issue for the reimbursement. The 50 million escudos loan was renewed on 30 December 1970, 11 February 1972, 8 January 1973, 14 January 1974, and 16 April 1975. PT/CGD/BNU/D, AG, 061.03/23, BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. Contracts available at Banco de Portugal, Espécie 7201002, 1-IV, Designação 12, Espaço E conómico Português, Fundo Monetário da Zona do Escudo, MOÇAMBIQUE, Empréstimos Especiais, AHBP. 57. Acta nr. 75, on the Board of Directors’ meeting of 28 January 1969, vol. 7, pp. 4–6, speech by the Governor of the Banco de Angola, Carlos João da Silva Moreira Rato. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. 58. Acta nr. 77 of the Board of Directors’ meeting of 5 March 1969, vol. 7, p. 9 recto and verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. 59. Capie 2010, p. 395. 60. Letter of 17 July 1974, from the vice-Governor of Banco de Portugal, Jacinto Nunes, to the Governor of Moçambique, which was also distributed to the media. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Arquivo Especial do Cofre n° 2.

Bibliography BNU, Relatório Anual, 1961. Capie, Forrest, The Bank of England, 1950s-1979, Cambridge, Cambridge University Press, 2010. Pateguana, Carmélia Ernesto Langa, “A actividade do Banco Nacional Ultramarino em Moçambique 1864-1974”, Staff paper n° 8, Banco de Moçambique, Junho 1997. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Thesis, University of South Africa, 2016.

PART II

The Transition to a Revised Escudo Monetary Zone

CHAPTER 5

The Heritage from the 1963–1968 Period. Marcelo Caetano and the Decision of Asking for Studies

The last phase of the Portuguese Escudo Monetary Zone (EMZ) is undoubtedly a macro-political experiment. Initially intended to promote economic convergence among regions under Portuguese sovereignty, the failure of the EMZ illustrates the danger of lack of political cohesion in monetary unions to implement intra-trade sustainability and success. As Bordo and Jonung (1999) put forward, it is not enough to look at the theoretical framework set forth in the literature on Monetary Unions as optimal currency areas, because it is somewhat static and mostly ahistorical. The dissolution of monetary unions requires further understanding, regarding particular conditions that may be set into motion in the context of trade amongst partners and international capital flows. In September 1968 Oliveira Salazar was replaced by Marcelo Caetano as the President of the Ministers’ Board, because of Salazar’s illness. Hope for a liberalisation of the political regime was in the air. There were severe flaws in the functioning of the Escudo Monetary Zone (EMZ) regarding Angola and Moçambique, which awaited to be addressed and solved. The different performance of the several territories in the EMZ since its beginnings in 1963 is revealed in their balances of payments with the Mainland. The two great deficit territories were Angola and Moçambique. Other territories were essentially in a balanced situation. The net cumulative positions (since the beginning of the EMZ) of the large territories, Angola and Moçambique, were negative. These two African territories were highly indebted because repeated net negative © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_5

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cumulative positions in the compensation accounts of their Foreign Exchange Management Funds ever since the beginning of the EMZ forced them to borrow from the EMZ. The small territories of Cabo Verde, S. Tomé e Príncipe, Guiné, and Timor never asked for special loans from the EMZ Fund. They had very few local elites to stimulate imports, and in the late 1960s they were highly export specialised: Cabo Verde was a maritime port in the Atlantic Ocean quite convenient for watering and fueling merchant fleets, S. Tomé was a large-scale cacao exporter, Guiné was a CUF (Companhia União Fabril) producer and exporter benefiting from high international prices of rubber and tropical oil fruits (including peanuts, locally called mancarra),1 and Timor was mainly a coffee exporter with some tourism inflows.2 In these territories, monetary transfers to the Mainland were almost entirely limited to pensions and voyages, which were locally regulated.3 Macau was an Asian transit-trade and gambling centre, whose local government in 1964 was authorised to set the pataca/escudo exchange rate.4 The net cumulative positions of Macau, Timor, S.  Tomé e Príncipe, Cabo Verde, and Guiné were positive. They all had economic specialisations that provided exports and other revenues for their positive performance. Guiné’s payments to the Mainland were more or less balanced, despite the military unrest in the territory, because the payments were based on trade and government transfers for local military spending provided funding for imports for a small local elite living in the territory, and private transfers to the Mainland.5 In the case of Guiné, and in spite of the existence of guerrilla attacks near the border with Senegal, three large exporters in the coastal regions continued their normal activities: “There are, actually, three “great houses”, which, we may say, dominate a vast mercantile complex in the Province (of Guiné): the Gouveia House, the Sociedade Comercial Ultramarina, and the “Barbosa & Comandita”. The first two, in enlarging the domain of their activities, control and manage important industrial sectors, mainly made of centres for the transformation of raw material (…); the last one, staying mainly in the commercial sector, has a set of units (…).”6

“In the commercial units disseminated in the Guinean territory, the native sells his products for cash choosing the buyer, who is not necessarily the one

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who will provide him with the commodities he needs for every day, from clothing to domestic equipment. Firms, remaining in the commercial and industrial plans, do not forget the principles that prevail in Portuguese Guiné: natives are the owners of land (…). It doesn’t seem an exaggeration to me to say that, if the economy is based on agriculture, it improves to the measure that commercial and industrial firms support it, in using honest processes of dealing”.7 “I visited the “Gouveia” industrial centre on Ilhéu do Rei, in front of Bissau, which is served by private docks, duly equipped for loading and unloading, whose connections are based on private river-transportation. Perfectly equipped, it has steam, diesel, and electrical power centres; factory for shelling peanuts with capacity for 70 tonnes in 8 hours of work; factories of oil extraction with daily capacity for 22 tonnes of raw material and laboratory control; capacity for automatic washing, (…) and storage of 400 tonnes, as well as milling of residuals; a shipyard (…) for receiving vessels; and a system for pumping water from depth.”8

In order to preserve positive the balances of Foreign Exchange Management Funds of small territories and rationalise the use of reserve accounts in the Banco de Portugal whose amounts were excessive to pay for their inter-territorial operations, the General-Directorate of the Ministry of the Economy supported the initiative of those Foreign Exchange Management Funds to make monthly-renewable deposits at their colonial issuing bank BNU-Lisbon, following the Cape Verdian example. The aim was to centralise the available inter-territorial means of payments.9 The Governor of Cabo Verde asked for and received authorisation for the Foreign Exchange Management Fund of this territory, for an initial deposit.10 Amounting to 10 million escudos in 1969, it grew to 80 million by 1973, producing regular BNU interest payments at a 3.25% interest rate to this territory.11 Guiné also made a monthly-renewable deposit of 40 million escudos in BNU-Lisbon in 1970 under the same conditions (which reached 300 million escudos in 1973).12 The opposite was happening in the large territories, whose great indebtedness to the EMZ Fund was highly inconvenient and unsustainable. Unhappy with the possible solution of introducing more trade restrictions amongst the territories, and regretting the bias in parallel markets from the 1:1 official parity of the escudo currencies of territories under Portuguese sovereignty, the Board of Directors explored every avenue allowing that the main aims might be reached, while cautioning that the

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desire to move too quickly might defeat the expectation of rebalancing. Salazar had already asked for a preliminary assessment on this subject on 16 May 1968.13 In its meeting of 30 May 1969 the Board of Directors of the EMZ Fund discussed whether its financial resources were enough for the proposed aims of the Escudo Monetary Zone.14 The creation of an ad hoc task force to assess the problem and to propose solutions was suggested to the Ministries of Finance, Overseas, and Adjunct to the President of the Ministers’ Board, although regulations were available in chapter VII of the founding decree-law 44016 of 8 November 1961, when the EMZ was launched.15 Summoned to Lisbon to give explanation about the Mozambican situation to the Board of Directors of the Escudo Monetary Fund, the Mozambican Inspector  – General of Credit and Insurance, Domingos Guimarães Teixeira identified three main dates associated with the troubles experienced by the Escudo monetary zone: 1961, 1963, and 1966. The former two years correspond to the beginning of guerrilla actions in Angola and Guiné, and 1966 was the moment when were felt in Moçambique the consequences of the independence of Rodhesia (after the beginning of guerrilla actions in the territory in 1964). According to the Inspector-General, the true causes for the Angolan and Mozambican financial difficulties were “the psychological and political effects, resulting from the beginning of terrorism in Angola and Moçambique, the unilateral declaration of independence of Rhodesia in November 1965,” and international sanctions against the latter country.16 Mozambican transactions with Rhodesia plummeted immediately thereafter, leading to the 1967 special loan of 150 million escudos from the EMZ Fund, in spite of the pounds and dollars generated by cashew exports, and the 200 (Mainland) million escudos resulting from sugar and cotton exports, also. According to Domingos Guimarães Teixeira, if the Rhodesian situation had not occurred, “the Mozambican balance of payments from 1966 to 1968 would have accumulated a positive amount of 907 million escudos”.17 Expectations of Angolan oil exports also brought some optimism about future perspectives, in spite of the preponderance of Middle Eastern oil around the world. As Angola also needed to import much equipment in order to keep economic development, a first suggestion to solve the financial problems in the indebted territories was to postpone the reimbursement of loans to the Mainland, in order to smooth repayments.

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Local banks gave credit to local producers, based on export forecasts (up to a ceiling of 80%, in the case of the Mozambican tea producers).18 Exports of iron from Angola (from Jamba and Chamutete) to Japan were helpful, but Companhia Mineira do Lobito maintained the value of its liquid assets abroad, with the argument of meeting the payment of future imports of equipment. The Angolan Foreign Exchange Management Fund and the Banco de Portugal forbade this practice.19 Because of abundant global coffee harvests, large stocks of the 1969 coffee harvest were piling up in Angola owing to postponed decisions of importers, creating difficulties to the banking system. Moreover, and according to the Board of the Fund, it was well-known “the advantaged creative imagination of people for capital evasion /from the EMZ rules/in comparison with the capacity of public administration to inspect them”.20 Industrialisation in the territories was not as successful as had been expected when the EMZ was created in 1961. Migrants moving from the Mainland mostly preferred to develop service activities, namely trade, instead of investing in manufacturing, which required more fixed capital.21 Moreover, data on trade balances could include a pricing bias to give the opportunity of sending capital abroad. Decree-Law nr. 47916 was not enforced concerning required information on current prices of the Mainland commodities that were sold in the territories, in order to avoid overpricing: “The overseas, having already suffered the painful experience in this domain, (…) learned the lesson”.22 Over-recording prices of imports from the Mainland and under-recording prices of local exports surely occurred, in order to increase outflows of capital. Queuing and delays for payments to the Mainland and abroad put into motion these market mechanisms to circumvent those difficulties. The president of the Industrial Association of Angola declared, in his speech at the second conference of Portuguese industry in Lisbon that continuing terrorism in Angola, Guiné, and Moçambique compelled the Portuguese Government to set priorities for public expenditure. Priorities had led to the substantial and progressive increase of non-productive spending against public investment, which was indispensable for implementing the development plans of the colonies and their economic integration with the Mainland. However, this was not an actual novelty, he said, and government should be blamed for the failure in achieving the political objectives, because “When the Government promulgated the Decree-law nr. 44016 in 8 November 1961, which founded the integration of the Portuguese economic space, the Mainland had already joined

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EFTA and the country already faced terrorism in Angola”.23 Moreover, throughout the III Development Plan, much higher public investment was observed in the Mainland in comparison with the amounts invested in the overseas territories. Of course the Mainland “faces the dramatic dilemma of progressing quickly or failing in the competition with EFTA partners”, but because of this competition, by the end of the plan’s implementation period “overseas integration aims (…) will be further away than ever”.24 His claims in the name of the manufacturing sector included the 1961 promised (and never accomplished) reform of the banking system in order to promote financing to industry in Africa, which should have been promulgated by 1 July 1963, as well as the details for a Fund of Economic Development, a Consultative Commission for Economic Policy, and a National Centre for Productivity: “This is painful evidence, coupled with no fiscal exemptions, and an exasperating bureaucracy”.25 Perhaps everybody knew all of that. The president of the Industrial Association of Angola clearly expressed his opinions when concluding his address to this 1969 conference: “The defence of the integrity of the national territory cannot always be made with guns”, and “I am firmly convinced that the economic integration of the Portuguese space will be difficult to consubstantiate, and it even risks having no viability”.26 Problems were difficult to solve. Figure 5.1 illustrates the net cumulative (since the beginning of the period) credit-debit positions of all overseas territories and the Mainland, from the beginning of the EMZ up to 1971. The Mainland continued to be the great creditor of the system, (as well as Macau, out of proportion if one considers the tiny size of the latter territory). Increasing military problems and expenditures on the three fighting fronts of Angola, Guiné, and Moçambique affected the Exchequer’s capacity to underwrite and pay up more capital for the EMZ Fund, in order to support the required lending capacity to the overseas territories.27 Figure  5.2 illustrates the rising annual military expenditures since the beginning of the colonial wars. Military transfers could not be constrained by the difficulties of the EMZ. Defence was crucial. Special 1gr (open) letters by post, aerograms, were free for Portuguese military personnel on active deployment, and for people writing to them, being paid by the government. The payment clearing of postal services to the state-owned post-office CTT (Correios, Telégrafos e Telefones) and the national airline TAP (Transportes Aéreos

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25000

20000

15000

Cape Verde Guinea

10000

S. Tomé and Príncipe Angola

5000

Mozambique Macao

jun-63 jan-64 Aug 64 mar-65 Oct 65 May 66 Dec 66 jul-67 Feb 68 Sept 68 Apr 69 nov-69 jun-70 jan-71 Aug 71

0

-5000

Timor Mainland and Atlantic islands

-10000

-15000

Fig. 5.1  Net cumulative positions of all overseas territories and the Mainland, for the 1963–1971 period. (Source: Relatórios Mensais do Agente, from Arquivo Histórico do Banco de Portugal (AHBP). Unit: Million escudos)

Portugueses), was also subject to significant arrears, and was urgent (moreover because of the strict deadlines imposed by the Universal Postal Convention).28 As other transfers were queuing, banks in the Mainland were granting loans to Mainland’s firms for them to continue exporting to the overseas

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16,000,000 14,000,000

"Fundo de Defesa Militar do Ultramar"

Thousand Escudos

12,000,000

Overseas military services

10,000,000 8,000,000 6,000,000

Portuguese budget

4,000,000

Total

1 972

1 968

1 970

1 966

1 964

1 962

1 960

1 958

1 956

1 954

1 952

0

1 950

2,000,000

Fig. 5.2  Annual Military Expenditure. (Source: Madeira, 2008, pp. 266, 285)

territories, in anticipation of future transfers in payment. But they were requiring higher interest rates from those firms. The National Board for Credit assumed responsibilities to deal with overseas credit policies in 1967, but its mission was difficult. Territories having positive reserve accounts (Cabo Verde and S.  Tomé e Príncipe) could buy metropolitan escudos, but the amounts were small.29 The 2.5% interest rate paid to the EMZ Fund deposits at the BNU, Banco de Angola and Caixa Geral de Depósitos was increased to 3% and 5% (for one month and six-month term deposits, respectively), but the increased revenue (in metropolitan escudos) was small.30 A report from the Inspector-General of Credit and Insurance of 1 September 1969 accuses Angola and Moçambique of asking for increasing borrowing from the EMZ Fund, “as a solution for the delays of their payments. However, (…) the concession of those loans in no way contributes to the solution of structural problems, which must be solved essentially resorting to a set of measures of non-­ monetary nature”.

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In this report conclusions, which were presented at the meeting of the Board of Directors of the EMZ Fund on 16 September 1969, commercial banks should not accept Angolan or Mozambican debt as collateral to back any additional lending, which was not considered to be indispensable or urgent, even if the EMZ Fund would have financial capacity to award it. As the practice of moving Mozambican special-loan rights to Angola (to satisfy the growing special loan needs of this territory) could not continue, the participation of each territory in the capital of the Escudo Monetary Zone was changed in 196931: The Angolan participation of 750 million escudos was increased to 850 million, raising the Angolan ceiling of special loans, because the Angolan financial problem continued. In the same way, the Mozambican participation of 450 million escudos was increased to 500 million, also raising the Mozambican ceiling of special loans. All other territories decreased their participation: Cabo Verde from 60 to 30 million, S. Tomé from 60 to 30, Macau and Timor from 20 to 17.5.32 However, these changes were not implemented, and the fund for the newly created system was not yet settled when the 25th April 1974 revolution occurred, in spite of complaints from the diamond company, Companhia dos Diamantes, and the Banco de Angola. Private capital transfers needed authorisations from both Banco de Portugal and the local Inspections of Credit.33 Letters complaining about delayed transfers arrived at the Banco de Portugal from people who needed their payment for living, or to pay health and children’s education expenditures.34 Many letters complained about the lateness of monthly payments to dependents of families living in the overseas territories, some of them using offensive language, damaging the prestige of the Portuguese central bank.35 The Bank had a formal answer for all letters, remarking on the chronological ranking for the payment orders from BNU and Banco de Angola, to be settled according to the financial capacity of the territories’ Foreign Exchange Management Funds, without any responsibility of the Banco de Portugal for the delays. Foreign travellers having Portuguese overseas banknotes could not exchange them upon arrival at the airport in Lisbon, which created political difficulties.36 Black market parities were reflecting the depreciation of overseas escudos.37 People in general did not want overseas escudos in the Mainland, and there was almost no exchange at all: On 17 September 1971, “Only an exchanger, by favour and discretely, would give 0.86 Metropolitan escudos for 1 Angolan escudo”.38 Indeed, black market exchange rates between the Mainland and overseas escudos were about

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1:1.1 for the Guinean case, 1:1.2 for the Angolan and Mozambican escudos before 1970, reaching 1:1.3 after 1970.39 They even deteriorated on the eve of decolonisation. Lack of confidence in the future and the continuation of military operations created great political uncertainty. The Angolan and Mozambican financial problems were discussed at the government meetings for economic issues, with the presence of the Governors of the three issuing banks.40 In discussing the problems of the overseas credit policy, the Board of Directors of the EMZ Fund suggested that Angola and Moçambique should increase their stocks of international means of payment. According to the Board, firm profits should partially remain in the territories to fund investment, instead of queuing to be transferred to the Mainland.41 The difficulty was how to implement this in practice. The EMZ was under tremendous pressure. In this context, a decision was made by the President of the Board of Ministers (the Prime Minister) Marcelo Caetano, who in October 1970 asked for technical assessment and advice on the problems faced by the Government.42 The consequent reform would be introduced one year later.

Notes 1. Carvalho 2014, p. 58. 2. Despacho nr. 13/2/68, Boletim Oficial de Timor, nr. 10, of 9 March1968, and in Despacho nr. 57/969, Boletim Oficial de Timor, nr. 1, of 3 January 1970, on airline trips. Fundo Monetário da Zona do Escudo, Regime Cambial, Legislação própria de cada Província Ultramarina. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 20. 3. Despacho 13/968, Boletim Oficial nr. 22 of 30 May 1968, and Despacho nr. 10/969 of 23 January 1969, or the case of S. Tomé e Príncipe, for example. Portugal. Fundo Monetário da Zona do Escudo, Regime Cambial, Legislação própria de cada Província Ultramarina. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 20. 4. Decree 46068 of 7 December 1964, Diário do Governo nr. 286, I Série. 5. Espaço Económico Portugûes, Projectos de Diplomas de Operações Cambiais e de Pagamentos Interterritoriais, sem registo prévio e mercado de câmbios: Continente e Ilhas, e Províncias Ultramarinas. Portugal.

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Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 8. 6. Simões 1966, p. 199, Arquivo Histórico Ultramarino, (AHU). 7. Ibid, p. 200. 8. Ibid, p. 202. 9. Ofício n° 5951 of 22 December 1969. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Cabo Verde e Guinea. 1970–1973, 2. 10. Letter of 9 December 1969 to the Governor of Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Cabo Verde e Guinea. 1970–1973, I. 11. Letter of 9 December 1969 to the Governor of Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Cabo Verde e Guinea. 1970–1973, 1. 12. Letter of 8 January 1970 to the Governor of Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Cabo Verde e Guinea. 1970–1973, 2. 13. Acta nr.79, on the meeting of 30 May 1969, vol. 7, p. 21 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/ Dir/001/0007. 14. Acta nr.79, of the meeting of 30 May 1969, vol. 7, pp. 20–21. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/ Dir/001/0007. 15. Acta nr. 82 of the Board of Directors, of the meeting of 6 August 1969, vol 7, pp. 29 verso and 34 retro. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 16. Acta nr. 82 of the meeting of the Board of Directors of 16 September 1969, vol. 7, p.  31 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 17. Meeting of the Board of Directors of 16 September 1969. Acta nr. 82 vol. 7, p. 31 verso, 32 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 18. Acta nr. 83 of the meeting of the Board of Directors of 18 September 1969, p. 50. Portugal. Arquivo Histórico do Banco de Portugal. Fundo

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Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 19. Acta nr. 83 of the meeting of the Board of Directors of 18 September 1969, p.  49 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 20. Ibid. p.  51 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 21. Secretariado Técnico da Presidência do Conselho 1969, p. 30. 22. Secretariado Técnico da Presidência do Conselho 1969, p.  32, AHBP 10826. 23. Secretariado Técnico da Presidência do Conselho 1969, pp. 3, 4. 24. Ibid, p. 5. 25. Such as regulations for capital flows, in Decrees nr. 44890, 44893 of 20 February 1963. Ibid, p. 8, 14–16. 26. Secretariado Técnico da Presidência do Conselho 1969, p. 12. 27. Madeira 2008; Valério 2016. 28. Acta nr. 83 of the meeting of the Board of Directors of 18 September 1969, vol. 7, p.  47 retro, pp.  54–55. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. There is also notice of this problem in PT/CGD/BNU/D-AG-061.03/23, BNU Historical Archives. 29. Acta nr. 86 of the meeting of the Board of Directors of 17 December 1969, vol. 7, pp.  64–67. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 30. Acta nr. 89 of the meeting of the Board of Directors of 21 May 1970, vol. 7, p.82 verso. Acta nr. 90 of the meeting of the Board of Directors of 24 June 1970, vol. 7, p. 82 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 31. Decree-law nr. 49305 of 16 October 1969. 32. Acta nr. 84 of the Board of Directors of the Escudo Monetary Zone Fund, held on 20 October 1969, p.  56 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. 33. Decree-law nr. 183/70. 34. Letter dated 5 February 1969, from Sanatório Presidente Carmona, sala 8, and its reply, in Sistema de Compensaçãoes e de Pagamentos, A- Contas de Compensação. Portugal. Arquivo Histórico do Banco de Portugal.

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Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 11. 35. Acta nr. 85 of the meeting of 20 November 1969, vol. 7, p.  60 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 36. Acta nr. 84 of the meeting of the Board of Directors of 20 October 1969, vol. 7, p.  57 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 37. Acta nr. 87 of the meeting of the Board of Directors of 29 January 1970, vol. 7, p.  69 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1969–1970. FMZE/Dir/001/0007. 38. Aguiar (1971). 39. João Ferreira do Amaral, to whom I’m very grateful, confirms this information. 40. For discussion of the 1972 exchange budgets, see the minutes of the meetings of 9 December 1971 and 23 December 1971, PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. 41. Actas do Conselho Nacional de Crédito, nr. 20, of the meeting of 5 August 1970, pp.  7, 9. Portugal. Arquivo Histórico do Banco de Portugal. Direção. Atas do Conselho Nacional de Crédito. 1960–1972. 42. Despacho of 30 October 1970.

Bibliography Aguiar, Osvaldo, “Pagamentos inter-territoriaia”, Jornal do Comércio, Economia e Finanças, nr. 31, 17 September 1971. Bordo Michael D. and Jonung, Lars, “The future of EMU: what does the history of monetary unions tell us?”, NBER Working Paper 7365, 1999. http://www. nber.org/papers/w7365 Carvalho, Nuno Fernandes, A Coleção de Notafilia da CGD, Angola, Cabo Verde, Guiné, Índia, Macau, Moçambique, São Tomé e Príncipe, Timor. Lisbon: Caixa Geral de Depósitos, Gabinete de Património Histórico, 2014. Madeira, Luis Filipe, Les Finances Publiques, les options budgétaires et les priorités politiques dans l’empire colonial Portugais (1946-1974) Doctoral Dissertation in Political Science, University Bordeaux IV, 2008. Secretariado Técnico da Presidência do Conselho, Relatório Apresentado pelo Ministério do Ultramar, O problema cambial, Lisboa,Secretariado Técnico da Presidência do Conselho,1969.

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Simões, Martinho Nas três frentes durante três meses, toda a verdade da guerra contra o terrorismo, 1966, L2762, Arquivo Histórico Ultramarino (AHU). Valério, Nuno, “Entre Europe et Outre-Mer, Les Avatars de la Banque Centrale au Portugal”, in Feriertag, Olivier, and Margairaz, Michel, Les Banques Centrales et l’État-Nation, Paris, Sciences Po Les Presses, 2016: 281–296.

CHAPTER 6

The Technical and Political Discussion of the Escudo Zone Problems, and the Reform of 1971

While waiting for the technical assessment of the problems that the head of government Marcelo Caetano had asked for, the Ministry of Finance issued several instructions aiming at putting a ceiling on the amount of transfers to be carried out up to the end of 1970, avoiding their otherwise acceleration, and decreasing the amount of arrears from 1 January 1971 on. A letter of 6 November 1970 from the Portuguese Treasury (Secretaria de Estado do Tesouro) to the Governor of Banco de Portugal recommended this bank to propose to the EMZ lower ceilings for the management of funds at the disposal of territories’ Foreign Exchange Management Funds, and to make them cease the current practice of issuing non-secured payment orders. Depreciation was a possibility that was considered for the escudos of Angola and Moçambique versus the Mainland escudo.1 Depreciation of the escudo in general, was not under consideration due to the great gold reserves accumulated by the Banco de Portugal vaults over time. The consolidated EMZ current and financial non-monetary accounts had always been in surplus implying the accumulation of reserve assets. Moreover, a general depreciation of the escudo would be damaging for inflation: “So evident is this conclusion that it is useless to comment on it”.2 Public opinion in the overseas territories even considered the possibility of a more expansionary economic policy, quoting an OECD report.3 Another avenue discussed in 1970 was the pros and cons of starting negotiations with the main European partners for accession of Portugal © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_6

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and the Portuguese overseas territories to the European Economic Community. The successful Portuguese performance in the EFTA stimulated such an idea. Technically, the option for choosing to join a customs union instead of a free trade zone was considered very attractive, but political arguments spoke louder. Portugal had no political support from the United Nations and the main global powers to preserve its colonial empire. Politicians remarked that by opening this discussion Portugal would be providing arguments to those against the colonial status of the Portuguese overseas territories. Therefore, the idea was abandoned.4 All in all, the most discussed among all possible policy options was the formal depreciations of the escudo of Angola and the escudo of Moçambique vis-à-vis the Mainland escudo. Historical sources, including documents submitted to the Minister of Overseas Affairs at the time, Joaquim Moreira da Silva Cunha, prove that the possible consequences of a depreciation of the escudo of Angola and the escudo of Moçambique were political and technically discussed in depth.5 João Luís da Costa André, Deputy-Minister for the Treasury, shared with the Minister of Overseas Affairs two documents “whose discussion was not possible in our talk of June 2”.6 In one of the texts, arguments were made that cheaper Angolan and Moçambican exports in terms of Mainland escudos should encourage their economies, but the world large buyers of coffee, sugar, tea, cashews, tobacco, and cotton would limit this effect in lowering the prices of these commodities. Other products were less important (copra, sisal, wheat, maize, rice, potatoes, and fruits). With depreciation, imports would become more expensive, but they would decrease only if demand were elastic, which did not occur for equipment, and for some consumption goods, which had a rigid demand, it was said. With the exception of wine, which had local alcoholic substitutes, all other imports would not stop the outflow of money, it was argued. The trade account could even deteriorate, and the cost of living would certainly rise. This had already happened with the sterling depreciation of 1967, it was concluded. In spite of repeated large doses of international support to the sterling exchange rate in the 1960s, because sterling was a reserve currency, it lost international prestige when ceased being strong and convertible, and less confidence also pressured the dollar, which was another reserve currency.7 Arguments put forward also considered that depreciation would imply an attempt to increase the price of transports in order to maintain export revenues (when expressed in foreign currency). Even without increased

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cost of transport freight and commercial passenger transportation trade, tourism flows would not increase, it was said. Depreciation would mean lower revenues for families living in the Mainland and depending on receiving Angolan and Mozambican private transfers, which would reduce the stimulus for people to move to those territories. In the long run, wages would increase there and cancel the effect of depreciation, with local inflationary effects, while private Angolan and Mozambican transfers would remain monthly unchanged in terms of Mainland escudos. As for profit repatriation, the depreciation of Angolan and Mozambican escudos would encourage increasing the profit margins, which would not only have inflationary effects, but also discourage new capital inflows, or even promote capital outflows. So, immediate advantages of depreciation, which would have negative psychological and political effects, would tend to be cancelled out in the short run. With depreciation, only with very high local interest rates it would be possible to avoid immediate outflows of capital, and the financial account would turn from a small surplus into a deficit. Only government intervention would be able to help containing the adverse effects, which might also be achieved without any depreciation. The debts of Angola and Moçambique towards non-residents, which were very high, would have burdensome services, which would lead to more sacrifices, eventually becoming unbearable for those territories.8 In any event, it was considered that no territory should have a less-favourable treatment, and payment difficulties could affect not only Metropolitan Portugal but also the smaller territories in what respected their payments to non-residents. As the inter-­ territorial system of payments was designed to be improved over time in virtue of the introduction of reforms, if the two largest territories were causing problems instead of improvements to the functioning of the EMZ, they should be retired from the system or their participation downsized. The unification of economic, monetary, and financial dimensions was considered to be premature, because the geographical and political conditions of the territories were very different. To acknowledge a differentiation based on local conditions, and to implement a treatment for specific problems that were common only to some of them would be much better than to have a general rule with exceptions, it was concluded. In Angola, for example, the volatility of trade balances resulted from a special regime for iron, oil, and diamonds export firms, which were committed to obtaining international means of payments to the Angolan Foreign Exchange

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Management Fund thanks to their exports. In Moçambique, the volatility of trade balances resulted from production fluctuations and the price volatility of corn, tea, and copra in international markets.9 The national interest was identified as a situation where the authorities were able to express “desirable aims” and “situations to be avoided”, in both the domestic and international contexts. Local authorities’ autonomy would assure their responsibility and accountability on the local credit conditions offered, employment policies, and behaviour of the current and capital accounts, it was said. Coordination with the Metropolis would assure creating institutions for advice, research, and policy intervention. It was therefore considered that the most advantageous solution would be to abolish constitutional or administrative rules that required decisions of one territory to be dependent on decisions of another territory. Indeed, the depreciation of the Angolan and Mozambican escudos would not be beneficial for the Mainland escudo, and could even be detrimental in terms of credibility. From a foreign perspective there were single and unified current, capital, and financial accounts, the escudo zone balance of payments, and nothing else, it was stressed. For all these reasons it was concluded that the depreciation should not be implemented.10 Summing up, instead of exchange rate depreciation of the Angolan and Mozambican escudos vis à vis the mainland escudo, quantitative limits to the overseas imports were considered, because limits to overseas exports to the Mainland almost did not exist. However, the commitment of Portugal with GATT established that all constraints to trade with overseas territories should be eliminated by the 1st of January 1974, according to a schedule that should have been announced before 30 September 1966. In fact, no schedule had yet been announced, and any decision to increase constraints to trade could put an end to the Portuguese participation in the GATT. These fears about introducing quantitative import ceilings were rationalised as follows: “It must be avoided that it could be externally interpreted as a decision to give up the free trade escudo zone or a process to preserve preferential treatment among national territories. (…) The delicate position of our country in GATT has rendered difficult the Portuguese participation in some ongoing works of this international organisation (…), namely in UNCTAD/ GATT and in the Commission for Trade and Development”.11

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As GATT already considered a high number of constraints for foreign imports to the Portuguese colonies, this was seen as one good solution, although it was recognised that if the Mainland should export those products (or substitutes) to them, their prices would be higher than when importing them from abroad. If the Mainland had no export capacity of those products, it was recognised that they would be introduced in the Mainland from abroad, and national-origin certificates would wrongly declare them as national, because this was already occurring.12 The government strategy was to notify the secretariat of GATT directly, to avoid any other countries being the source of such information.13 For monetary zones, “legitimacy is a core issue”, and “legitimacy is a complex, multidimensional concept which is both extremely important and open to conflicting interpretations”.14 A technical opinion from the GATT was required, which delayed the decision process. This opinion came in June 1970, and was quite clear: “To preserve quantitative restrictions to trade is illegal, because those still remaining are considered to be residual, and cannot be increased”.15 Another solution suggested was to limit imports from the Mainland, and present them as a postponement of the founding Decree-law 44016 regime. In order to avoid any disagreement from GATT, it was suggested that Article VIII- c) of the agreement considered possible exceptions for regions in development, which was the case of the Portuguese overseas territories. Portuguese diplomats worked hard in order to make viable this subterfuge16: Quantitative restrictions (in Decree-law 915/70) included, among others, gold and diamond jewellery, toys, perfume, wine, chocolate, vehicles, paper, and construction materials. Priorities for transfers and payments that were queuing and waiting for authorisation were also recommended.17 No constraints upon personal military transfers were imposed, because it was politically sensitive.18 Uncertainty about official depreciation prevailed in the public opinion. In August 1970 the Director of BNU in Moçambique wrote a letter to the BNU-Lisbon Vice-Governor Luís Pereira Coutinho, who on 20 of August sent it to the government, asking for clarification: “There are fears of a sudden depreciation of the escudo, among the population of this province. As a reaction one sees that the most accessible foreign currency, the rand, suddenly disappeared from the market, and there is an increased interest for real estate. (...) Some speak of escudo depreciation, and others of

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overseas-escudos depreciations in comparison with the Mainland escudo. Officially no position was assumed – which contributes to disquiet”.19 Exchange-rate speculation may have been involved. The letter mentions the 17 August 1970 South-African newspaper The Star, and the article Rumours rife on escudo: “Rumours on an imminent escudo depreciation spread in the last days. Someone from the banking sector confirmed the spread of those rumours, and concluded that depreciation should really occur. Forecasts on depreciation go from 14 to 30%, being 18% the most frequently cited”.

At last, the letter speculates on the consequences of the visit of Marcelo Caetano, the Portuguese head of government, to Madrid. Spain was more competitive than Portugal, and the escudo depreciation would help exports to that country, it had been said. The advantages of depreciation for tourism inflows were also cited. Finally, the letter considers the possibility of discarding the traditional monetary policy based on the escudo’s strength following Salazar’s recent death (on 27 July 1970), while Caetano’s government included “new-wave” political sectors.20 Newspapers also spread rumours on the Angolan case to express the impossibility of importing pharmaceutical goods.21 Angolan payments in 1970 were on average almost one full year in arrears (361 days): On 19 October 1971 this territory was paying orders from 23 October 1970, and the amount of delayed payments to be settled reached 4336 million escudos. Moçambique had delays of about one year and a half (510  days): On 19 October 1971 this territory was settling orders from 27 May 1970, and the amount of delayed payments to be settled reached 4523 million escudos. In both territories, since 1965 the net increase in reserve assets (or net surplus of the balance of payments with foreign countries, as it is said in oral language) had not been enough to offset the accumulated net decreases of reserve assets (or net accumulated deficits of the balance of payments) with the Portuguese Mainland. The Development Plans required high volumes of imports of technology and machinery to be installed.22 Payments of equipment for the construction of Cahora Bassa dam in Moçambique depended on the Mozambican Foreign Exchange Management Fund capacity to pay for them.23 The construction of this dam, in the rapids of Zambesi thanks to the participation of foreign partners, was considered to be important for military purposes in order to

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safeguard the defence of Moçambique. It was “the fifth largest in the world” and “one of the world’s greatest civil engineering projects”.24 Following the development of engineering projects in the Mainland, by the National Laboratory of Civil Engineering (Laboratório Nacional de Engenharia Civil, LNEC) and Hidroeléctrica Portuguesa (HP), for the construction of Cahora Bassa dam, this hydroelectric project was politically approved in 1969. Three conglomerates participated in the construction: Cahora Bassa Builders incorporated in Paris, using about 10 billion escudos of Portuguese, French, and South African capital; Cahora Bassa Construction incorporated in London, using about 15 billion escudos of Portuguese, British, South African, and Italian capital; and Zamco-Zambeze Consórcio Hidro-Eléctrico incorporated in Paris, using about 7 billion escudos of French, German, Swedish, and South African capital.25 Rhodesian United Tanker Services’ provision of cement is recorded in historical sources, because payments in dollars and rands further stressed the Mozambican Foreign Exchange Management Fund.26 Other payments were required for equipment used in road and railroad construction, seaports, airports, water and electricity provision, telecommunications, urban sewage networks, and other improvements included in the Plan for Zambeze in Moçambique, such as the Massingir dam in Limpopo.27 On 7 December 1970, Moçambique asked for a new special loan of 200 million escudos, but the EMZF had only 50 million escudos to award to this territory (at a 2 percent interest rate).28 The refusal was politically sensitive, because Moçambique had participated with 150 million escudos in the Angolan 500 million escudos special loan.29 Such a situation could not be allowed to continue, and it was acknowledged the need for “making shorter the period of incidence of the difficulties on the creditors of the provinces, (…) contributing to the creation of a climate of greater confidence”.30 BNU, headed by Francisco José Vieira Machado (since 1951), asked for a separation between loans for personal and commercial purposes, and fund-raising for public works, which should be provided by  the investment bank Banco de Fomento Nacional.31 The same opinion was shared by commercial banks.32 To sum up, the conclusion of the entire technical and political discussion on a possible depreciation of the Angolan and Moçambican escudos was to discard this option. In December 1970, a new escudo/USD exchange rate was adopted (USD 1=27.25 escudos).33 The government approved the reform of the inter-territorial payment system in the meeting of 29 October 1971.34 Decree-law nr. 478/71 of 6

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November acknowledged that the inter-territorial payment system under application since 1963 was conceived with an elegant theoretical coherence, but “for a reality that was different from the one it had to face”. The Escudo Monetary Fund was devised to lend Mainland escudo loans to some territories where temporary difficult situations eventually could occur, but it envisaged that the repayment would take place as soon as those difficulties were overcome. These conditions were not met, says the preamble of the Decree-law: “Neither the human and financial effort that defence required, nor the consequences of psychological effects on the balances of payments of some territories” were foreseen, namely in Angola and Moçambique. The decree recognises the scarcity of international means of payments in the territories, and the scarcity of metropolitan escudos. It also refers to the claims of Mainland exporters, and to the existence of black markets disrespecting the 1:1 official exchange rates. The government introduced quantitative restrictions, tariffs, and prior authorisation on commodities imported from abroad after 20 November 1971.35 Exports were to be submitted to a prior registration in bulletins (excepting values below 2500 escudos). There is considerable evidence on the application of these decisions to Angola. Ceilings were defined for each kind of transfer (health voyages, business travelling, holidays, profits, student support, etc.). In order to support the implementation of the new regime of imports, in December 1971 Banco de Angola and Companhia dos Diamantes de Angola lent 200 and 150 million escudos, respectively, to the Foreign Exchange Management Fund of Angola, at a 5.2 percent interest rate. For this purpose Banco de Angola signed a loan from Banco de Portugal, at a 3.75 percent interest rate, and simultaneously decided on a 125 million escudos increase of equity, to improve its liquidity.36 Companhia dos Diamantes de Angola lent 300 million escudos to the Mozambican Foreign Exchange Management Fund, as an expression of inter-territorial solidarity within the EMZ system.37 Taxes on consumption for “less-essential” products were introduced, and repatriation of capital was forbidden, while a framework was created to encourage and promote local investment and foreign direct investment in the territories.38 The Development Plans (Planos de Fomento) provided public investment in all territories for irrigation, topographic, cartographic, agronomic and geological studies, forestry, fish storage in seaports, mining prospection, veterinary support for animal raising, telecommunications (radio, posts, and telephone facilities), schools for primary, high, technical, and university studies), housing facilities, dams,

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urban water provision, electricity plants and distribution, urban sewage systems, road and rail networks, airports, meteorological and seism graphical stations with services connected to international networks, health units (hospitals, maternities, and vaccination posts), as well as support to the construction of tourism units.39 It was considered that enough stimulus to private investment had been provided, and it was now the time for private initiative to pursue initiatives and entrepreneurship for promoting local economic growth and prosperity.40 The system of credit and insurance to exporters which was in place in the Mainland was extended to the overseas territories, and interest rates were adjusted. The rate of allocation of international means of payment to local Foreign Exchange Management Funds was increased. Their management was to belong to administrators locally appointed, and not to the local Inspections of Credit and Insurance. Local banks were authorised to have lower cash reserves in order to ease the payment of transfers waiting for payment. Transfers were limited to the capacity for payment, what depended on the performance of the current, capital, and financial accounts of the territories.41 The need for accurate estimations of balances of payments became overwhelming, and territories began using computers for data treatment.42 At the top management level, the Governors of the three issuing banks would sit at the government meetings for economic issues and monetary policy in Lisbon.43 “The solution proposed to reform the system is not infallible although it was the only one feasible, at the moment”.44 Other solutions were considered to be unworkable: –– The introduction of a single currency for all territories, which, although appropriate for a unified political state, would never be a solution for the problems facing the EMZ, because the unlimited acceptance of overseas currencies would bring strong depreciation of exchange rates in Angola and Moçambique. Moreover, cash famines could occur in less-developed regions. –– The acceptance of overseas escudos as means of payments for inter-­ territorial transactions would affect the banking system, because large deposits in the overseas territories would not find immediate application, and the Mainland would accumulate credits over the overseas territories.

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–– Under these circumstances a new decree authorised the issue of a 3 billion escudos domestic loan for the EMZ Fund.45 After lengthy text improvements, which are preserved in the Banco de Portugal archives, the interest rate was set at 4%, to award the overseas Foreign Exchange Management Funds with the financial means to address all the orders of payment that were in arrears.46 The operation was to be made through successive series of 100 million escudos containing 10 debentures having the individual nominal value of 10 million escudos each.47 –– The overseas Foreign Exchange Management Funds were also authorised to issue (domestic) bonds, expressed in any escudos, up to 1 billion escudos, with state guarantee, but the overseas Foreign Exchange Management Funds were jointly responsible for them.48 –– The need to increase the capital of the Escudo Zone Monetary Fund to 3 billion escudos was acknowledged. The issue of 1500 domestic debentures (printed by the Junta do Crédito Público and Casa da Moeda) with State guarantee was authorised,49 leaving the territories with the following shares in the capital of the Fund (Table 6.1)50: The Board of Directors took the decision of issuing the debentures in a meeting on 22 February 1972. The settlement of this new amount of capital of the Fund was distributed in the following way (Table 6.2): This amount of capital was to be used to grant two loans to the Foreign Exchange Management Funds of the territories of Angola and Moçambique, of 750 million escudos, each,51 to settle the orders of payment that were still outstanding. Payments were to proceed in the following order: Table 6.1 Participation of the territories in the capital of the Fund (Decree-Law nr. 479/71 of 6 November 1971)

Cabo Verde Guiné S. Tomé Angola Moçambique Macau Timor Total

30,000 55,000 30,000 1,600,000 1,250,000 17,500 17,500 3,000,000 (thousand escudos)

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Fig. 6.1  António Manuel Pinto Barbosa, Governor of Banco de Portugal (1966–1974). (Source: Banco de Portugal, Gallery of Governors) Table 6.2 Settlement distribution of the new amount of capital for the Escudo Monetary Zone Fund, proposed on 22 February 1972

Exchequer Banco de Portugal BNU Bank of Angola Total

500 debentures 500 250 250 1500 debentures of one million escudos, each

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–– –– –– ––

First, debts to foreign countries for imports; Second, transfers to pay re-insurance; Third, transfers to pay profits and dividends of 1969 and 1970; Fourth, payment of debts to other Portuguese territories for imports.

Automatic and special loans from the Escudo Monetary Fund were to continue, as the new loans were intended to clear the delayed-payments situation. While the increase of capital was not paid up, loans from the Mainland’ exchequer and from the BNU were awarded, according to new regulations.52 The Board of Directors of the EMZ Fund ceased functions, and immediately afterwards took office again.53 With the new legislation, the renewal of loans granted to the Foreign Exchange Management Funds of the overseas territories should obtain prior authorisation from the section of economic policy of the Board of Ministers for Economic Issues (Secção de Política Monetária do Conselho de Ministros para os Assuntos Económicos).

Notes 1. “Estabilidade financeira e solvabilidade externa da moeda, following Normas orientadoras da proposta da lei de meios para 1969 enviada à Câmara Corporativa. Boletim da Câmara do Comércio de Lourenço Marques, n° 10, 4° trimestre de 1968: 21–78, pp. 40, 42. BNU Historical Archives. 2. Ibid, p. 79. 3. “Porque seria errado desvalorizar o escudo”, Boletim da Camara do Comércio de Lourenço Marques, n° 17, 3° trimestre de 1970: 79–83, transcrito do Diário de Notícias, 1970. BNU Historical Archives. 4. Relatório da Comissão, Portugal. Arquivo Nacional Da Torre Do Tombo (ANTT), Arquivo Silva Cunha. 5. Correspondência entre Ministro/ Secretário de Estado do Tesouro / Direcção Geral de Economia/ sub-secretário de Estado do Fomento sobre balanças comerciais de Angola e Moçambique e sobre “Hipótese de Desvalorização do escudo de Angola e Moçambique relativamente ao escudo Metropolitano”, apontamentos sobre o GATT relativamente aos Territórios não Europeus. Portugal. Arquivo Nacional da Torre do Tombo (ANTT), ex 49 n° 368, m.c.t. 1–10 PT/TT/JMSC/A/001–005, cx. 58, n° 431, m.c.t. 1–7.

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6. Arquivo Nacional da Torre do Tombo, ANTT, ASC, cx.58, n° 431, m.c.t. 7. 7. Schenk 2013, pp. 155, 183, 204 confirms this conclusion. 8. Arquivo Nacional Da Torre Do Tombo (ANTT), ex 49 n° 368, m.c.t. 1–10 PT/TT/JMSC/A/001–005, cx. 58, n° 431, m.c.t. 1–2. 9. Arquivo Nacional Da Torre Do Tombo (ANTT), ex 49 n° 368, m.c.t. 1–10 PT/TT/JMSC/A/001–005, cx. 58, n° 431, m.c.t. 1–1. 10. Ibid. 11. Ibid, m.c.t. 1–22, pp. 3, 20. 12. Ibid, 3° A. 13. Ibid, m.c.t. 5, 1–28, p. 25. 14. Dyson and Maes 2016, p. 265. 15. Delegação Permanente de Portugal junto do Gatt, Geneve, June 1970, p. 35, Arquivo Nacional Da Torre Do Tombo (ANTT), ASC, cx. 58, nr. 431, mct 4. 16. Ibid, n° 431, m.c.t. 1–1, 4° A. 17. Ibid, cx. 58, n° 431, m.c.t. 1–1, 5°. They were expressed in Decree-law nr. 448/70 of 25 September 1970. 18. Acta nr. 83 of the meeting of the Board of Directors of 18 September 1969, vol. 7, p.  48 and 49. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. 19. PT/CGD/BNU/01OA/5/CG/1–175, letter S.G. 43/70–230, of 18 August 1970. BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 20. Ibid. 21. “Sombras Financeiras sobre Angola”, Jornal do Comércio, of 26 October 1971, quoting the newspaper STAR, Johannesburgh. 22. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de pagamentos. “Execução material”, in Presidência do Conselho 1971, pp. 213–298, and Presidência do Conselho 1972, pp. 246–335. Pateguana, 1997, p. 47. 23. Acta nr. 87 of the meeting of the Board of Directors of 29 January 1970, vol. 7, p.  69 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0007. In a retrospective analysis, “O novo regime de pagamentos entre a Metrópole e o ultramar”, Jornal do Comércio, 20 of November, 1971. 24. Newit 1995, p. 528. Pateguana, 2016, p. 50. 25. BNU, Boletim Trimestral, 1° Trimestre, 1968, p. 36–37.

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26. N° O 206-N/ORE, Ministério das Finanças, 1974, section 4. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1974. 27. In a retrospective analysis, “O novo regime de pagamentos entre a Metrópole e o ultramar”, Jornal do Comércio, 20 of November, 1971. 28. Acta nr. 94 of the meeting of the Board of Directors of 17 December 1970, vol. 8, p. 4 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0008. See also Fundos Cambiais, Diversos, (Moçambique e Angola): Empréstimos do FMZE 1973–75. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Moçambique e Angola: Empréstimos do FMZE. 1973–1975. 29. Acta nr. 94 of the meeting of the Board of Directors of 17 December 1970, vol. 8, p. 3 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0008. 30. Acta nr. 102 of the meeting of the Board of Directors of 20 October 1971, vol. 7, p.  41 verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0008. 31. Letter of 8 March 1971, from BNU’s Governor, Francisco Vieira Machado, to the government representative in BNU, based on a report from a BNU administrator, Samuel Rodrigues Sanches, to Moçambique. S.G.17/71–230/74  in PT/CGD/BNU/01OA/5CG/1–187, BNU Historical Archives. On the activity of BNU in Moçambique see Langa, 1997. 32. Quina 1971, p.  35. (Miguel Quina was the President of the Board of Banco Borges&Irmão). 33. Decree-law nr. 641/70 of 23 December 1970. In Macau, BNU assumed the exchange-rate pataca/escudo definition. 34. “Reformado o sistema de pagamentos interterritoriais”, Jornal do Comércio, 30 October 1971. 35. Decree-law 552/71. 36. Funcionamento do novo regime de pagamentos de Angola, Ministério do Ultramar, and Nota do Governador do Banco de Angola para a Secção de Política Monetária do Conselho de Ministros para os Assuntos Económicos, PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. 37. Minutes of the meeting of 18 November 1971 of the government board for economic issues, section of monetary policy, 1CGD, AG, 061.03/23, BNU Historical Archives. 38. Asiedu 2002. For taxing in British colonial Africa see Gardner 2002.

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99

39. “Execução material”, in Presidência do Conselho 1971, pp. 213–298, and Presidência do Conselho 1972, pp. 246–335. 40. For an opposite view Acemoglu, D., Robinson, J., 2012. 41. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estatística. Balanças de pagamentos. I thank the Archive staff and António Agostinho for Metropolis balances of payments see Pinheiro et  al., vol. I. 1997. Relatórios Anuais do Agente. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. Relatórios do Agente, 1963–1974. FMZE/ER/003. 42. Circular n° 21, 1972, da Inspecção Provincial de Créditos e Seguros de Moçambique, Arquivo Especial do cofre n° 2. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Arquivo Especial do Cofre n° 2. 43. The minutes of the meetings are available at PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. 44. Recalls Decree-law nr. 478/71 of 6 November. 45. Decree-law 480/71 of 6 November 1971. 46. Espaço Económico Português, Sistema de Pagamentos Inter-regionais. Portugal. Banco de Portugal. Departamento dos Seviços Jurídicos. Pasta n° 3. 47. On 30 November 1971 the total Moçambican debt to the EMZ amounted to 5085.8 million escudos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Moçambique e Angola: Empréstimos do FMZE, 1973–1975. 48. According to Decree-law 481/71, of 3 November 1971. 49. Decree-Law nr. 479/71 of 6 November 1971. 50. Acta nr. 106 of vol. 8, p. 46 recto. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0008. 51. Contracts of 17 March 1972. Acta nr. 107 of the Board of Directors of the meeting of 28 March 1972, vol. 8, p. 47–48. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0008. 52. The regulations of decree-law nr. 44703 of 17 November 1962 were replaced by new ones, issued in the decree-law nr. 553/71 of 15 December 1971. 53. According to the new decree-law nr. 553/71.

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Bibliography Acemoglu, D., Robinson, J., Why nations fail: The origins of power, prosperity and poverty, New York, Crown Business, 2012. Asiedu, Elisabeth, “On the determinants of foreign direct investment to developing countries: Is Africa diferente?”, World Development, 30, 1, 2002: 107–119. BNU, Boletim Trimestral, 1° Trimestre, 1968. Dyson, Kenneth and Ivo Maes, “Contributions, Legacies, and Lessons”, in Kenneth Dyson and Ivo Maes (editors), The Architects of the Euro, Oxford, Oxford University Press, 2016. Gardner, Leigh, Taxing colonial Africa: the political economy of British imperialismo. Oxford, Oxford University Press, 2002. Newit, Malyn, A History of Moçambique, London, Hurst & C°, 1995. Pateguana, Carmélia Ernesto Langa, “A actividade do Banco Nacional Ultramarino em Moçambique 1864–1974”, Staff paper n° 8, Banco de Moçambique, Junho 1997. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Thesis, University of South Africa, 2016. Presidência do Conselho, Secretariado Técnico, III Plano de Fomento: Relatório de Execução em 1969, Lisboa, Imprensa Nacional, 1971. Presidência do Conselho, Secretariado Técnico, III Plano de Fomento: Relatório de Execução em 1970, Lisboa, Imprensa Nacional, 1972. Quina, Miguel, “Há necessidade de definir o papel dos Bancos Comerciais no financiamento do Investimento”, Considerações feitas na Assembleia Geral do Banco Borges&Irmão, Economia de Moçambique, Vol. VIII, n° Março de 1971. Schenk, Catherine, The Global Gold Market and the International Monetary System from the late 19th Century to the Present, London, Palgrave Macmillan, 2013.

CHAPTER 7

The Results of the 1971 Reform of Escudo Monetary Zone Union. The Angolan and Mozambican Divergence

The EMZ overall account (defined hereafter as the sum of the current, capital, and financial accounts, the latter excluding official reserve assets) with the rest of the world was in surplus leading to a sustained accumulation of reserve assets. If the 1971 monetary reform could correct the difficulties of intra-territorial relationships in the EMZ, the sustainability of the empire’s financial networks would be ensured. Following the 1971 EMZ reform, the accumulation of the official reserves continued. The usual deficits with OECD European countries that happened before 1971 disappeared, and surpluses began be observed (Fig. 7.1). Those deficits before 1971 were off-set by surpluses with the USA, Canada, and the rest of the world. After 1971, deficits with the rest of the world were compensated for by surpluses with OECD European countries, the USA, and Canada. In this way the change in reserve assets (or the net value of total EMZ monetary operations resulting from current accounts and capital movements) was always positive, as described in Fig. 7.1. These are the regional partners considered in the EMZ balances of payments that were estimated at the time by the Banco de Portugal, (and with large delays for the first years of 1963 and 1964). The relative importance of the trade with regional partners considered in the EMZ balances of payments is presented in Fig. 7.2. The EMZ was very open toward North American countries. The USA and Canada were the most important trade partners, and always accounted © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_7

101

102 

M. E. MATA

15,000 10,000 5,000 0 -5,000

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

-10,000 -15,000 OCDE European Countries

USA and Canada

Rest of the world

Total

Fig. 7.1  Overall balance (change in the reserve assets): total, with OECD European countries, USA, Canada, and the rest of the world. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal. Unit: Million escudos) 80% 60% 40% 20% 0%

1963

1964

1965

1966

OCDE European Countries

1967

1968

1969

USA and Canada

1970

1971

1972

1973

Rest of the world

Fig. 7.2  The relative importance of the trade with  regional partners of the EMZ. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal)

for more than 40 percent of the value of the overall trade. They were followed by the OECD European countries until 1971, always representing more than 20 percent of the value of total trade operations. After 1971 there is a reversal of this situation. The trade of the EMZ with the rest of the world, which usually represented less than 20 percent, became more important and even surpassed the weight of these operations with OECD European countries. The balance of payment statistics of each overseas territory was organised considering three kinds of partners: the Mainland, the other overseas

103

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territories under Portuguese administration (other colonies), and other partners in the rest of the world. The three perspectives are described in the next figures. The major problems occurred in the overall balances of the territories with the Mainland, and not in those bilateral relationships amongst the territories, or toward the rest of the world.1 As for the overall account, the change in reserve assets of each of the EMZ partner toward the rest of the world, which are described in Fig. 7.3, Angola and Moçambique always had large surpluses, although 1969 and 1970 were bad economic years for Moçambique, from this perspective. Macau and Guiné had deficits in their overall balance with the rest of the world, but the other partners’ surpluses more than off-set their deficits. The sum of the territories’ overall balances toward the rest of the world registered surpluses. These corresponding changes in official reserve assets meant accumulation of international means of payments for the entire EMZ. The major problems to the functioning of the EMZ were originated from the sustained imbalances. They occurred in the current and financial accounts of Angola and Moçambique with the Mainland, as shown in Fig. 7.4.

10,000

Million Escudos

8,000 6,000 4,000 2,000 0 -2,000

1964

1965

1966

-4,000

1967

1968

1969

1970

1971

1972

Years Cape Verde

Guinea

S. Tomé

Mozambique

Macao

Angola

Mainland and Adjacent Islands

Timor

Fig. 7.3  Change in the reserve assets of each EMZ partner toward the Rest of the World. (Source: Estatística Cambial, Balança de Pagamentos, Arquivo Histórico do Banco de Portugal. Unit: Million escudos)

Million Escudos

104 

M. E. MATA

4,000 3,000 2,000 1,000 0 -1,000 -2,000 -3,000

1964

1965

1966

1967

1968

1969

1970

1971

1972

Years Cape Verde

Guinea

S. Tomé

Mozambique

Macao

Angola

Mainland and Adjacent Islands

Timor

Fig. 7.4  Overall accounts (or change in reserve assets of each overseas territory) with the Mainland, and of Mainland with the overseas territories as a whole. (Source: Estatística de pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal. Unit: Million escudos)

Although five territories presented surpluses, balanced flows, or small deficits toward the Mainland, major difficulties existed in the inter-­ territorial payments in the EMZ throughout the period until 1971, due to the two larger territories of Angola and Moçambique. The Angolan and Mozambican overall accounts with the Mainland were always negative and very significant. The financing of these Angolan and Mozambican deficits toward the Mainland were overwhelming for the EMZ Fund. The small territories of S.  Tomé e Príncipe, Macau, and Timor presented more or less balanced or even positive flows toward the Mainland. Guiné even achieved (small) surpluses with the Mainland in some years (1967, 1968, 1970, 1972, and 1973). Angola, in particular, was in great need of financial support in 1973 and 1974. This situation for the period after 1971 may seem surprising. Following the EMZ 1971 monetary reform, tight credit policies were pursued in Angola and Moçambique, following instructions from the Banco de Portugal.2 Cases of credit demand presented to Banco de Angola in December 1971, which were submitted by the Angolan Foreign Exchange Management Fund to the Portuguese government for a decision, received

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no authorisation verdicts. They also were accompanied by a remark pointing out that future similar demands should keep in mind this non-authorisation.3 The Deputy Minister for the overseas development (Secretário de Estado do Fomento Ultramarino) visited the territories to explain the new system, and the press disseminated abundant information about it.4 Political speeches advertised the new rules, and wishes for positive effects from local entrepreneurship were expressed. In Angola the reformed system was seen as a restriction, and some firms laid off employees and decreased production. The local business associations complained to the Angolan Conselho Legislativo, saying that entrepreneurs were severely hurt and could no longer proceed with their initiatives, because of the Mainland’s lack of solidarity. They accused Portugal of implementing a colonial pact, in order to sell goods and commodities at much higher prices than those Mainland could receive from other countries, and to transport them at much higher prices than foreign maritime transporters. Mainland’s wine, for example, was much more expensive than Spanish, French, and Algerian wines.5 Banco de Angola was required to increase its annual rent to 10 million escudos to the colonial government of Angola (Governo-Geral de Angola), for its issuing privilege in this territory.6 The Minister of Overseas informed the government board for economic issues on these “inconvenient declarations” and confessed that Angola was in a period of special political tension.7 In this context, it is quite understandable the significant deterioration of the Angolan overall account with the Mainland (shown in Fig. 7.4). Similar claims about the new inter-territorial settlements regime existed in Moçambique. Lists of priority imports were published for general knowledge,8 when the BNU’s issuing privilege was renewed for 20 years.9 The comments of the Mozambican Foreign Exchange Management Fund on the budget for 1972 of this territory clearly stated that “this Province will work under necessarily balanced payments, when still in the last year the respective deficit was over one and a half billion escudos”.10 There was also great hope for coming years, because of the expected Cahora Bassa’s production of electricity, “an important economic target”.11 The preliminary works of the dam were concluded in May 1972. The consequence was the introduction of a new definition of priority imports for the large territories.12 The speech of Portugal’s Prime Minister

106 

M. E. MATA

on 17 November 1971 recognised the more restrictive character of the new settlements system. Consumers in the overseas territories would consume only according to the local availability of international means of payment. The Angolan exports of oil to the Metropolitan Leixões and Sines refining units were raising expectations that the shortage of means of payment would come to an end. As for Moçambique, as Cahora-Bassa production of electricity was not available for the time being, only exports of primary goods (maize, tropical oils, and meat) and mineral ores (coal, iron, and copper), as well as inflows of foreign currencies associated with tourism inflows, namely rands, could alleviate the problem of payments in arrears.13 It was clear that difficult financial relationships with the Mainland would open the door to direct relationships with foreign countries for the provision of equipment goods and other commodities, which would lead to diminished Mainland’s exports.14 For observers there was a trade-off between restricting credit to the territories and promoting Metropolitan exports. Metropolitan exports of equipment for private firms to be created or expanded in the overseas territories benefited from tax exemptions. In what respects convergence “the OCA criteria are jointly endogenous” to improve it,15 but for the EMZ long-run perspective Figs. 7.5 and 7.6 illustrate how similar the ever-divergent Angolan and Mozambican annual net debit positions were in a monthly cumulative spider web perspective, to assess the entire period since the beginning of the EMZ, and understand the borrowing needs of these two territories. According to the previous 1962 settlement framework, interests due from the automatic or special loans were estimated at the end of each month, and settled by the Foreign Exchange Management Funds. This practice was interrupted by the 1971 reform of the EMZ, and the interests were not being paid regularly.16 The idea was to estimate them again on the 15th of each month.17 In spite of this two-week control delay, the need to renew loans continued unabated. In a stressed system the increase of interest rates of loans would provoke even more financial asphyxia to the territories.18 In the Mainland, the participation in EFTA was proving to be successful, and agreements with the European Economic Community were reached on 22 July 1972, while indebtedness of the overseas territories continued to grow. At the same time, political and military cohesion were a concern, in the context of general disappointment about the current situation and

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107

Fig. 7.5  The Angolan annual net debit positions in a monthly cumulative accounting. (Source: Relatórios Mensais do Agente, Arquivo Histórico do Banco de Portugal. Unit: million escudos)

uncertainty about the future. The Minister of Overseas visited the Institute of High Military Studies accompanied by the Minister of Defence, to explain the expected efficiency of the new inter-territorial payments system to high military authorities, professors, and students of the course for senior military officers (Estado-Maior and Altos Comandos), and he especially emphasised the need for union and cohesion of all Portuguese.19 After the reform of 1971, with a new USD/escudo exchange rate, and the effects resulting from the re-introduction of tariffs, Angola registered surplus in overall account with the Mainland and with the rest of the world, as shown in Fig. 7.7, which summarises the relationships of Angola with the Mainland and adjacent islands, the EMZ partners, and the rest of the world.

108 

M. E. MATA

Fig. 7.6  The Mozambican annual net debit positions in a monthly cumulative accounting. (Source: Relatórios Mensais do Agente, Arquivo Histórico do Banco de Portugal. Unit: million escudos)

The same did happen with Mozambique overall balance, which continued to register deficits with the Mainland. However, in spite of the reform of 1971, with a new USD/escudo exchange rate, and the effects resulting from the re-introduction of tariffs, Moçambique could not reach positive monetary operations resulting from current accounts plus capital movements toward the Mainland, as Fig. 7.8 shows, summarising relationships with the Mainland and adjacent islands, the EMZ partners, and the rest of the world. Most of the inter-territorial settlements were made using the reserve accounts that Foreign Exchange Management Funds of the territories opened in the Banco de Portugal, and did not use the compensation accounts of the territories in their issuing banks.20

109

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Angola 3,000.00

Million Escudos

2,000.00 1,000.00 0.00 1964

1965

1966

1967

1968

1969

1970

1971

1972

-1,000.00 -2,000.00 -3,000.00

Years Rest of the World

Mainland and Adjacent Islands

EMZ partners

Total

Fig. 7.7  Angolan overall account (changes in reserve assets). (Source: Estatísticas dos Pagamentos Interterritoriais, Informações estatísticas da Metrópole e Ultramar, Sistemas de Pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal)

Settlements of delayed transfers also were not made simultaneously, because there was another concern about the introduction of such a high amount of liquidity in the Mainland’s economy, in the presence of inflationary pressures.21 Banco de Portugal rediscounted credits to Mainland’s exporters to Angola and Moçambique. Commercial banks discounted credits over those territories in order to fund delayed transfers, and also sold foreign currencies to the Banco de Portugal.22 Thanks to the Mainland’s domestic redeemable loan of 1 billion escudos, at a 4 percent interest rate,23 both the Angolan and the Mozambican Foreign Exchange Management Funds obtained funding from Portugal, amounting to 500 million escudos for each of the territories, at the same interest rate, as territories’ Foreign Exchange Management Funds could borrow loans under new framework conditions.24 In this way it was possible to reduce the arrears to the Mainland from both overseas territories. Transfers queuing for settlement on 30 September 1971 were over 9.6 billion escudos, almost equally distributed between Angola and Moçambique.25

110 

M. E. MATA

Moçambique

3,000.00

Million Escudos

2,000.00 1,000.00 0.00 1964

1965

1966

1967

1968

1969

1970

1971

1972

-1,000.00 -2,000.00 -3,000.00 Rest of the World

Years Mainland and Adjacent Islands

EMZ partners

Total

Fig. 7.8  Mozambican overall account (changes in reserve assets). (Source: Estatísticas dos Pagamentos Interterritoriais, Informações estatísticas da metrópole e Ultramar, Sistemas de Pagamentos Interterritoriais. Arquivo Histórico do Banco de Portugal)

Under the new regime of payments and the insistence of the Overseas Ministry, on 31 December 1972 queueing transfers had fallen, amounting to 3.279 billion escudos in the case of Angola, and 2.800 billion escudos in the case of Moçambique. They had been reduced to 1.547 and 1.729 billion escudos, respectively, in 1973.26 The Governor of Banco de Angola suggested that the high volume of Angolan payment settlements in the Mainland generated liquidity that helped to ease credit conditions, fuelled inflation, and promoted speculative behaviour at the Lisbon stock market. A boom flourished, as asset prices are especially sensitive to business refuge behaviour of investors in the financial market, as literature in finance clearly states.27 New statutes for the overseas territories were issued in 1972 allowing them administrative autonomy with elective bodies for their own government, accommodating the 1971 reform of the EMZ.28 The relative importance of the inter-territorial trade within the colonial empire was waning: the share of Mainland exports to the overseas colonial territories fell from 22.2 percent in 1962 to 14.6 percent in 1973, and the share of imports from 12.6 percent to 9.6 percent in the same period. The same relative decline of importance was occurring for trade between

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111

overseas territories.29 Beyond overpricing of exports and under-pricing of imports, the constraints to import and the availability of metropolitan escudos, rands, and Rhodesian dollars (from tourists who paid transactions with those currencies in the territories) also contributed to the fuelling of parallel markets. Parallel markets benefited greatly from a “psychosis” of demand for transfers. They exhausted the local Foreign Exchange Management Funds reserves. Hotels, restaurants, and travel agencies used exchange rates above the official ones to buy other currencies, which were sold at higher rates to local people, desperate to place their savings abroad, increasing capital outflows.30 Overseas local banking systems also faced increasing outflows of capital after 1971. A system of administrative controls was imposed on the outflows of banknotes in ports, airports, and customs, because neighbouring countries accepted Mozambican escudos (to sell automobiles, for example).31 Confidential information from the Mozambican Inspection of Credit and Insurance to the Portuguese State Secretary of the Exchequer estimated that homeland escudos and other currencies obtained from tourists in Moçambique could reach 150 to 200 million escudos, and were bought by supporters of the independence movements to buy military material abroad.32 Fearing that the visibility of massive controls “might have uncertain results, and economic or even political inconvenience”, the Minister of the Economy recommended the use of high penalties for those detected.33 Entrepreneurs’ confidence in the future of the EMZ was going, and the Stock Exchange boom was reflecting the excess of liquidity.34 The share of Portuguese investment in the overseas territories fell from 34.8 percent in 1971 to 25 percent in the next year, and 16.6 percent in 1973.35 After December 1972, and as a result of proposals from the Angolan Inspections of Credit and Insurance for all overseas territories, the amount of transfers authorised to travellers who were going abroad was reduced from 10 to 2.5 thousand escudos per year, and capped at 10 thousand per family.36 Holidays away from the territories became impossible for their residents, and expectations about the future of political relationships with the Mainland suffered from massive adverse confidence effects. More alarm resulted from the Mozambican case, because the very high amount of delayed payments persisted in spite of the effort made to contain it. The BNU board suggested the urgent revision of the 1972 regime.37 The larger the amount of delayed payments which became settled, the more people asked to transfer money to the Mainland: following

112 

M. E. MATA

the inception of the 1972 regime, 1.4 billion escudos of arrears were settled in 1972, and 2.7 billion escudos in 1973. Overseas’ military problems also were overwhelming, and also dashed expectations in the Mainland about containing the colonial war. Terrorist attacks in Moçambique intensified, reaching international visibility and entrepreneurial consequences, by killing and injuring foreign tourists.38 BNU sources also mention that “explosions of racism against whites aggravated situations everywhere”.39 The military defeat in Guiné was imminent, after the local political movement for independence of Guiné PAIGC (Partido para a Independência da Guiné e Cabo Verde) declared political independence from Portugal on 24 September 1973, in Medina do Boé. The most worrying financial situation was the Mozambican one (see Fig.  7.8).40 No effective solution could be foreseen. On 30 November 1973 the total Mozambican official debt to the Mainland stood at 4.665 billion escudos (Table 7.1): On 18 December 1973 the Board of Directors of the EMZ Fund authorised the renewal of the 50 million Mozambican escudos loan granted on 30 December 1971.41 This was a decision of the last meeting minutes of the Board of Directors before the end of the dictatorship in Portugal, on 25 April 1974. A first attempt to put an end to the Portuguese political regime occurred on 16 March 1974 with a failed military coup. It failed, but rumours of a future political rebellion of military officers brought some social unrest and doubts about the survivability of the Portuguese political regime and the future of the overseas territories. In the days after the March coup, BNU received an extraordinary high rediscount demand from other commercial banks operating in the overseas territories. The Board of Directors decided to follow a strict selection of the proposed paper for rediscount, strictly following rules set by Banco de Portugal.42 The Angolan and Mozambican exchange budgets (orçamentos cambiais) for 1974 reveal no planned amortisation of any loans, and also consider that settlements would be made for orders issued before 31 October 1973. Intensifying trade between Angola and Moçambique, and between both territories and Macau was a strategy in 1974 to decrease the amount of imports from the Mainland, whose payment was difficult to settle.43 However, a short-run shortage of funds in the Mozambican Foreign Exchange Management Fund was announced as a threat that could lead to a suspension of payments.44

7  THE RESULTS OF THE 1971 REFORM OF ESCUDO MONETARY ZONE… 

Table 7.1 Mozambican debt to the Mainland on 30-11-1973  in thousand escudos

Automatic loans (thousand escudos) Special loans (thousand escudos) Loans from the Mainland exchequer (thousand escudos) Loans from the EMZF (thousand escudos) Loan from the BNU (thousand escudos) Transfers without compensation (thousand escudos) Total (thousand escudos)

113

150,000 200,000a 1,500,000b 750,000c 250,000 2,315,000 4,665,000

a The need for this loan resulted from the devastation caused by cyclone Claude (on cotton and cashew plantations) in the South-Save region, decreasing exports, defense (40 million escudos), accumulated debt to the Metropolis, and the forecast of decreasing revenues expressed in pounds to feed the Mozambican reserve account “while the Rodhesian political situation would persist”. The Mozambican government welcomed the move of the Banco Pinto & Sotto Mayor to Moçambique because of the inflow of 50 million escudos from the Metropolis, and the Banco Standard Totta with a 60 million inflow. Acta nr. 40 of the Board of Directors, vol. 3, of the meeting of 7 April 1966, p.  76 recto and verso. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Atas do Conselho de Direção. 1963–1964. FMZE/Dir/001/0003 b Loans from the Metropolis exchequer and the loan from the BNU are not reported in the balance sheet of the EMZ Fund c These loans were annually renewed by contracts of 29 March 1974, 31 March 1975. Provisional minutes for Acta nr. 130 of the Board of Directors, of 31 March 1975, Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processos de Atas. 1968–1975. FMZE/Dir/001/0002

Finally, the first oil shock severely affected the economic background of Angola, Macau, and Moçambique in the last months of 1973. GDP per capita illustrates the difficulties of some territories (Fig. 7.9). The military revolution on 25 April 1974 was successful and put an end to the Portuguese political regime. Democracy and decolonisation were the two great banners of this “Carnation revolution”.

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Real Gross Domestic Product per Capita for the EMZ Partners (1963-1973)

45 40

Thousand Escudos

35 30 25 20 15 10 5 0

1963

1964

1965

1966

1967

1968 Years

1969

1970

1971

1972

1973

Cape Verde

Guinea

S. Tomé and Príncipe

Angola

Mozambique

Macao

Timor

Mainland and Adjacent Islands

Fig. 7.9  GDP per capita in Angola, Cabo Verde, Moçambique, and Mainland. (Source: Author’s calculations based on GDP, Population and Inflation taken from Nunes et al. (2011) and Madeira (2008))

The last minutes of the Board of Directors of the Escudo Monetary Fund, report the meeting of 18 December 1973. However, provisional minutes of the meeting of 21 March 1974 of the Board of Ministers for Economic Issues reveal a deterioration of the Portuguese overall account resulting from the beginning of 1974 as a result of the first oil shock. The Governor of the Banco de Portugal, António Manuel Pinto Barbosa, also signalled a banknote hoarding in the Mainland “whose causes it has not been possible to determine”.45 Almost all minutes record and make clear the efficiency of the Banco de Portugal, as agent of the whole system of the Escudo Monetary Fund. They also reflect and recall the efficiency of the accounting services of the Banco de Portugal and the clarity of the accounting documents that described the inter-territorial payments, which so greatly helped the Board to take decisions in the management of the Escudo Monetary Fund.

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Profits from the years 1970 to 1972 were not yet transferred on 25 April 1974. No additional minutes of further meetings of the Board of Directors of the EMZ Fund are available. All meetings of the Board of Directors taking place after the revolution were recorded in provisional minutes, but were never transcribed to the official book of minutes (vol. 8), which was interrupted by the revolution. Projects of minutes on meetings taking place in 1974 report that even after the 25th of April revolution, three more loans of 250 million escudos were awarded to the Mozambican Foreign Exchange Management Fund in the imminent face of a disruption of payments, by the contracts of 8 May 1974, 16 May 1974, and 2 July 1974, (thanks to Angolan commitments to restricting this territory access to special loans for the same amount that was awarded to Moçambique).46 On 4 September 1974, when decolonisation was being negotiated, the Portuguese Exchequer awarded another 250 thousand escudos loan to the Mozambican Foreign Exchange Management Fund at a 6.5 percent interest rate, to be re-paid with sugar imports from this country.47

Notes 1. Krugman 1993, p. 129. 2. Instruções a que se refere o n° 3 do artigo 9° do Decreto n° 550/71, de 15 de Dezembro de 1971. PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. Also available at Regime Cambial, Instruções. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 19. 3. PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. The Angolan milk sector located in Cela, in spite of a Metropolis firm’s participation in this business (Martins and Rebelo), also did not receive credit in Despacho of 14 December 1971. 4. “O novo regime de pagamentos entre a metrópole e o ultramar focado pelo Dr. Silva Cunha”, Jornal do Comércio, of 20 November 1971. Detailed explanations in “Criado o sistema de compensação interterritorial do espaço português”, Jornal do Comércio, of 17 Dcembre 1971. Speech of the Minister of Overseas, “Perante os altos comandos, O pagamento dos atrasados começará dentro de dias, afirmou o Prof. Silva Cunha a propósito das transferências”, Jornal do Comércio, 8 February 1972.

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5. “O problema das transferências, Declarações do representante das Associações Económicas de Angola no Conselho Legislativo da Província”, Jornal do Comércio, 4/5 December 1971. 6. Decree-law nr. 32/71 of 8 February 1971. 7. Minutes of the meeting of 9 December 1971 of the government board for economic issues, p.  4, PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. 8. Boletim Oficial de Moçambique, I Série, n° 19, 12 de Fevereiro de 1972. 9. By decree-law nr. 32/71 of 8 February 1971. 10. PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. 11. Newit 1995, p. 529. 12. Decision of the Board of Ministers for Economic Issues, on 6 January 1972. PT/CGD/BNU/D, AG, 061.03/23, BNU Historical Archives. A work group from the Ministry of the Economy organised lists with criteria for priorities, which were published in Boletim Oficial de Angola, I Serie, n°. 16, of 20 January 1972, and Boletim Oficial de Moçambique, I Série, n° 19, 12 February 1972. 13. Letter from Beira, Moçambique, by Raul de Almeida, in Jornal do Comércio, of 15 December 1971. 14. “O financiamento das transferências interterritoriais”, Jornal do Comércio, 8 December 1971. 15. Frankel and Rose 1998, p. 1011. Branch and McGough 2008, pp. 224–244. 16. As a result of decree-law nr. 553/71. 17. Following the Service order on Plano de Contas e Esquemas de Contabilização, Banco de Portugal Historical Archives, 46, mimeographed 1963, p. 115. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Contabilidade. Plano de Contas e contabilização. 1963. FMZE/Cont/001/0002. Banco de Portugal, Fundo Monetário da Zona do Escudo, Notes on the system for compensation and inter-territorial payments 1963. 18. Relatório Anual, Banco de Portugal 1973. Jornal do Comércio, 21 May 1973: “Os pagamentos interterritoriais no espaço Português”. 19. Speech of the Minister of Overseas, “Perante os altos comandos, O pagamento dos atrasados começará dentro de dias, afirmou o Prof. Silva Cunha a propósito das transferências”, Jornal do Comércio, 8 February 1972. 20. Decree-law 553/71 of 15 December 1971, article 6th. See also Sistema de Compensação Interterritorial, Banco de Portugal, Ano de 1973, p. 13. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. Relatórios Anuais do Agente, 1973. FMZE/ER/003/0007.

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21. Speech of the Minister of Finance and the economy, Dias Rosas in a Press conference at the Secretary of State for Information and Tourism, “O novo sistema contribuirá para incrementar o desenvolvimento económico”, A Época, of 25 February, and 26 February 1972. 22. Ibid. 23. Authorised by decree 52/72 of 12 February 1972. 24. According to decree-law nr. 480/71 of 6 November 1971. The contracts of the 500 million escudos loan were signed on 12 February 1952. 25. A technical report of 14 January 1976 of Banco de Portugal confirms this value for Angolan consolidated delayed payments (that is to say, transfers already paid in BNU-Angola waiting for payment in Lisbon), but mentions 5 million more for hidden delayed payments (transfers ordered but not yet paid in BNU-Angola). Informação, 14.1.76. Portugal. Banco de Portugal. Departamento de Operações de Crédito. Descolonização. IARN. Pagamentos Atrasados Angola e Moçambique. 1975–1976. 26. Relatório do Agente, Sistema de Compensação Interterritorial, Banco de Portugal, Ano de 1973, pp. 6, 7. Relatórios Anuais do Agente. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. Relatórios do Agente, 1963–1974. FMZE/ER/007. This information is repeated in “Os pagamentos interterritoriais no espaço português”; Jornal do Comércio, 21 May 1973. 27. Gustavsson et al. 2016. 28. Lei Orgânica do Ultramar, law 5/72 Diário do Governo n.° 145/1972, Série I de 1972-06-23. 29. Ferreira 2005, p. 351. 30. Letter of 6 March 1973 from the BNU Governor João Augusto Dias Rosas to the government representative. Informação da Inspecção Provincial de Crédito e Seguros de Moçambique, and Informação da Inspecção Provincial de Crédito e Seguros de Angola. PT/BNU/01OA/5CG/1-188, BNU Historical Archives. 31. Informações prestadas pelos Governos de Angola e Moçambique sobre desvios de meios de pagamento sobre o exterior. PT/CGD/BNU/063.28/209. Caixa Geral dos Depósitos Historical Archives. Despacho nr. 42 of 18 October 1971, Boletim Oficial de S. Tomé e Príncipe, 21 October 1971. 32. Governo-Geral de Moçambique, Lourenço Marques, 20 December 1973. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1974. 33. Letter of 4 March 1974, refª D.U. n° 15 to the government representative (comissário) at BNU.

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34. Exposição do Governador do Banco de Angola, Mário Morais de Oliveira, à Assembleia Geral Ordinária de 4 de Maio de 1973, pp. 12, 13 18, 19. CGD, ANG 86. CGD/BNU Historical Archives. 35. Ferreira 2005, p. 353. 36. Governo-Geral de Moçambique, Lourenço Marques, 20 Dezembro 1973. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1974. 37. Relatório do Governador, do vice-governador, e do administrador por parte do Estado, do BNU, referente a 1973, p. 9, BNU/010ª/5CG/3/2-01, CGD-BNU Historical Archives. Telegrams in Dependências do Ultramar, 063.20/142 CGD- BNU Historical Archives. 38. Spanish Angel Garaizabal Vasquez, and Henrique Osborne Mac Person in their arrival for a safari. Relatório do Governador, do Vice-Governador e do Administrador do Estado, do Banco Nacional Ultramarino, referente a 1973, p.  24. PT/CGD/BNU/010ª/566/3/2-01. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 39. BNU, Boletim Trimestral, 1° Trimestre, 1968, p. 29. 40. On the psychological effects of military operations of the Portuguese army in Moçambique, see Pateguana 2016, p. 49. 41. Which had already been renewed on 19 December 1972. Fundos Cambiais, Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Fundos Cambiais Diversos. Moçambique e Angola: Empréstimos do FMZE. 1973–1975. 42. 58° Relatório Trimestral do Comissário do Governo, 1° trimestre de 1974. BNU/01OA/5G/3/3/02-058. BNU Historical Archives. Arquivo Histórico da Caixa Geral dos Depósitos. 43. Ofício n° 933 da Presidência do Conselho, of 19 March 1974. Alteração ao projecto de orçamento cambial de Angola para 1974. Alteração ao projecto de orçamento cambial de Moçambique para 1974. PT/CGD/ BNU/063.28/209. Caixa Geral dos Depósitos Historical Archives. 44. Orçamento Cambial para 1974. Letter of 8 March 1974 of the Mozambican Exchange Management Fund Administrator, Abdool Karim Vakil to the Minister of Oversaes. PT/CGD/BNU/063.28/209. Caixa Geral dos Depósitos Historical Archives. 45. Confidential minutes of “Sessão de 21 de Março de 1974 pelas 16 horas”, pp.  3–4. PT/CGD/BNU/063.28/209. Caixa Geral dos Depósitos Historical Archives. 46. Provisional minutes of Acta nrs. 124, 125, and 126 of the three first meetings of the Board of Directors after the revolution, on 6 May, 15 May, and 1 July 1974. Portugal. Arquivo Histórico do Banco de Portugal. Fundo

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Monetário da Zona do Escudo. Direção. Procressos de Atas. FMZE/ Dir/002. 47. Evoking an authorisation from Decree-law 49240 of 15 September 1969, and without paying any commission for Banco de Portugal. Contract of 29 August 1974. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiros. Fundos Cambiais, Diversos, (Moçambique e Angola): Empréstimos do FMZE 1973–75. The re-payment was completed using 37,656,583$80 from the Mozambican reserve account.

Bibliography Banco de Portugal. Relatórios Anuais do Agente. Fundo Monetário da Zona do Escudo. Estatística e Relatórios. 1963–1974. Portugal. Banco de Portugal. Departamento de Operações de Crédito. Descolonização. IARN.  Pagamentos Atrasados Angola e Moçambique. Informação, 14.1.76. 1975–1976. Banco de Portugal, Fundo Monetário da Zona do Escudo, Notes on the system for compensation and inter-territorial payments, 1963. Banco de Portugal, Fundo Monetário da Zona do Escudo, Plano de Contas e Esquemas de Contabilização, Arquivo Histórico do Banco de Portugal, 46, mimeographed, 1963. Banco de Portugal, Relatório Anual, 1973. BNU, Boletim Trimestral, 1º Trimestre, 1968. Branch William with Bruce McGough “Replicator Dynamics in a Cobweb Model with Rationally Heterogeneous Expectations” Journal of Economic Behavior and Organization, 2008, 65, 224–244. Ferreira, Manuel Ennes, “O Império e as relações económicas com África”, in Pedro Laíns e Álvaro Ferreira da Silva (editors), História Económica de Portugal, 1700-2000, vol III O século XX, Lisbon, Capítulo 10, Imprensa de Ciências Sociais, 2005: 343–371. Frankel and Rose, “The endogeneity of the optimum currency area criteria”, The Economic Journal, 108 (July), 1998: 1009–1025. Gustavsson, Marcus, Daniel Léven, and Hans Sjögren, “The timing of the Popping: Using the log-periodic power law model to predict the bursting of bubbles on financial markets”, Financial Historical Review, 23, 2, (2016): 193–217. Krugman, Paul “First Nature, Second Nature, and Metropolitan Location”, Journal of Regional Science, Volume 33, Issue 2, May 1993: 129–144. Madeira, Luis Filipe, Les Finances Publiques, les options budgétaires et les priorités politiques dans l’empire colonial Portugais (1946–1974) Doctoral Dissertation in Political Science, University Bordeaux IV, 2008. Newit, Malyn, A History of Moçambique, London, Hurst & Co, 1995.

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Nunes, Ana Bela, Carlos Bastien, Nuno Valério, Rita Martins de Sousa, and Sandra Domingos Costa – “Banking in the Portuguese Colonial Empire (1864–1975)” – Économies et Sociétés, Série Histoire économique quantitative, AF, n.º 44, 9/2011, pages 1483–1554. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Dissertation, University of South Africa, 2016.

PART III

The End of the Revised Escudo Monetary System

CHAPTER 8

Decolonisation and Independence Agreements. Retornados and Difficulties of the Banking System

In spite of the golden period of economic growth from the 1950s to the early 1970s, the oil crisis revealed the Portuguese and European vulnerabilities to external shocks (both under flexible and pegged exchange rates). In the absence of reforms beyond those agreed by the Basel G10 in 1968, the American financial weakness and the imbalances in the international Bretton-Woods monetary system led to inflation, and eventually to the dollar inconvertibility and devaluation in 1971. The UK’s share in world trade fell and the City’s relevance as international finance centre suffered from the dispersion of global finance in favour of competing international financial centres such as New York (and Frankfurt). In the wake of the successful 25th of April 1974 Portuguese revolution, a provisional Military Board (Junta de Salvação Nacional) assumed the political control over the country, preserved the 1933 constitution until the approval of a new one by a Constitutional Assembly in all aspects that did not conflict with the Revolution’s political blueprint, and the first provisional government recognised the political rights of all overseas territories of self-determination.1 Regarding inter-territorial settlements, a first proposal to extinguish the Escudo Zone Monetary Fund was put forward in 1975 in the Banco de Portugal, considering that since 1962 it had not been possible to achieve the goal of creating a genuine free trade zone, “and the reform of 1971 again put an end to free circulation of goods, transfers, and capital”. It was especially acknowledged that “the system operated with distortions. On © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_8

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the one hand, the reduced scale of economic relationships among the non-European territories implied that instead of an inter-territorial clearing, in practice there were bilateral clearings between each territory and the Mainland. On the other hand, instead of short-lived unfavourable situations, which the EMZ Fund should help to address, there were persistent disequilibria in the case of Moçambique, and (…) Angola, whose deficits exacerbated transfer difficulties.”2 In 1975 the nominal capital of the Escudo Zone Monetary Fund amounted to 3 billion escudos, of which 2.8 billion had been paid. Since its inception, the Fund had been used to grant automatic loans (0.5 billion escudos) and special loans (0.6 to Angola and 1.7 to Moçambique). Thorough discussion took place at the Banco de Portugal on the future of monetary relationships with the newly-independent countries. There was the political hope of pursuing the examples of the French and British decolonisations. The franc zone had a core with fixed parities, limited transfers, a uniform regulation for exchange operations, and a pool of international reserves; a monetary agreement included Ivory Coast, Dhomé, Alto-Volta, Mauritania, Niger, Senegal, and Togo, under the rule of Banque Centrale des Etats de l’Afrique de l’Ouest; Another monetary agreement including Centro-African Republic, Congo, Cameroon, Gabon, and Chad had a different central bank, Banque Centrale des Etats de l’Afrique Equatoriale et du Cameron. Mali and Madagascar had their own central banks, linked to France by an “account of operations”. Algeria, Morocco, and Tunisia also belonged to the franc zone in spite of not having strong political ties with France, but maintained a fixed parity to the franc. “Grosso modo” monetary relationships within the sterling zone were similar to those prevailing between France and North-African countries in the franc zone.3 The franc zone core was very similar to the EMZ: fixed parities, uniform regulation of exchange operations, and a pool of gold and foreign currencies. Major differences were related with convertibility. With the exception of the North-African countries, convertibility existed in the franc zone. All currencies in this zone (with the exception of Maghreb partners) could be used to settle payments. In the Portuguese case only the Mainland escudo could be used to settle inter-territorial payments. This fact required negotiations with the newly-independent countries. From a Lisbon perspective, the main point under discussion was the desirability of preserving fixed parity with their currencies without convertibility: balances of payments should be balanced, or those partners having superavit should lend to those having deficits. The result was to

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keep the Portuguese central bank operating as the reserve bank for all partners. The creation of a technical task force to study how to lead these negotiations was even suggested. However, political difficulties to preserve a monetary escudo zone were paramount. All territories announced the intention of issuing their own currencies, and considered that reserve accounts in Banco de Portugal were simple foreign accounts denominated in Mainland escudos, and not reserve accounts of a monetary zone. In this context, nothing could justify any hope on the role of the EMZ Fund as an instrument for preserving the existence of the escudo monetary area. The outcome should have been the closure of the EMZ Fund in 1975, because at the time it was being used only to partially finance the Angolan and Mozambican balances of payment deficits towards Portugal. A decision of closure would have meant that the Portuguese Treasury would need to buy the debentures of the Fund from the entities that also had subscribed them (Banco de Portugal, BNU, and Banco de Angola), and receive in compensation the credits from Angola and Moçambique, while keeping open the reserve accounts of the other territories until their independence.4 The closure was postponed and so were the problems faced by the Portuguese authorities. Beyond the problems related with the EMZ, the political situation was creating difficulties to the entire banking system. In the Mainland employees claimed for immediate wage improvements. Accusations of senior staff co-operation with the political police of the defunct political regime required inquiries in the banking system. Banco de Angola and BNU were no exception, both in Portugal and in the overseas territories. Banks’ assets in firms whose management boards were dismissed, and were under employees’ untrained control, also demanded the attention of the banks’ executive boards. Outflows of capital were also worrying the political authorities in the Mainland, particularly through the land border with Spain, and from foreign citizens’ businesses in overseas territories to their countries of origin.5 Imprisonment (from 2 to 8  years) was enforced immediately after the Carnation revolution for those who were caught carrying out exchange or compensation operations with residents in different Portuguese territories, as well as for carrying out outflows of capital, banknotes, gold and silver, precious stones, and paintings or other art artefacts, with the exception of values below 30,000 escudos.6 Even below this ceiling, the exchange of the overseas territories banknotes into Mainland banknotes was subject

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to the available amount of Mainland banknotes in the territories’ banking systems. Immediately after the announcement of these measures, panic among Portuguese emigrants spread all over the world, including those living in the USA. In June 1974, letters requesting the authorisation of transfers to enjoy holidays in Portugal, were mentioning rumours of total loss of deposits in the banks of overseas territories and Mainland Portugal. The replies from Banco de Portugal to these letters attempted to inspire confidence by evoking a sacred right of emigrants to their remittances deposited at Portuguese banks.7 Instructions from the Angolan “Ministry of Planning” of 7 March 1975 (before the independence of the country) reduced the amount of authorised transfers to 2500 escudos per adult (over 18  years old) and forbade any payment after 20 March 1975, with the intention of charging Portugal for any payments to people leaving Angola.8 Banco de Portugal opened a credit line of 500 million Mainland escudos to Banco de Angola to keep the rule of exchanging 10,000 Angolan escudos per person flying to the Mainland until the Independence Day. A letter from the Board of Banco de Angola in Luanda to Banco de Portugal says that the exchange of Angolan banknotes was amounting about 20 million escudos per day. A similar letter of 30 October 1975 forecasted 100 million escudos more for replacing Angolan escudo banknotes, “an amount that we cannot afford”, and asked for a new credit ceiling of 350 million escudos from Banco de Portugal to Banco de Angola. The rule became to pay 5000 escudos per adult, until the end of October, at Luanda or Nova Lisboa airports; from then on, 5000 escudos per family, at the airport of arrival.9 Returned people from Angola invaded and occupied the headquarters of Banco de Angola in Lisbon (at Rua da Prata) from 2 to 5 September 1975, as well as some of its branches in Lisbon and Porto. Returnees argued and evoked the case of India. All depositors (with Portuguese or Indian nationality) who had accounts in the BNU branches in India, and came to the Mainland or to any other Portuguese territory (including Portuguese embassies abroad), was allowed by the General Inspection of Credit and Insurance to withdraw their money from BNU in Portugal.10 Those authorisations were provided gradually, and lasted until 1965. Only depositors who remained in India had no access to the BNU accounts.11 However, their bequests (heranças) to descendants living in the Mainland or other Portuguese territories were also honoured. The last claims from people who returned late from India, and still wanted to exchange Indian

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banknote escudos, amounted to only 222,998 escudos in 1965, and were authorised.12 In 1975 people returning from the African territories claimed 300,000 escudos per flight ticket, to be withdrawn from their bank deposits in Angola. To close the doors of some bank branches in the Mainland, the police could only solve the problem by authorising the payment they claimed.13 Daily newspapers described all the events in detail. In early September 1975 40,000 people were already arrived from Angola and 250,000 still waited for transportation at the airport of Luanda. With French, British, and American help, on average 4000 people were arriving in Portugal daily.14 The return of over half a million people to the Mainland created the urgent need to freeze transfers from all overseas territories.15 The main difference between the decolonisation of the mid 1970s and the Indian case in the 1960s, regarding the capacity of the Portuguese monetary system to accommodate the exchange of local into Mainland escudos, was the much larger scale of the problem. Beyond severe problems in the Portuguese current account balance that led to tightening the control on foreign trade (with the official explanation claiming that it was part of an import-substitution strategy),16 the Portuguese society faced the massive influx of people from overseas. This was a daunting problem. According to a resolution of the Board of Ministers of 10 February 1976 Banco de Portugal opened credit lines to nine commercial banks at 0% interest rates for them to grant credit to Portuguese firms that had exported goods and commodities to Angola, and had not been paid because of delayed settlement in spite of payment made by the importers in the territories in local escudos. Many firms were in difficulties for this reason.17 The public agency created to give assistance to returnees, IARN (Instituto de Apoio ao Retorno de Nacionais), was authorised to spend 1.2 billion escudos to pay for the travel expenses of Portuguese people living in the colonies and wanting to move to Mainland Portugal, using maritime or air transportation.18 IARN also provided free hotel lodging to them upon arrival to Lisbon. Banks’ credit to IARN was instrumental for the latter agency being able to support returned people in hotels and to provide some help for them to start small businesses in Portugal. Credit for housing granted to returned people had a reduced interest rate of 0.5%, and could amount to 80% of the home value.19 The programme of credit lines Cifre for returnees to ease their integration in Portugal supported 60% of the capital to be invested by them in industrial or commercial

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activities.20 Hotels demanded timely payment by IARN in order to keep their doors open. IARN resorted to bank loans. The debts of IARN to the banking system piled up quite rapidly and gave origin to interest rates from 8.75% to 17%, which compounded its debt problem. Banks claimed the use of IARN’s debts as collateral for refunding at the central bank. In turn, the central bank asked for government guarantee in order to provide support to IARN. Foreign banks which owned BNU and Banco de Angola banknotes sought their exchange at Banco de Portugal, which forwarded those claims to the Overseas Inspections of Credit and Insurance (Inspecções de Crédito e Seguros).21 The Mainland banking system consisted of a few larger banks (Banco de Portugal, Caixa Geral de Depósitos, Banco Nacional Ultramarino, Banco de Angola, Banco de Fomento Nacional, Banco Totta & Açores related with the CUF economic group, Banco Pinto & Sotto Mayor related with the Champalimaud economic group, Banco Espírito Santo related with the Espírito Santo family, Banco Português do Atlântico, Banco Fonsecas & Burnay, Banco Borges & Irmão), and even fewer middle-­ sized banks (such as Banco Inter-continental Português, Banco Pinto de Magalhães, and Crédito Predial Português).22 On 13 September 1974 the three issuing banks (Banco de Portugal, Banco Nacional Ultramarino, and Banco de Angola) were nationalised.23 Almost all the remaining banks were nationalised on 14 March 1975.24 In addition to the exchange of colonial banknotes to people returning or coming to Portugal, high decolonisation-related costs afflicted the entire financial system, especially the delayed inter-territorial settlements, the high amount of assets (shares and loans) of colonial firms in the banks’ portfolios, and credit to Mainland firms that operated in the overseas territories (which almost all closed doors).25 A significant fall in sight deposits, which clearly dominated term deposits in some banks, as well as a sudden increase in non-performing loans, granted to Portuguese firms also became serious problems, leading to much higher rediscount at Banco de Portugal, at preferential rates, according to reports by the representatives of the central bank in nationalised banks.26 It became very difficult to accomplish the usual function of banks in collecting savings in the interior areas of the country to finance credit to coastal regions, where most of the industrial activities and services were located. There was a flight of savings to foreign banks operating in Portugal. In some foreign banks the number of new deposit accounts trebled between 15 March and 15 April 1975: Banco do Brasil, Bank of

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London & South America, and Crédit Franco-Portugais. As they had not been nationalised, this move means they were considered to be safer. Demand for escudo accounts abroad, and in general capital outflows increased, leading these foreign-owned banks to recommend firms operating in Portugal to obtain credit abroad in order to ensure the survival of their Portuguese branches. Before the revolution, these foreign-owned banks specialised in collecting emigrants’ remittances abroad and channelling them to Portugal. Their credit policy was defined by headquarters abroad, which elected import-export operations, as well as credit to multinationals operating in Portugal, and not loans to small-medium size Portuguese firms.27 Abundant technical reasons were evoked for such credit criteria in considering high-intensive capital operation, high added-­ value production, re-investment of profits, contribution for new job positions in Portugal, export-oriented contributions for the Portuguese balance of payments, and economic growth. Notice of significant outflows of capital crossing the land border with Spain also reached the Portuguese central bank.28 To avoid capital flights, adult travellers leaving Portugal could take with them only 1000 escudos (in banknotes), amount which was reduced to 600 and 300 for children below 18 and 12 years old, respectively. Yearly, the accumulated sum for individuals leaving could reach only 7000 escudos (in banknotes), reduced to 4000 and 2300 for children below 18 and 12 years old, also respectively. Foreign citizens could bring any amount of foreign currencies, but only 1000 escudos to avoid circulation of overseas escudos via foreign countries. Foreign citizens leaving Portugal could take with them only amounts of currency above a value corresponding to 20,000 escudos if they proved to have brought in a higher amount.29 Banknotes issued by BNU and Banco de Angola were not exchanged into Mainland escudos. In spite of all measures to avoid the flight of banknotes from the former colonies, some people still successfully transported local currency hoping to exchange it into Mainland Escudos. However, authorisations for conversion into Portuguese escudos were never provided.30

Notes 1. 25 de Abril: Definição da estrutura constitucional transitória que regerá a organização política do país, 1974. L 5113, Arquivo Histórico Ultramarino (AHU). Law 3/74 of 14 May, Decree-law nr. 203/74 of 15 May 1975

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and Portaria 338/74 of 24 May 1974, which was published in all overseas Official newspapers (Boletins Oficiais). 2. “Contencioso” nr. 103, 7 May 1975, Espaço Económico Português, Fundo Monetário da Zona do Escudo, Macau, Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 16. 3. Schenk 1994. 4. Technical report of 26 June 1975. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 16. 5. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1974. 6. Decree-law 181/74 of 2 May 1974, and 189/74 of 6 May 1974 from Junta de Salvação Nacional. 7. N° Esp. 201/ORE. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1974. 8. Comunicação 8.4.1975 do Banco de Portugal ao Secretário de Estado do Tesouro. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Correspondência. Pasta n° 1. 9. Letter ADM. 691/75 of 4 November 1975 from Banco de Angola to Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações de Crédito. Descolonização, IARN. Pagamentos atrasados de Angola e Moçambique, 1975–1976. 10. Decree-law 44275, 10-4-1962 (art. 3, art 6), and Decision 2955 of Inspecção Geral do Crédito e Seguros from 20 April 1965. Portugal. Arquivo Histórico do Banco de Portugal. Inspecção Geral do Crédito e Seguros do Estado da Índia. 1963–1965. 11. Decree-law 44275, 10-4-1962, and Circular n° 15/65, 15-12-1965, Inspecção Geral do Crédito e Seguros. 12. Informação of 11-2-1965 from of Inspecção Geral do Crédito e Seguros from 20 April 1965. Portugal. Arquivo Histórico do Banco de Portugal. Inspecção Geral do Crédito e Seguros. Estado da Índia. 1963–1965. 13. Diário das sessões, 3-9-1975, Anexo V, p. 1139. Portugal. Arquivo Histórico da Assembleia da República; A ocupação do Banco de Angola. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. 14. Jornal de Notícias (1-9-1975), Diário Popular and Diário de Notícias (2-9-1975), A Capital (3-9-1975), Tempo (4-9-1975), O Jornal (5-9-1975). Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos.

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15. BNU/01OA/5CG/3/2-01. BNU historical archives. Arquivo Histórico da Caixa Geral dos Depósitos. 16. Decree-law nr. 720-C/76 of 9 October 1976. 17. Amounting to 257,180,574$20. Livraria Bertrand, Imobiliária Construtora Grão Pará, Touring Club de Portugal SARL, and Metalúrgica Duarte Ferreira, were some of the firms in difficulties because of delayed payments. Diário do Governo 25-2-1976, p. 391. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações de Crédito. Descolonização. Descolonização, IARN, Pagamentos Atrasados Angola e Moçambique. 1975–1976. 18. Ministério das Finanças, Secretaria de Estado do Tesouro, ORE 16517 to Banco de Portugal, 5.9.75. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990. 19. Jornadas de Estudo: a integração social e económica dos desalojados, Fundação Calouste Gulbenkian, Lisboa, 1977. 20. Decree-law 533/74, establishing a ceiling of 10 million escudos for each capital investment proposal. 21. Comunicação 8.4.1975 do Banco de Portugal ao Secretário de Estado do Tesouro. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Correspondência. Pasta n° 1. 22. For a detailed analysis of the Portuguese banking system, see Valério, 2006. On banking competition in the 1960s, Aguiar, 1965. 23. Decree-law 450/74 for Banco de Angola, 451/74 for BNU, and 452/74 for Banco de Portugal. 24. Decree-law 132-A/75. 25. Sum-up estimations were presented later on, in the answers of already nationalised commercial banks to Carta-Circular nr. 5966/DSOC of 14 November 1979 from Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações de Crédito. Descolonização. Descolonização, IARN, Pagamentos Atrasados Angola e Moçambique. 1975–1976. 26. In spite of more pressing attempts to collect emigrants’ remittances in term deposits. Banco de Portugal established a ceiling of 19% of credit for rediscount. Relatórios dos Delegados do Banco de Portugal junto dos Bancos, according to article 4 of Decree-Law 671/74 of 29 November 1974, -4/455/4. Banco de Portugal Historical Archives: Octavio Teixeira at BBI, José António Silveira Godinho at BF&B, Mário Boavida Remédio at BESCL, Herlander Santos Estrela at BAIV, Silvino Tomé Paiva Lopes at BA, M. M. Dias Fernandes at BPM&FM, António Consiglieri Pedroso at BPA, António Roque Antunes at BT&A. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Relatórios dos Delegados do Banco de Portugal junto das Instituições de Crédito.

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27. Relatórios dos Delegados do Banco de Portugal junto dos Bancos, according to article 4 of Decree-Law 671/74: A.  Consiglieri Pedroso/José Dias Dinis at Credit Franco-Portugais, Manuel J.S.  Carneiro, at Banco do Brasil, and José António Silveira Godinho at Bank of London & South America. Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Relatórios dos Delegados do Banco de Portugal junto das Instituições de Crédito. 28. Confidential communication, nr 354/76 of 17 March 1976, from the Porto Battalion 4/GNR Colonel Commandant to the Minister of Finance. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1976. Pasta II, n° 12. 29. Portaria 374ª/76 of 18 June 1976. 30. Letter 16.01.1976, asking for the exchange of 742,000 escudos, issued by Banco de Angola, into Portuguese escudos. Letters “N° 93/ORE”, 16.1.1976, and “N° 117/ORE”, 22.1.1976 from Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990.

CHAPTER 9

The Genesis of the New Currency Units and Banking Systems in the Portuguese-­ Speaking African Countries. The Co-operation with Portugal Strong historical ties connect the old Mainland Portugal to the new Portuguese-speaking African countries. They include organisational, institutional, and cultural aspects, and a shared language, Portuguese. Monetary aspects were only one of the many instruments employed for framing the new political sovereignties. The political independence of the five African colonial territories from Portugal took place between 1974 and 1975: • Guiné-Bissau, on 10 September 1974, following the Algiers agreements (acordos de Argel) of 26 August 1974, with PAIGC (Partido para a Independência da Guiné e Cabo Verde), by which Portugal recognised the 24 September 1974 unilateral declaration of Independence in Medina do Boé. • Cabo Verde, on 5 July 1975, also following the Algiers agreements (acordos de Argel) of 26 August 1974, with PAIGC (Partido para a Independência da Guiné e Cabo Verde); • S. Tomé e Príncipe, on 12 July 1975, following the Algiers agreement (acordos de Argel) of 26 November 1974, with MLSTP (Movimento para a Libertação de São Tomé e Príncipe); • Moçambique, on 25 July 1975, following the Lusaka agreements of 7 September 1974, with FRELIMO (Frente de Libertação de Moçambique). © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_9

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• Finally, Angola, on 11 November 1975, following the Alvor agreements, in Algarve-Portugal, of 15 January 1975, with three independence movements, MPLA (Movimento para a Libertação de Angola), FNLA (Frente Nacional de Libertação de Angola), and UNITA (União Nacional para a Independência Total de Angola). The decolonisation cases of Macau and Timor were quite different. Macau was a Chinese territory under Portuguese administration until 20 December 1999, when it became The People’s Republic of China’s Special Administrative Region of Macau, after negotiations between Portugal and China that led to a Chinese-Portuguese agreement signed on 13 April 1987, for the transfer of sovereignty. The local currency unit was and still is the pataca (MOP), pegged to the Hong-Kong dollar. Timor became independent on 20 May 2002, after a long and difficult international political process. The territory entered a civil war between FRETILIN (Frente Revolucionária de Timor-Leste Independente), and UDT (União Democrática Timorense)/APODETI (Associação Popular Democrática Timorense) alliance. FRETILIN unilaterally declared the independence of the territory on 28 November 1975. Shortly afterwards, Indonesian military forces invaded and occupied the territory on 7 December 1975, and Timor was formally annexed by Indonesia on 17 July 1976 with the support of APODETI. The Indonesian rupia became the local currency. FRETILIN and UDT organised an armed resistance, which lasted until 1989. Negotiations between the Portuguese and Indonesian governments, with the support of the United Nations, led in 1999 to an agreement for a referendum on annexation. Unfavourable results for annexation led to a transitory United Nations’ administration of the territory, which became independent on 20 May 2002. The US dollar was then adopted as the local currency.1 The different monetary and financial paths in Macau and Timor regarding the process for the rise of new currency units and local banking systems add interest to the analysis of the African Cabo Verde, Guiné, S. Tomé, Angola, and Moçambique cases.2 In the African Portuguese-speaking countries, the creation of new national currency units in post-colonial times was a simple process, in spite of the previous Mainland’s monopolies of currency issuing, central banking, and stock exchange market (the latter in Lisbon and Porto). These are typically the instruments of colonial rule and power within monetary unions having an imperial design, because these monetary and capital

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market functions are decisive instruments of political control over subjugated territories.3 From a global perspective, decolonisation brought profound changes to the international monetary system, and a loss of dominance of most European colonisers’ monetary units after 1945. The UK no longer had the same position on the international stage, and France also lost global influence. In both cases there was a gradual management of the retreat of these currencies from a global to a most national role in the aftermath of World War II, to which contributed the rise of the role of the US dollar.4 The erosion of the role of old Metropolis currencies in part because of decolonisation was a dramatic feature, in both the sterling and franc zones. Portugal was no exception, from this perspective. Moreover, there was a Portuguese special model of decolonisation in Africa. Portugal’s long military resistance (13 years) to the independence in some of the colonised territories, and their decolonisation by the force of arms may explain special conditions of monetary organisational aspects in the newly-­independent Portuguese-speaking countries in Africa. It prevented a French-style monetary co-operation process.5 Immediately following independence, negotiations with the African Portuguese-speaking countries clashed over the financial difficulties of those territories in the Escudo Monetary Zone (EMZ). Accounting of those difficulties greatly complicated the political negotiations for independence. It is clearly stated in a technical report of 14 January 1976 of Banco de Portugal that the Portuguese escudo zone, designed according to the European Payments Union, in spite of being theoretically perfect, could only work for economies (…) for which normality was the relative equilibrium of exchanges.6

In fact, regulation mechanisms were designed only to smooth out transitory disequilibria, and the existence of a Monetary Fund was considered enough and efficient to support and fund the institutional EMZ framework. Its problems became a case study for appraising the future of monetary unions in general.7 The escudo zone was made up of highly differentiated territories and, although some people argued that the disequilibria that were then revealed were not structural, the fact is that they proved to be permanent, and showed a trend of progressive deterioration:

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(…) the Boards of Foreign Exchange Management Funds of the main colonies, to whom was given the task of setting the exchange operations required for regular payments among national territories, could not award enough reserves to avoid the accumulation of non-compensated balances, which were currently named ‘delayed’ (atrasados).8

Two different circumstances were considered for delayed transfers resulting from operations that occurred between those African territories and Portugal in the context of the EMZ.9 • If the operation had been settled (paid) in the territories, it was considered as a hidden consolidated delayed transfer (atrasado oculto).10 All these operations were settled in Portugal according to the rules of the EMZ, i.e. “using the reserve accounts of the territories, as it had usually been since the inception of the inter-territorial compensation system”.11 • If the operation was not settled, with or without bank credit, in those territories, it was considered as a consolidated delayed transfer (atrasado consolidado), which should be paid up by the new independent countries. Applying these rules was not easy. The new countries protested against hidden consolidated delayed transfers having to do with flight transportation expenses, which were paid locally by people who wanted to come back to Portugal following independence.12 Also, some of the new countries were very short of international means of payments to settle consolidated delayed transfers. Lending from abroad was therefore required. In Africa, many other countries created Currency Boards following independence to perform as credit organisations with government sponsorship. Examples of Currency Boards include cases in the rand monetary area (Botswana, Lesotho, Namibia, and Swaziland). Recall also the West and East African Currency Boards (in Gambia, Ghana, Nigeria, Sierra Leone, Kenya, Tanganyika, and Uganda), and the Central Africa Currency Board (Rhodesia and Nyasaland).13 These are historical cases that demonstrate how strongly monetary aspects are associated with the inception of political sovereignty.14 Immediately following independences the banking systems went into turmoil with the natural euphoria surrounding the new political realities,

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the departure of Portuguese staff, and the need for adapting organisational features to national perspectives. With few exceptions, which included moving of overseas escudos from Portugal to the new countries for business purposes,15 the transportation of overseas currencies within the EMZ was forbidden as well as its exchange into the metropolitan escudos. National banks were created in the African Portuguese-speaking new countries (and Timor), to issue money as a symbol of national sovereignty. The political treatises for independence gave way to monetary-financial agreements. The idea was to found new institutional frameworks, made of national monetary and financial markets. Meetings with members of provisional governments and independence movements discussed the transfer of assets and liabilities of the territories to the newly-independent states they gave origin to. They also defined the conditions under which the local staff was allowed to move to Portugal, or to stay in the African territories.16 The building up of the new banking systems lasted for a long time after the signing of the political agreements. The departments of the Portuguese issuing colonial banks in these territories were transferred to the new national banks in 1975. BNU and Banco de Angola agencies in the new African Portuguese-speaking countries gave origin to local national banks (Banco de Cabo Verde, Banco Nacional da Guiné-Bissau, Banco Nacional de S. Tomé e Príncipe, Banco Nacional de Angola, Banco de Moçambique), which later would issue new currencies and assume central banking functions. The creation of these new banks was purposely pursued as a condition for the political survival of the newly independent Portuguese-speaking African countries. The new African banks not only absorbed the network of local branches of the colonial issuing banks, Banco Nacional Ultramarino and Banco de Angola in Angola, but also the local offices of Banco de Fomento, and the local General-Inspection of Banking and Insurance (Inspecções do Comércio Bancário e Seguros). The new banks of the Portuguese-speaking African countries received not only the assets and liabilities, the physical resources (buildings and equipment) of the coloniser’s banking institutions, but also their local staff and employees, which needed to be organised according to new legislation and regulations. The new banks were provided with the money issuing monopoly, the mission of functioning as Treasury departments, the international monetary reserves management, credit control,

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price stability, economic development, monetary-financial policies, and banking supervision wherever commercial banks existed.17 Banknotes and coins circulating at the time of independence continued having legal tender until new banknotes could be issued and new coins could be struck. The geographical design of the new currencies celebrated the local political sovereignty of the new countries by portraying their national heroes. The independence of the African territories led their local economies and currencies to move away from the Portuguese economic influence and dominance. The replacement of old banknotes by the new ones was relatively easy, although it took some time to implement and complete, according to issuing capacity and local organisational resources.18 The new national currencies were named escudo in Cabo Verde, peso in Guiné, dobra in São Tomé e Príncipe, kwanza in Angola, and metical in Moçambique. Banking systems were progressively developed, and the financial systems gained more sophistication with the foundation of local stock exchanges. Historically, banking systems have always been the bearers of projects for entire societies.19 However, “Generally, banks in Africa are less efficient, but more profitable and operate in less competitive markets”.20 At the same time “Most less developed countries also have less developed financial markets”.21 The nationalisation and privatisation of banks, and the consolidation of national banking systems in the African Portuguese-­ speaking countries were long-run undertakings to frame full-fledged organisational monetary systems, as in other newly-independent African states.22 Central banking in the African Portuguese-speaking countries was also slow in coming. As historians have recognised, in the long run there is “a possible institutional convergence over time among countries with respect to their banking structures”.23 Agreements were signed between these banks and Portuguese BNU/ CGD, which were very similar across countries.24 Employees who returned to the Mainland were incorporated into the Portuguese banking system.25 Banco de Cabo Verde, Banco Nacional da Guiné-Bissau, Banco Nacional de S. Tomé e Príncipe, Banco Nacional de Angola, and Banco de Moçambique started their activity at the boundary of private affairs in working as commercial banks, also doing public affairs, and progressively assumed central banking functions, as time went on, because money is a symbol of political sovereignty and not a commodity as any other.26 Immediately following independence, in 1976, Guiné-Bissau signed the Lomé Convention which had established a framework for economic

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cooperation between the European Economic Community and countries from Africa, as well as the Caribbean, and the Pacific (the ACP) countries. Cabo Verde, S. Tomé e Príncipe, and Moçambique also joined in 1981. Angola joined in 1991. This meant acknowledging the importance of political and economic relationships and co-operation with industrialised countries, and facilitating access to international borrowing.27 The advantages had to do with free trade and financial co-operation and credit.28 Bilateral co-operation agreements with Portugal for trade and international movements of capital were immediately implemented following the independence of the territories, building up on the usual system of previous authorisation bulletins. Trade relationships required mechanisms of settlement for Portuguese exports sent before and after independence. It was recognised that solutions for receiving the payment of exports sent from Portugal to overseas territories before their independence “was more than problematic”, because of social and economic disruption. Following independence, “the period (…) was very pernicious, not only because importers had left those territories, but also because commodities disappeared from custom stores”.29 Local political turmoil led to withholding the import registration bulletins, and the territories’ means of payment for foreign trade were scarce. Long lists of Portuguese exporters waiting for settlement implied financial problems for many Portuguese firms.30 In order to avoid Portuguese exporters’ protests against long delays between the territories’ payment in local currency and the moment of receiving those payments in Portugal in Portuguese escudos, many (nationalised) Portuguese banks awarded loans to finance settlement delays when exporting to the new countries.31 The opening of any Portuguese commercial bank’s credit lines required an authorisation from the Banco de Portugal. Considering that a good climate of relationships with the new countries could drive mutual advantages for all those markets, and considering that those countries were implementing “centralised banking systems”, the Banco de Portugal disseminated instructions to Portuguese commercial banks imposing a USD 2 million total borrowing ceiling for each African country central bank.32 Detailed accounting of the 1978 mutual responsibilities between Portuguese banks and the African Portuguese-speaking countries reveals tight economic relationships with them, resulting from increased bilateral trade and capital mobility.33 The parity exchange rate of 1:1 between the Portuguese escudo and the new currency units of the newly-independent countries was preserved

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until 23 February 1977, when a new exchange rate regime of crawling-­ peg depreciation was declared for the Portuguese escudo. New market exchange rates resulted from considering the new countries’ international trade currency units. Other forms of co-operation with banks in the African Portuguese-­ speaking countries also began immediately after independence. These included missions of Portuguese experts to these countries, training of local staff by the Portuguese central bank, and also Portuguese scholarships that were awarded to staff from all the new countries (all with a similar value).34 Angola and Moçambique were named the People’s Republic of Angola and the People’s Republic of Moçambique, respectively, and began implementing political regimes that were not compatible with some international co-operation forms.35 Prakash Ratilal, Governor of Banco de Moçambique (1981–1986), explains how much Angola and Moçambique owe their independence to the support of the Soviet Union, the People’s Republic of China, Nordic European countries, and non-aligned countries, which explains why “Western countries looked at these independences with suspicion”. (…) “The resurgence of the China of Mao Tsé Tung, the French military defeat in Vietnam, and later the American, in 1975, and the fall of the Portuguese colonial empire in Africa in 1974 were interpreted by the hawks as the advance of communism on a global scale, which was something that needed to be halted and reversed”.36 Post-independence cooperation with European ex-colonies was difficult, as Africa was a counter in the effective competition policies between the Soviet Union and China, during the Cold War.37 Post-independence cooperation included costs and benefits, diplomatic partnership, and informal political influence. Portuguese lending to the new African countries did not stop with independence, creating “a problem of utmost gravity”.38 After the 3-year deadline for resuming repayments, it was necessary to acknowledge that this was not a question of liquidity but a problem of solvency. Based on a confidential note from the Banco de Portugal, a decision (despacho) from the Portuguese Minister of Finance of 6 November 1979, António Sousa Franco, considered that the lending policy of this period was un-coordinated, and should be established on similar bases for all of the African Portuguese-speaking countries. The first rule was the centralisation (and accounting) of all lending in the Institute for Economic Cooperation, in considering that, independently from “fraternity and co-operation spirit (…) financial realities obey

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unavoidable laws, and dreamers who think to ignore them usually awake poorer, indebted and less-developed in what respects the warranted justice and cooperation”.39 This decision established a 400 million escudos annual ceiling for new financial aid to the new countries, which should be expressed in USD, with half-yearly installments. Angola was the most difficult case, as this new country adopted Union de Banques Suisses- Zurich as its exclusive financial representative abroad. All payments were done through this bank, including payments to Portugal, such as those in the escudos account of Angola in the Banco de Portugal. No consolidated delayed payments existed, but there were hidden delayed payments that “Angola does not plan to pay, which will be settled here with the financial support of the Portuguese exchequer”. The same happened with Moçambique, but not with Cabo Verde or S. Tomé and Príncipe, which had no settlements in arrears.40 Institutional co-operation with the Banco de Portugal was widespread to all central banks of African Portuguese-speaking countries. Co-operation bilateral agreements were quite successful.41 In turn trade co-operation reveals that Portugal and the other Portuguese-speaking countries “have understood, although not always at the same time and with the same intensity and commitment, the gains that both could get from there, independently from their political options”.42 In considering the development of national financial systems and central banking functions in African Portuguese-speaking countries, it is very important to stress the role of local elites, comprising Governors and members of the boards of financial institutions. Financial elites are few, in any emerging economies around the world, and they reach their positions according to nationally specific career paths. Personal experiences and professional careers may be diversified, and are shaped in each country’s national context.43 A move to market-economy systems in Angola and Moçambique in the late 1980s led these two countries towards increased international economic co-operation, thanks to the liberalisation of domestic prices and exchange rates, and lower state-owned presence in productive activities.44 By this time, a great debate took place regarding the decision to adopt fixed versus floating exchange rates in less developed countries.45 It was argued that insufficient development of the financial systems provokes persistent biases in fixed exchange rate regimes. Fixed exchange rates in less developed countries protect their national economies from possible exchange rate variations provoked by monetary policies of developed

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countries. It was also recognised that the low economic integration of these less-developed countries in the world markets could make the floating exchange rate regime very difficult to manage. Moreover, it was argued, fixed exchange rates may generate fiscal discipline, but not necessarily.46 A peg to a basket of currencies could be a way of minimising the negative effects of exchange floating imported from the industrialised countries, as a consequence of macroeconomic instability provoked by price and interest rate fluctuations in international markets. A crawling peg with a price setting rule also could provoke speculation because people knew the date of the depreciation. A crawling peg with a decision variant system was another possibility, and provided exchange flexibility, in comparison with fixed exchange rate regimes in which depreciations were postponed as much as possible, creating high speculation with high costs for reserves. So, the crawling peg (with a decision variant system) should be the one that best allowed the implementation of exchange rate policies, as it was closest to the floating regime. However, structural reforms were necessary for fiscal, monetary, and exchange policies, as well as technical accuracy to implement them without price-setting rule. Good indicators to intervene were the occurrence of a differential between domestic and foreign inflation rates, or the birth of parallel markets for illegal exchange. It all depended on the information available and the administrative capacity for monetary management. If they were scarce in less developed countries, the crawling peg with a decision variant system was not appropriate.47 In May 1987 it was foreseen a new recast of the Escudo Monetary Zone, thanks to a project with rules and regulation similar to those of the French Franc Zone, because this was a question frequently spoken, especially by the authorities of the ex-colonies, who saw it as a solution for their exchange problems.48 The origin of the idea was the colonial past experience. The small countries were the most interested (Guiné-Bissau, Cabo Verde, and S. Tomé e Príncipe). This was to be a community of gold and foreign currencies in a centralized institution, free movement of transfers in the zone, and internal solutions for the problems of balances of payments. Such a project would never succeed, as Chap. 11 will demonstrate. The early 1990s were characterised by the abandonment of central planning in favour of market mechanisms in all five Portuguese-speaking countries. This demanded great adjustments in their financial systems, in particular the opening up of commercial banking and insurance to private

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initiative, thereby requiring the existence of central–banks to carry out regulation and supervision functions. In what respects the exchange rate policy, traders who obtained import authorisations at the official exchange rate had high profits, which encouraged corruption for obtaining these authorisations. All market failures to satisfy local demand were filled by demand in parallel markets, pressing the depreciation of the local currency. The demand for foreign currencies became greater, as far as the gap between the demand of imports and the international reserves available to pay for them grew, which always fuelled parallel market. Illegal trade had greater risk (including commodity confiscation), but the presence of expatriates was a source of foreign currencies in the parallel market, because they were paid in their domestic currency, and needed to buy local currency for their everyday consumption. Illegal trade also decreased tax collection. Dual exchange rates create dual pricing, which were associated with inefficiency in the distribution of resources. In fact, dual exchange markets (the official and the parallel) created difficulties for exports, which decreased local production for exports, while it increased profits from illegal international trade if subsidies to imports were granted. The result was ever less availability of foreign currencies in the legal official market.49 Whenever a significant part of imports was funded by foreign aid, the irregular timing of foreign aid arrival was a main source of fluctuation for the parallel exchange rate. If exports comprised only a limited number of products, and some of them were vulnerable to weather, the trade account would suffer more severe problems because pricing is internationally established. Legal (official) exchange rates could not respond to these external shocks. Unifying the exchange rate market would cause a loss of fiscal revenues, and higher consumer index prices (inflation). The solution would be to depreciate the local currency, but this would make the payment of foreign public debt and other payments abroad more difficult. No monetary agreement with Portugal would ever solve the international settlement difficulties of the African Portuguese-speaking countries, as they could only smooth out short-run imbalances. In the franc zone the members had the guarantee of convertibility at a fixed exchange rate, but there was no autonomy in the management of the monetary and exchange policies, and there were constraints on the management of budgetary policies.50 At the other extreme, in monetary agreements between Portugal and Portuguese-speaking countries in Africa there has been autonomy for the management of the monetary and exchange policies, and even for budgetary policies, but there has been no guarantee of convertibility at a

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fixed exchange rate.51 Depending on the local social, economic, or political (and military) conditions, this process differed in the various countries. These differences will be analysed separately in the following chapters. In the meantime, the Mainland extinguished the Escudo Zone Monetary Fund in 1980, as the next chapter will detail.

Notes 1. Local law nr. 5/2011 created the Banking and Payments Central Authority, Banco Central de Timor Leste (BCTL) on 13 September 2011. 2. For comparisons with other African countries Newlyn and Rowan 1954. 3. Pateguana 1997, pp. 31–54; Narsey 2016. For the role of anthropologists in this context Flandreau 2016. 4. Schenk 2010. 5. Banque de France 2012, pp. 11–13. 6. Informação, Atrazados do Ultramar, Banco de Portugal DSOC, 14.1.76. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações e Crédito. Descolonisação. IARN.  Pagamentos Atrasados Angola e Moçambique. 1975–1976. 7. Bordo and Jonung 1999. 8. Informação, DSOC, 14.1.76. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações de Crédito. Descolonisação. IARN.  Pasta n° 16. Pagamentos atrazados de Angola de Moçambique. 1975–1976. 9. Portuguese Resolução do Conselho de Ministros of 19 December 1975, and Resolução do Conselho de Ministros of 10 February 1976. 10. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 11. Relatório do Agente Relativo Aos Meses de Abril a Junho de 1974. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processos de Atas n°s 124 a 130. 1968–1975. FMZE/ Dir/002. 12. Banco de Moçambique 2012. According to an authorisation of 3 September 1975 from the Portuguese Ministry of Finance, to IARN, the Institute created for the Return of Nationals (Instituto de Apoio ao Retorno de Nacionais), the cost for trips from Angola amounted to 1.2 billion escudos. Documentação Diversa, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Angola 1975–1990. 13. Pateguana 2016, p. 37; Hopkins 1970; Mwangi 2001. 14. Chandarvarkar 1996, p. 18; Helleiner 2003.

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15. As it happened with Companhia dos Caminhos-de-Ferro de Benguela. Documentação Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Angola 1975–1990. 16. Translated into Decree-law nr. 23/75 of 22 January 1975, Diário do Governo, I Série, n° 18, of 22 January 1975. Despacho normativo n° 305/79, Portuguese Diário da República of 2 October 1979, also addressed Portuguese workers who stayed in Angolan banking institutions, and wanted to move to the Portuguese banking sector, (in the context of the Angolan civil war). 17. Law 26 June 1976 in Cabo Verde. Estevão 2015, p. 210, 211. Decree nr. 13/75 in Moçambique with a signature on 24 June 1975, for example. 18. Carvalho 2014. 19. Feiertag and Minoglou 2009, p. 32. 20. Verhoef 2017. 21. Black 1976, p. 37. 22. Feiertag 2016. 23. Feiertag and Minoglou 2009, p. 20. 24. On 14 October for Banco Nacional de S. Tomé e Príncipe, 9 May 1977 for Banco de Moçambique. Guinésigned with Caixa Geral dos Depósitos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Responsabilidades c/Bancos Portugueses. Acordos de Agência, 1977–1980. For the Moçambican case, agreement and details are available at Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Moçambique. 1975–1990. 25. BNU could not have activity in Timor. Relatório, Balanço e Contas, BNU, 1976. 26. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Moçambique. 1975–1990. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Angola. 1975–1990. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs,S. Tomé e Príncipe. 1975–1990. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Guiné-Bissau. 1975–1990. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Cabo Verde. 1975–1990. 27. Araújo 1983, pp. 107–116. 28. For example, Cabo Verde could have benefited from foreign aid coming from the Development European Fund (DEF), and the Investment European Bank over 100 USD per capita, per year, according to Araújo 1983.

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29. Letter of 29 June 1977 from Banco Português do Atlântico to Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, S. Tomé e Príncipe. 1975–1990. 30. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs,Guiné-Bissau. 1975–1990. 31. Banco Pinto & Sotto Mayor, Banco Fonsecas & Burnay, Banco Espírito Santo, Sociedade Financeira Portuguesa, for exemple. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs,S. Tomé e Príncipe. 1975–1990. 32. Circular a todos os bancos, n° 89,/ORE/CFCE of 5 December 1977. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Guiné-Bissau. 1975–1990. 33. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Responsabilidades c/Bancos Portugueses. Acordos de Agência, 1977–1980. 34. At first Portuguese scholarships amounted to 300,000 escudos for a 3-month stay. After 15 June 1985 the amount became 111,500 escudos per month. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs, Guiné-Bissau. 1975–1990. 35. Comiche 2012, tells on the substitution of Portuguese for Moçambican employees. 36. Ratilal 2012, p. 91, 93. 37. Cullen 2017, p. 3. 38. Saramago and Martins 1998, p. 38. 39. Published in Diário do Governo, II Série, n° 262, of 13 November 1979. 40. “Regime de pagamentos com as ex-colónias”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. S. Tomé e Príncipe. 1975–1990. 41. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 42. Ferreira 2005, pp. 354–355. 43. Maes 2016. On the controversy related with explanations based on the “reversal of fortune” in Africa in the last 500 years, and the ideas on ethnic fragmentation, Hopkins, A.G., 2009. On the Kenyata elite’s own decision to work with the British in post-independence times, Cullen 2017. 44. Saramago 2014, pp. 6–12, p. 6. 45. Allen and Kenen 1980; McLenaghan et al. 1982; William 1986; Wickham 1986; Dornbusch et al. 1987; Pinto 1987; Quirk 1987. 46. Pinto and Van Wijnbergen 1986. 47. Fieszbein, Ariel “Uma análise entre o Arranjo Monetário entre a República da Portugal e a República da Guiné-Bissau”, Washington D.C., Aug 1989.

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Portugal. AHBP.  Pasta ACORDO DE ARRANJO MONETÁRIO C/a Guiné-BISSAU, 1991 a 1996. (Documentação não tratada). 48. On the franco zone see Gérardin 1994. 49. Portugal. AHBP.  Pasta ACORDO DE ARRANJO MONETÁRIO C/a Guiné-BISSAU, 1991 a 1996. Documentação não tratada): Ariel Fieszbein, “Uma análise entre o Arranjo Monetário entre a República da Portugal e a República da Guiné-Bissau”, Washington D.C., Aug 1989. 50. Johnson and Swoboda 1973; Bourgui 1979. 51. Portugal. Banco de Portugal. AHBP.  Jorge Braga de Macedo. “Uniões Monetárias com micro-estados, A criação de uma Zona de Escudo com a República da Guiné-Bissau e a Republica de S. Tomé e Príncipe, Instituto de Cooperação Económica, Dez 1987 (p.  13). Pasta ACORDO DE ARRANJO MONETÁRIO C/a Guiné-BISSAU, 1991 a 1996. (Documentação não tratada).

Bibliography Araújo, Gustavo de Lima, “As Antigas Colónias Portuguesas e a Convenção de Lomé”, Assuntos Europeus, vol. 2, n° 1, Feb 1983: 107–116. Banque de France, Direction Générale du Trésor avec recherche historique par Vincent Comiche, Eneidas da Conceição, “O processo de reestruturação e integração da banca”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 67–80. Duchaussoy, Zone franc, 40 ans de coopération monétaire, Paris, 2012. Black, Stanley W., “Exchange policies for less developed countries in a World of floating rates”, Essays in International Finance, 119, Dec 1976: 1–48. Bordo Michael D. and Jonung, Lars, “The future of EMU: what does the history of monetary unions tell us?”, NBER Working Paper 7365, 1999. http://www. nber.org/papers/w7365 Carvalho, Nuno Fernandes, A Coleção de Notafilia da CGD, Angola, Cabo Verde, Guiné, Índia, Macau, Moçambique, São Tomé e Príncipe, Timor. Lisbon: Caixa Geral de Depósitos, Gabinete de Património Histórico, 2014. Comiche, Eneidas da Conceição, “O processo de reestruturação e integração da banca”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 67–80. Feiertag, Olivier, Bank Al-Maghrib, The Emergence of a Central Bank From the Twentieth to the Twntieth-First Century, Rabat, Le Cherche Modi Editeur, 2016. Gabinete de Património Histórico, 2014. Chandarvarkar, Anand, Central Banking in Developing countries, London, Macmillan, 1996. Newlyn, W.T., and Rowan, D.C. (1954), Money and banking in British colonial Africa: a study of the monetary and banking systems of eight African territories, Oxford: Clarendon Press.

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Cullen, Poppy, Kenya and Britain after Independence, Beyond Neocolonialism, Cambridge, Palgrave Macmillan, 2017. Ferreira, Manuel Ennes, “O Império e as relações económicas com África”, in Pedro Laíns e Álvaro Ferreira da Silva (editors), História Económica de Portugal, 1700–2000, vol III O século XX, Lisbon, Capítulo 10, Imprensa de Ciências Sociais, 2005: 343–371. Flandreau, Marc, Anthropologists in the stock exchange: a financial history of Victorian science, Chicago, University of Chicago Press, 2016. Gérardin, Hubert, La zone franc, Paris, L’Harmattan, 1994. Helleiner, Eric The making of national money: territorial currencies in historical perspective, Ithaca and London: Cornell University Press, 2003. Hopkins, A. A., “The creation of a colonial monetary system: the origins of the West African Currency Board”, African Historical Studies, 3, 1, 1970: 101–132. Maes, Ivo, “Crises et Co-opération Monétaire”, in Feriertag, Olivier, and Margairaz, Michel, Les Banques Centrales et l’État-Nation, Paris, Sciences Po Les Presses, 2016:299–306. Mwangi, Wambui, ‘Of coins and conquest: the East African Currency Board, the rupee crisis, and the problem of colonialism in the East African Protectorate’, Comparative Studies in Society and History, 43, 4, 2001: 763–786. Narsey, Wadan, British imperialism and the making of colonial currency systems, Basingstoke: Palgrave Macmillan, 2016. Pateguana, Carmélia Ernesto Langa, “A actividade do Banco Nacional Ultramarino em Moçambique 1864–1974”, Staff paper n° 8, Banco de Moçambique, Junho 1997. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Thesis, University of South Africa, 2016. Ratilal, Prakash, “Adesão às Instituições de Bretton Woods e início da implementação de reformas”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 119. Saramago, Luís and Martins, Fernando, “Alívio da Dívida Externa dos Países em Desenvolvimento: A iniciativa FMI, Banco Mundial”, Boletim Económico Trimestral do Banco de Portugal, March 1998: 37–48. Saramago, Luís, “Apontamentos sobre a evolução da banca nos PALOP – características e tendências (1990–2013)”, Banco de Portugal, Cadernos de Co-operação, 4, 2014, 6–12. Schenk, Catherine, The Decline of the Sterling: Managing the Retreat of an International Currency 1945–1992, Cambridge, Cambridge University Press, 2010. Verhoef, Grietjie, The rise of financial services in Africa”, in Dana Redford (ed.), Developing Africa’s Financial Services, The Importance of High-impact Entrepreneurship, London, Emerald, 2017: 3–42.

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Feiertag, Olivier and Ioanna P. Minoglou (eds.) (2009) European Banking Historiography, Past and Present, Athens, Alpha Bank Historical Archives. Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012. Estevão, João, História da Moeda em Cabo Verde: Do início do povoamento à actualidade, Praia, Banco de Cabo Verde, Tipografia Santos, 2015. Allen, Polly Reynolds and Peter Kenen, Asset markets, Exchange rates and economic integration, a synthesis, Cambridge, 1980. McLenaghan, John, Nsouli, Saleh, and Riechel, Klause, “Currency convertibility in the ECOWAS. IMF: 13, Aug 1982. William, John, “Exchange rate system”, Institute of International Economics, Washington, DC, 1986. Wickham, Peter, “The choice of Exchange rate regime in developing countries: A survey of literature”, IMF, Palgrave McMillan Journals, vol 32, Jun 1986. Pinto, and Van Wijnbergen, 1986. Dornbusch, Rudiger and Frenkel, Jeffrey, “Flexible Exchange rate systems: experience and alternatives. NBER Working Paper, nº 2464, Dec 1987. International Economic Association Series book, series (IEA): pp 151–208. Pinto, Brian, “Exchange rate unification and budgetary policy in Sub-Saharan Africa”, World Bank, Jun 1987. Quirk, Peter J., “Recent experiences of developing countries with floating Exchange rates: Auction and interbank?”, IMF, mimeo, 1987. Pinto, and Van Wijnbergen, “Exchange rate regimes in Africa”, Washington, World Bank, Country Policy Department, The World Bank, 1986. Johnson, H. and A. Swoboda, Eds., The Economics of Common Currencies, London, Allen and Unwin, 1973. Bourgui, Albert, La politique Française de cooperation en Afrique, le cas du Senegal, Bibliothéque Africaine et Malgache, 1979.

CHAPTER 10

The End of the Escudo Monetary Zone Fund in 1980. The Continuation of Co-operation

As mentioned in Chap. 8, in spite of the huge problems faced by the EMZ Fund, it went on at work during the decolonisation period. Indeed, the inter-territorial clearing system and its reserve accounts continued to be used to settle payments. Moreover, interests on term deposits of territories’ Foreign Exchange Management Funds that existed at BNU and Banco de Angola were credited (at a 4.5% rate) in their reserve accounts at the Banco de Portugal, the agent of the system.1 In order to preserve the Mozambican Foreign Exchange Management Fund access to South African gold at the official gold price, Banco de Portugal proposed to buy 83 boxes containing 100,542.837 ounces of gold, which the Mozambican Foreign Exchange Management Fund proposed to sell. In August 1974 mobs prevented the departure of gold from Moçambique to Portugal. The Portuguese government suggested that Moçambique should sell it in the international market, and pay its value to Portugal.2 The balances of the escudo accounts at the Banco de Portugal, belonging to the overseas territories’ Foreign Exchange Management Funds were positive and declining (Table 10.1): In spite of recording surpluses, the Angolan and Mozambican reserve accounts had no financial capacity to repay the automatic and special loans awarded to these territories before independence during the functioning of the EMZ system of payments. The end of the inter-territorial payments © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_10

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Table 10.1  Balances of the escudo accounts at the Banco de Portugal, belonging to the overseas territories’ Foreign Exchange Management Funds (1973–1976) Thousands of Portuguese Escudos

31-12-1973

31-12-1974

31-12-1975

30-04-1976

Angola Moçambique Cabo Verde Guiné-Bissau S.Tomé Macau Timor Total

723,160 73,800 53,050 43,750 15,470 98,290 45,750 1,053,270

61,487 43,458 144,412 25,906 39,029 51,004 81,309 446,605

75,421 58,010 54,007 100,964 36,238 98,618 71,255 494,513

63,868 96,238 69,441 90,100 17,583 127,382 71,255 535,867

Source: “Saldos das contas-escudos no Banco de Portugal dos Fundos Cambiais dos territórios”, PALOPs, Documentos Diversos, ANGOLA I–II, 1975–1990, 9, or PALOPs, Documentos Diversos, Moçambique I–II, 1975–1990, 7, Arquivo Histórico do Banco de Portugal

system and the political independence of the overseas territories made the Escudo Monetary Fund useless. However, in 1976 a proposal to extinguish the Escudo Zone Monetary Fund faced severe problems. The debentures issued to finance the capital of the Fund (as well as the loans awarded to those territories) had state guarantee (aval do estado), and benefited from all the guarantees, privileges, and exemptions of public debt. This proposal included the need of issuing Treasury debentures (promissórias do Tesouro) to replace the capital of the Fund belonging to the three issuing banks of the system (Banco de Portugal, Banco de Angola, and BNU). Banco de Angola immediately asked for the transfer of its share in the capital of the Escudo Monetary Zone Fund from the Banco de Portugal.3 This proposal did not succeed, because it also was necessary to issue debentures to settle payments regarding the air transportation of troops (by TAP), and other military expenditures in the ex-colonies.4 Only in May 1980 a new proposal was successfully put forward to extinguish the Escudo Zone Monetary Fund, thanks to a decision to re-­ evaluate the gold reserves of the Banco de Portugal, by the government headed by Prime Minister Sá Carneiro.5 It was decided to end the Escudo Zone Monetary Fund, and repay to the Exchequer the capital issued (debentures) underwritten by the central state.6 The capital of the Fund belonging to the three issuing banks of the system (Banco de Portugal, 934 million escudos; Banco de Angola/União de Bancos Portugueses, 466

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million escudos; and BNU 466 million escudos), amounting to 1866 billion escudos, was to be paid with the available assets of the Escudo Monetary Fund, amounting to about 484 million escudos, plus about 1382 million escudos representing 74% of the surplus value resulting from a re-­ evaluation of the Banco de Portugal gold reserves.7 The debentures representing the capital of the Escudo Monetary Fund that had not yet been paid up were cancelled. All these operations were settled on 17 September 1980.8 Figure 10.1 describes the Liabilities and Equity of the EMZ Fund over time, by stakeholder and distributed profits. The 1980 profits distributed to the shareholders of the EMZ Fund amounted to 493,743,565 escudos (to redeem the debentures of their participation in the capital of the EMZ Fund): 82,173,741$5 escudos were paid to each of the overseas issuing banks (BNU and União de Bancos/Banco de Angola), 164,698,041$1 escudos to the Banco de Portugal, and 164,698,041$1 escudos to the Exchequer.9 After clearing the balances of the Foreign Exchange Management Funds of the territories with their debts to the EMZ Fund, in a multilateral way, the remaining credits from the automatic and special loans amounted to 2,449,279,376$05 escudos, and resulted from lending to Angola and Moçambique (Table 10.2)10: This total value represented to about 0.2% of the Portuguese GDP at market prices (which at the time was estimated at 1,476,316 million escudos).11 The special loans had been under bargaining negotiations since 1975.12 The remaining credits from the automatic and special loans amounting to 2,449,279,376.05 awarded to Angola and Moçambique were transferred to the Portuguese state. This was the last episode of the Escudo Monetary Zone case study, and its failure. In spite of the extinction of the Escudo Monetary Zone, the co-­ operation between Portugal and the new independent countries pursued. The early 1980s’ international crisis, coupled with high interest rates and deterioration of exchange terms for producers of primary goods were real constraints to the capacity of debt repayment for many debtor countries. To help meet commitments, rescheduling schemes sought to make possible repayment of foreign debt under a short leash philosophy in the 1984 multi-year rescheduling agreements, MYRA. The 1985 American Secretary of Treasury (Baker) Plan attempted to introduce reforms for these countries’ economic growth, while some creditors preferred strategies made of

Fig. 10.1  Liabilities and Equity of the EMZ Fund over time, by Stakeholder and Distributed Profits. (Sources: Balance sheets and accounts of the Escudo Monetary Fund. Relatórios do Conselho de Direcção do FMZE 1963–74, ARQUIVO HISTÓRICO DO BANCO DE PORTUGAL 7450011 para o período 1963–74 and Relatórios do Conselho de Direcção do FMZE 1975–1979, Arquivo Histórico do Banco de Portugal 7450011)

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Table 10.2  Remaining debts of the territories’ Foreign Exchange Management Funds to the Escudo Monetary Zone Fund at the moment of the Fund extinction. Unit: Escudos Automatic loans to Moçambique:  Contract of 15/4/66  Contract of 14/5/66 Special loans to Angola:  Contract of 3/10/72  Contract of 13/11/72 Special loans to Moçambique:  Contract of 17/3/72  Contract of 18/2/72  Contract of 3/10/72 Other special loans to Moçambique:  Contract of 8/5/74  Contract of 16/5/74  Contract of 2/7/74 Total

Table 10.3  Ceilings of medium to long-run credit lines awarded to the Portuguese-­speaking African countries for Portuguese exports

149,279,376.05 35,329,376.05 113,950,000.00 600,000,000.00 500,000,000.00 100,000,000.00 950,000,000.00 750,000,000.00 50,000,000.00 150,000,000.00 750,000,000.00 250,000,000.00 250,000,000.00 250,000,000.00 2,449,279,376.05

Angola Moçambique Guiné-Bissau Cabo Verde S. Tomé e Príncipe

USD million 39,590 USD million 34,484 USD million 3840 USD million 29,954 USD million 5000

debt buybacks and debt equity swaps. These were also difficult times for Portugal. At constant prices Portuguese GDP, wages, and savings fell in 1983 and 1984.13 The ceilings of medium- long-run credit lines awarded to the Portuguese-speaking African countries for Portuguese exports, according to an OECD 1985 recommendation were the following (Table 10.3)14: The newly-independent African countries’ decision to join the IMF and the World Bank was a political decision on the economic policies to be followed up.15 The failure of communist political regimes in the late 1980s also brought the opportunity to enlarge market operations to many regions where previous communist influence had prevailed, and could give place to capitalism and global market-oriented institutions. The postponement of payment deadlines was introduced as a financial relief through the

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1987 Venice terms. Lower interest rates for debtors thanks to the 1988 Toronto terms represented an approximate one-third reduction of total amounts to be repaid at the end of consolidation periods. The IMF’s and World Bank’s strategies to consolidate accumulated foreign debt also included new lending to developing countries. The 1989 American Treasury Secretary (Brady) Plan reduced about 45% the liquid value of debts. Thanks to Debt Reduction Facilities (DRF), significant debt pardons to sub-Saharan low-revenue countries were granted as public aid to Development (PAD), especially after the 1991 London terms, and the 1994 Naples’ terms. This is the historical context in which the Paris Club, an informal group made up of officials from creditor countries, improved its 1956 role to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. It promoted gathering creditor and debtor countries, which signed agreements to adopt and respect the IMF and World Bank programmes for economic recovery and growth. For long, “aid policies had become internationally connected (…) because some countries, such as the USA, operated according to the so-called ‘matching principle’, which meant that they aligned the level of their own aid allocations to the aid levels of other donors”.16 Countries could apply to the International Development Association (IDA), a financial institution member of the World Bank group, and to the Enhanced Structural Adjustment Facility (ESAF), an IMF trust, for donations and loans. Aside from these financing sources, the African Portuguese-­ speaking countries also benefited from the Portuguese co-operation. Table 10.4 describes the amount of accumulated debt to Portugal on 31 December of 1988–1991. Table 10.4  Amount of accumulated debt to Portugal on 31 December of 1988, 1989, 1990, and 1991

Popular Republic of Angola Republic of Cabo Verde Republic of Guiné Popular Republic of Moçambique Democratic Republic of S.T.P. Total

1988

1989

1990

1991

93.6 12.0 33.2 307.3 16.3 462.4

111.3 11.6 36.1 328.1 17.5 504.6

147.9 11.5 38.8 345.1 18.8 561.9

144.3 9.4 41.0 366.2 19.4 580.3

Unit: USD million Source: Relações Financeiras com a República da Guiné-Bissau, PALOP, Cronologias, Relações Financeiras, −4, 450/4, Arquivo Histórico do Banco de Portugal

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Political stability after bloody and lengthy civil wars came with the victory of FRELIMO in Moçambique (1992) and MPLA in Angola (2002). Politics always have reputational effects on banking. Changes in the statutes of national banks of Cabo Verde, S. Tomé, Angola, and Moçambique were part of a new central banking wave in the world wide panorama of emerging economies.17 The separation of central banking from commercial banking functions in the early 1990s was a decisive step to introduce bank supervision, and financial stability functions.18 All these newly created “Central banks symbolized the newly acquired independence of African states and ushered in the transition from colonial banking to locally owned African banks”.19 Learning and training were necessary to implement this separation of commercial and central bank functions, which also required the allocation of resources to the creation of supervision departments, with the support of technical assistance and cooperation from Banco de Portugal. Benefiting from the historical central banking expertise of the European, American, and Asian continents, the Portuguese-speaking African countries developed their central banks as instruments of national economic growth and development. Indexes for human development from the United Nations Programme for Development, business environment from the World Bank, and global competitiveness from the World Economic Forum in 2015 reveal a first position for Angola in a ranking made of these countries and Portugal (272 million people), followed by Cabo Verde, Guiné, Moçambique, and S. Tomé e Príncipe. These are also their relative positions for life expectancy, literacy, and internet diffusion.20 The new currencies in Portuguese-speaking African countries were quite an important feature during the post-independence period, what is quite understandable. As Redford (2017) says, “Sub-Saharan Africa already has a relatively high percentage of entrepreneurs”.21 The recognition of Portugal and Portuguese-speaking countries as an important region for the development of the relationships between the European Community and Africa was a decisive step accomplished in 1992. Projects financed by the European Union have been helpful in the context of the system of European central banks, namely regarding the promotion of their competitiveness in the euro area. Monetary policies, economic development targets, national economies integration, price stability aims, and banking regulation have been the main challenges for the new monetary units in these countries.

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Regarding cooperation, the 1990s and the new-millennium years experienced the highest number, diversity, and average duration of the activities including technical assistance, visits, internships, courses, seminars, meetings, projects of common interest, and scholarships. They involved more than half of the staff and specialists in Banco de Portugal. Cooperation included all central-banking areas, and was adapted “to its partners’ ever-­ changing requests”.22 Bilateral cooperation actions were statistically dominant, but multilateral actions reached about 1/5 of the total. Top cooperation included areas such as exchange-rate agreements, international relationships, statistics, asset management, financial stability, banking supervision, payment systems, issuance, legal affairs, anti-monetary-laundering, economic research, information technology (IT), risk management, human resources, administrative services, accounting, auditing, treasury operations, monetary policy, and pension funding.

Notes 1. FMZE, Correspondência Recebida, Depósitos, 1975–7. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo, Secretariado e Expediente. Correspondência recebida. 1975–1976. FMEZE/SE/002. 2. Explanations contained in the letter of 17 July 1974, from the vice-­ Governor of Banco de Portugal, Jacinto Nunes, to the Governor of Moçambique, which were also distributed to the media (press and television). Moçambique, Arquivo Especial do Cofre n° 2, Portugal. Arquivo Histórico do Banco de Portugal. Gabinete do Governador e dos Conselhos. Arquivo Especial do Cofre n° 2. 3. Discussion document 16.5.77 Saneamento Financeiro do Banco de Angola. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Operações de Crédito. Descolonisação. IARN. Pagamentos atrazados de Angola de Moçambique. 1975–1976. 4. Letter nr. 2730/EG, of 29 March 1977 to the Minister of Finance, Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processo de Liquidação. FMZE/Dir/004. 5. Ofício nr. 6372/EG, of 20 May 1980. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processo de Liquidação. FMZE/Dir/004. 6. Decree-law nr. 317/80 of 20 August 1980. 7. According to article 2.a) of Decree-Law nr. 107/80, of 10 May 1980.

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8. Ofício nr. 11509/EG, of 17 September 1980. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processo de Liquidação. FMZE/Dir/004. 9. Of which 78,016,183$75 and 15,603,236$75 escudos were applied for each of them to redeem the debentures of the participation in the capital of the EMZ Fund, respectively. 10. Lançamentos relativos à liquidação do Fundo Monetário d Zona do Escudo, Processo de Liquidação do Fundo Monetário da Zona do Escudo, Anexo 1. Portugal. Arquivo Histórico do Banco de Portugal. Fundo Monetário da Zona do Escudo. Direção. Processo de Liquidação. FMZE/Dir/004. 11. Pinheiro et al. 1997, vol. I, p. 185. 12. “Contencioso” nr. 103, 7 May 1975. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Serviços Jurídicos. Espaço Económico Português. Pasta n° 16. 13. For constant prices of 1990, for example, using the GDP deflator published by Banco de Portugal, Boletim Trimestral, 14, 4, 1992. See also Barreto 1996, pp. 113–121. 14. Departamento de Transacções Correntes, n° 25, 29/1/85. Portugal, Arquivo Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau, Histórico 1978–1987. [Documentação não tratada]. 15. As Ratilal 2012, explains. 16. Krozewski 2015, p. 231. 17. Pateguana 2016, p. 34. 18. Azevedo 2015, p. 24. 19. Verhoef 2017, p. 15. 20. Banco de Portugal, Lusofonia, annually published, October 2015, pp. 1, 3. 21. P. 56. 22. Banco de Portugal 2015, p. 21.

Bibliography Azevedo, Maria João, “A cooperação Técnica do Banco de Portugal”, Cadernos de Cooperação, Banco de Portugal, 7, IV, 2015: 6–11. Banco de Portugal, Boletim Trimestral, 14, 4, 1992. Banco de Portugal, Lusofonia, annually published, October 2015. Barreto, António, A Situação Social em Portugal 1960–1999, 2 vols., Lisbon, Instituto de Ciências Sociais, 1996. Krozewski, Gerold, “Global Britain and the post-colonial World: The British approach to aid policies at the 1964 juncture”, Contemporary British History, 29 (2), 2015: 222–240.

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Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Thesis, University of South Africa, 2016. Pinheiro, Maximiano, Teresa Crespo, Mário Nascimento, Alécia Faro, Helga Marrocos, Jorge Correia da Cunha, Maria Arminda Sousa, Manuel Coutinho Pereira, Maria José Valério, Fátima Silva, Nuno Alves, and Paulo Variz, Séries Longas para a economia Portuguesa, vol. I and II, Banco de Portugal, 1997. Ratilal, Prakash, “Adesão às Instituições de Bretton Woods e início da implementação de reformas”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 119. Verhoef, Grietjie, “The rise of financial services in Africa”, in Dana Redford (ed.), Developing Africa’s Financial Services, The Importance of High-impact Entrepreneurship, London, Emerald, 2017: 3–42.

PART IV

Co-operation from Independences to the End of the Millenium

CHAPTER 11

The New Currencies in the West-African Portuguese-Speaking Countries and the Portuguese Co-operation

Portuguese decolonization brought the emergence of political regimes that were under the influence of the Soviet Union until the late 1980s. Looking at the different historical experiences in the five African Portuguese ex-colonies, it is possible to separate the small-country cases of Cabo Verde, Guiné-Bissau and S. Tomé e Príncipe, which celebrated monetary agreements with Portugal, from the large-country cases of Angola and Moçambique. This chapter discusses the case of the three small-­ countries, and their co-operation with Portugal. In turn, the two next chapters will present the case of Angola and Moçambique. In 1979, decision of the Portuguese Minister of Finance determined that all cooperation actions implemented to help Guiné-Bissau should also be extended to Cabo Verde and S. Tomé e Príncipe.1 Later on, in May 1989, a project with rules and regulation similar to those of the Franc Zone attempted to create a new “Escudo Zone”, because “this is a question frequently spoken, especially by the authorities of the ex-colonies, who see it as a solution for their exchange-rate problems”.2 The inspiration was the colonial experience. The small countries were the most interested: Guiné-Bissau, Cabo Verde, and S. Tomé e Príncipe, for which the EMZ had worked reasonably before the independence. After defining a peg between the currencies of these countries and the Portuguese escudo, their convertibility would be similar. The project implied a pooling gold and foreign currencies in a central institution, free movement of transfers within the zone, and internal solutions for the countries experiencing © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_11

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temporary problems in their balances of payments. The larger dimension of the Angolan and Mozambican economies and the high military spending in the context of civil wars in these two countries were considered to be strong handicaps to the possibility of extending the project to them. In the expectation of Portugal joining a European Monetary Union, the three monetary arrangements were implemented. It allowed low success in Guiné-Bissau, a country that later (in 1997) decided to join the West African Monetary Union.3

The Cape Verdean Escudo and the Portuguese Co-operation In colonial times two banks operated in Cabo Verde: BNU, since 1865, with both issuing and commercial functions, and Banco de Fomento Nacional, an investment bank, since 1973. Two other saving/credit institutions completed the financial system. Caixa Económica Postal, operating since 1928, using post offices as a banking network; and Caixa de Crédito de Cabo Verde, since 1962, a savings bank. The Banco de Cabo Verde (BCV) was created on 19 September 1975, the exact date of the independence of the country, to handle the operations of both BNU and Banco de Fomento Nacional.4 The BNU network in the archipelago included offices in Praia, Mindelo, Santa Maria/Sal, and branches in all municipalities.5 The money issuing capacity represented the assumption of total political autonomy and independence by the new country. Banco de Cabo Verde took from the Portuguese Banco Nacional Ultramarino the money issuing functions, and from the colonial Foreign Exchange Management Fund the international reserves management function. The negotiation “was very easy (…), the political and diplomatic context ‘was very favourable’ to the new country”, and finished on 19 December 1974.6 Corentino Santos participated in the negotiation, having become the first Governor of BCV. The formal transfer of the BNU’s subsidiary in Cabo Verde to BCV occurred on 30 June 1976, according to the agreement of 15 April 1976 with the Portuguese government, following the assessment of all assets and liabilities by the local BNU Director-General for accounting (Fig. 11.1).7 The Cape Verdean decision to keep the name “escudo” for the national currency illustrates the non-conflicting historical process for

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Fig. 11.1  The headquarters of BNU/Banco de Cabo Verde in Cabo Verde, Praia city. (Source: BNU Historical Archives in Arquivo Histórico da Caixa Geral de Depósitos)

independence. Partido para a Independência da Guiné e Cabo Verde (PAIGC) was founded by Amílcar Cabral, who was a native of Cabo Verde, and although the movement claimed the independence of both Guiné and Cabo Verde, no guerrilla action or military fighting ever took place in this territory.8 With friendly relationships, 90% of BNU employees decided to remain in the new country and became staff of the newly created BCV. The first Cape Verdean Prime Minister even refers to the population’s identification with keeping the name escudo for the currency, and the slow process that was implemented to replace the BNU banknotes.9 The banknotes’ change over process (the delay of which was tolerated so that no one might lose his savings) was secretly and safely prepared with the help of the Algerian National Bank.10 The Cape Verdean escudo was born on 1 July 1977,11 and the graphical details of the new escudo banknotes were known on the same day.12 The replacement of old escudo banknotes was also planned, according to

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governmental political plans for taking hold of the national sovereignty.13 Designed by Érico Veríssimo, banknotes gradually included more and more security features to discourage counterfeiting.14 The local building of BNU, its local assets, and (as aforementioned) many employees were transferred to BCV, with “symbolism and emotion” when the name BNU was replaced by BCV on the façade of the building in the capital city of Praia, during the night of 30 June/1 July 1976, by the employees.15 The bank began operating immediately (on 1 July 1976) and its first charter established that the Governor reported directly to the Prime Minister.16 According to the charter, BCV had the exclusive right of issuing money and managing the foreign reserves as national state policy exchange authority. It was also a commercial bank, and the exchequer’s banker, and it absorbed Caixa de Crédito de Cabo Verde in 1984, after it had recovered from the bank run on deposits during the independence period.17 The colonial Banking Trade Inspectorate (from Inspecção do Comércio Bancário, ICB) was merged into the new bank, which was also in charge of promoting credit functions under governmental economic  guidance. These policies included the stability of prices and the economic growth of the national economy in the global context, a function that was made explicit by the charter of the Bank.18 The bank functions also included managing the World Bank funds for economic development granted to Cabo Verde. During its first decade, BCV sought to be a universal bank in the country, enlarging the network of branches (S. Filipe on Fogo island, Tarrafal and Santa Catarina on Santiago island, Porto Novo and Ribeira Grande on Santo Antão island, Brava on Boavista island, and S.  Nicolau on Maio island).19 Although having central banking functions, BCV’s monopoly position as a commercial bank made bank supervision functions unnecessary (until 1985). The late 1980s were difficult times in the countries aligned with the Soviet Union, which had supported the movement for the independence of the country, PAIGC, and the first years of political independence, known for droughts and inflation, which reached 41% in 1975.20 Portuguese banks opened USD 6 million credit lines to Cabo Verde: BNU, CGD, and BTA (USD 2 million each), in spite of “no real guarantee of payment by Cabo Verde”.21 Thanks to the proposals put forward by a joint task force for the cooperation with Cabo Verde, in 1981 Portuguese aid was extended (with Prime-Minister Pinto Balsemão) to new areas, such as communications (with Marconi), agriculture and animal

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husbandry, public works (in the seaport of Praia),22 transports, education (with Portuguese books), assistance from Portuguese universities, sports, health (with training facilities in Lisbon), culture (with Portuguese movies and cinema), cultural heritage (to create local museums), and social assistance for 40,000 emigrants living in Portugal.23 A special USD 12 million credit line from Portuguese banks was awarded to CABMAR, a ship-­ construction firm at S. Vicente, for 10 years, at a 9% interest rate. On 30 July 1987 it was rescheduled for 13 years at a 7.4% interest rate. (See Table 10.4 for its evolution). The political constitution approved on 17 December 1988 adopted new political philosophies, formally opening banking to private initiative.24 The purpose was to transform Cabo Verde into an international financial centre, which required a reform of the financial sector. For internationalising the economy it was created a centre for promoting tourism, investment, and exports.25 Caixa Económica Postal was transformed into a commercial bank also having credit functions (Caixa Económica Postal de Cabo Verde).26 The next revision of the charter of BCV established it as a conventional central bank.27 Private commercial and offshore banking were later authorised, and regulation for insurance activity completed the framing of a national financial system.28 The definitive separation between commercial and central banking functions occurred in 1993, when the charter of BCV was revised and its commercial department gave origin to the private bank Banco Comercial do Atlântico.29 Another credit institution was born in 1994, Caixa de Crédito Rural, but it was closed down in December 1999.30 According to the 1993 revised charter of BCV, the government could still ask for funding up to 10% of current public revenues. A banking reform of 1996 put an end to monetary financing of the Treasury. Banco de Cabo Verde was now no longer a credit institution, but a central bank with regulatory functions, and greater autonomy. Governor, Vice-­ Governor, and other members of the Board could not be dismissed according to the whims of politicians or political parties in government.31 Following the European central-banking model, BCV became the only decision-maker on the monetary and exchange rate policy, after the approval of the 1999 revised political Constitution of the country. It also became the Exchequer treasurer with clearing functions, to avoid the fragmentation of the Exchequer funds into various separate accounts in commercial banks, which hampered efficient management and control. The public debt management was moved from BCV to Banco Comercial do

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Atlântico, BCA. For this purpose treasury bonds (bilhetes do Tesouro) and treasury debentures (obrigações do Tesouro) gave rise to primary and secondary public debt markets.32 This new market replaced the previous policy of Banco de Cabo Verde lending to the government. BCA bought the outstanding public debt held by BCV, and monetary issuing no longer financed public deficits.33 Technological modernisation also increased by the end of the millennium through to the use of computers, banking cards, ATM machines, and the VISA international network, thanks to Sociedade Interbancária de Pagamentos, in which BCV owned 40% of the 100 million escudos equity. These were decisive features to increase tourism flows to the country.34 A team of experts in information technologies was created in 1985 (with nine men and two women).35 This proved to be a decisive feature for improving quality of management, in providing weekly information for the planning of the currency in circulation (instead of using credit ceilings) and for investment decision-making.36 Cabo Verde had a local elite concerned with pursuing “good governance”.37 From 1977 to 1998 the Cape Verdean escudo remained pegged to a basket of currencies including the Portuguese escudo as dominant currency (with a weight of about 50%).38 The success of the franc zone experience, the West-African Economic and Monetary Union (UEMOA), and the Central-African Economic and Monetary Community (CEMAC) in adopting a fixed peg attached to the French franc (and to the euro after 1999), inspired Cabo Verde to enter into a monetary agreement  with Portugal. On 13 March 1998, during the 1997–2000 plan, Cabo Verde signed with Portugal an Exchange Rate Cooperation Agreement, ACC (Acordo de Cooperação Cambial), to peg the Cape Verdean escudo to the Portuguese currency unit, the escudo, which later on was replaced by the euro (in 1999, for the operations in monetary markets, and on 1 January 2002 for all current transactions). This was a far reaching strategical option, an important political decision aimed at ensuing stability to the Cape Verdean escudo.39 The Cape Verdean authorities assumed a real commitment to pursue macroeconomic policies compatible with the ACC fixed exchange rate for the Cape Verdean escudo (which was 0.55 CVE = 1 PT escudo, and CVE 110.265  =  1 euro, after 1999). The Portuguese co-­ operation included a credit facility for credit concession associated with the ACC. It consisted of a short-run credit line to Cabo Verde, at a low interest rate, whenever specific difficulties in its balance of payments

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lowered the levels of foreign exchange reserves below 3/20 of the usual annual imports. Thanks to the 1998 Exchange rate Cooperation agreement, Cabo Verde pursued a new international monetary integration perspective in the European/North-Atlantic area, through its Comprehensive Development Framework, aiming to frame a business platform for foreign direct investment in Africa.40 For the purpose Cabo Verde also founded a national Stock Exchange to stimulate a local business friendly environment and the inception of an Atlantic financial cluster.41 Cabo Verde Stock Exchange’s agreements with the Lisbon Stock Exchange provided internationalisation and European cooperation to this African country. In spite of the small scale of its national economy, migration diaspora is a usual source of remittances for financial application, in a country that is one of the most literate of the Portuguese-speaking African partners. Supervision of the Stock Exchange of Cabo Verde belongs to an agency (Auditoria Geral do Mercado de Valores Mobiliários, AGMVM), created under the surveillance of the Governor of the central bank, Banco de Cabo Verde, in order to supervise and regulate the stock market and derivatives. Investors’ protection, market efficiency, information control, and risk prevention are the major elements reported for its functions.42 As part of the committing to its international agreements, the Cape Verdean government revised the statute of Banco de Cabo Verde in 2002, which continues in force up to the present. Moreover, a Trust Fund, under the management of the Banco de Portugal, is entitled to award loans to the Cape Verdean government, which may reach 5% of public current revenues, but must be paid before 31 December of each year, so that a renewal may occur in the next.43 A 2003 agreement with the Luxembourg central bank to channel emigrants’ remittances also increased the management capacity on international reserves. In promoting local financial literacy, the Cape Verdean government intended to fight poverty as a main political purpose, and increase local standards of living in an archipelago that suffers frequent drought crises (which create scarcity and inflation).

The Guinean Peso and the Portuguese Co-operation Portugal’s recognition of the independence of Guiné-Bissau, which took place on 10 September 1974 reflects the victory of local guerrilla over the Portuguese military, and followed the unilateral declaration of

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independence by PAIGC one year earlier. This unilateral declaration of political independence of Guiné from Portugal, on 24 September 1973, in Medina do Boé, illustrates the role that the military conflict played for the end of the entire Portuguese colonial empire, and the stance taken by PAIGC, during the monetary-financial negotiations with Portugal.44 The conflicting process for the independence of Guiné determined initially its total monetary separation from Portugal. In spite of that, an agreement signed on 15 June 1975 granted to Guiné a Portuguese loan amounting to 200 million escudos.45 Independence created great hopes for reconstruction and development, in spite of ethnic diversity within Guiné-­Bissau. Unity for anti-colonial liberation war under the PAIGC guidance favoured social cohesion, and was meant to promote political unity among the ethnic groups Balanta (representing 25% of the population), Fula (22%), Mandjaco (15%), Mandinga (13%), and other tribal groups (25%).46 Few banks operated in Guiné during colonial times. The issuing and commercial bank BNU, the development bank Banco de Fomento Nacional, and Caixa Económica Postal (in addition to three saving banks, Caixa de Previdência, Caixa dos Funcionários das Alfândegas, and Caixa Sindical).47 After independence, the assets of BNU-Bissau were transferred to Banco Nacional da Guiné-Bissau (BNG) created on 20 February 1975. Those transfers also included the credits of the Portuguese Banco de Fomento Nacional (BFN) to Portuguese businesses in Guiné-Bisau, commercial interests, public servants, and pensions. Spearheading the process of independences because of the unilateral declaration of independency before the Portuguese Carnation Revolution, Guiné declared a unilateral abandonment of all negotiations with Portugal, and appropriated the local BNU agency in the capital of the territory, Bissau, to transform it into BNG.  This forceful path for the economic-financial negotiations with Portugal set the tone for the entire process of financial negotiations for decolonisation with all other colonies, which consisted of extending this procedure followed in Guiné to all other territories. The old capital of the territory was Bolama, where BNU-Guiné was headquartered in 1902, having moved it to the new capital, Bissau, while leaving in Bolama an office (Fig. 11.2).48 “As a result of this disagreement, this country decided to issue its own currency” on 28 February 1976, and labelled the BNU headquarters in Bissau as BNG.49 As a consequence, the Portuguese government decided to freeze the Guiné accounts at BNU in Lisbon, and the Guiné Foreign

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Fig. 11.2  The headquarters of BNU in Bissau. (Source: BNU Historical Archives, in Arquivo Histórico da Caixa Geral dos Depósitos)

Exchange Management Fund account in Portuguese escudos in the Banco de Portugal, on 1 March 1976.50 The new currency unit of Guiné-Bissau was the peso (PG), divided into 100 cents. It began circulating on 9 January 1978, and the exchange of former Guiné escudos banknotes was allowed for the next 90 days, while local press disseminated information to the population.51 US dollars were widely accepted in domestic transactions and continued to be for a long time. The agreements of 21 June 1976, signed in Lisbon, allowed BFN’s credits to be transferred to BNU-Bissau.52 Thereafter, as previously mentioned, all assets and liabilities of BNU-Bissau were also transferred to BNG.53 Scarcity of consumption goods led to the creation of a government monopoly for imports of vital food items on May 1977. In 1977 Guiné-­ Bissau joined the IMF, and the IBRD.54 The 1:1 parity between the peso and the Mainland escudo was kept for a while, but later gave way to successive depreciations. By December 1996 the exchange rate had depreciated

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to 225 pesos = 1 escudo. In what respects the exchange rate with the dollar in USD1 = GP30 in 1974, and USD1 = GP40,000 in 1997.55 Portuguese exporting firms protested against Portuguese commercial banks (BNU, Banco Borges & Irmão, Banco Espírito Santo & Comercial de Lisboa, and Banco Português do Atlântico), because they did not provide them credit to export to Guiné-Bissau.56 Other Portuguese firms that had exported to Guiné-Bissau were not paid and were being charged for interest on the credits they contracted for those exports.57 Trade co-­ operation was difficult to implement. Given acute local scarcities, the Guinean government awarded the monopoly of imports to a state-owned firm, Empresa Nacional de Comércio Externo, and imports required authorisation from the Ministry of Trade and Handicrafts (Ministério do Comércio e Artesanato).58 The signature of a special agreement framed the future of Portuguese business interests (including priority payments) related with corporations CICER (Companhia Industrial de Cervejas e Refrigerantes da Guiné), Casa Gouveia, and Sacor-Cidla.59 Two other aspects were pursued in the process of cooperation: • Two loans (of 90 and 140 million escudos) were granted by Portugal with the purpose of facilitating the payment of imports from Portugal.60 • Portuguese banks opened credit lines to exports by Portuguese firms. One of the credit lines, by Caixa Geral dos Depósitos amounted to USD 4,300,000, beginning in October 1978. Two other lines, by Banco Totta & Açores, amounted to USD 3,500,000, and a fourth one by Crédito Predial Português, amounted to USD 500,000, later on renewed.61 Two main public firms for trade in Guiné-Bissau, Armazéns do Povo and Socomi asked for credit lines to import textiles, clothing, hygienic products, food commodities, and drinks from Portugal, with the guarantee of BNG.62 These credit lines, having the guarantee of Banco Nacional da Guiné, BNG, were renewed in June 1980, although since 1979 credit conditions to Guiné-Bissau were internationally rated much below those of any other Portuguese-­ speaking countries.63 The early 1980s were quite severe in Guiné-Bissau. Having 767,000 inhabitants at the time, 87% of them lived in the countryside in families with 6.3 members on average in a country of 297,000 ha of agricultural

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land.64 A revolution took place on 14 November 1980, headed by the Prime Minister, João Bernardo Vieira, who became the President. The United Nations’ Conference of 1981 welcomed Guiné-Bissau, and FAO designed a strategy for its agricultural development. An international credit line agreement with Guiné-Bissau, also signed on 29 March 1982 with a USD 20 million ceiling, included Portuguese credit bank lines of up to USD 10 million for Portuguese exports.65 The bilateral trade balance was favourable to Portugal, and the Portuguese exports to Guiné-Bissau included textile and shoes (45%), machines and transport material (13.5%), agricultural products (16.3%), glass, metal, and pharmaceuticals.66 As in the British historical experience, “aid would contribute to welfare-enhancing progress in developing countries”, (…) but “the question was not simply one of drain versus philanthropy, however, which might have been countered by an even greater emphasis on the specific tying of aid to (…) exports”.67 In November 1982 shops were almost empty in Guiné-Bissau, in spite of the approaching Christmas season. In this difficult context, Guiné-­ Bissau was “the country that received the highest foreign aid per capita in the world”.68 The credit lines had been opened as advance-accounts (at a 6-month LIBOR interest rate plus 0.75%, and a spread of 0.5% for 180 days) for the first-rank needs of consumption goods in Guiné- Bissau. BNU was authorised to open an office in Bissau to promote businesses with Guiné-Bissau and other neighbouring countries.69 A donor conference for emergency help had place in Lisbon (Nov 17–19, 1983), with Belgian, Brasilian, Dutch, EEC, French, German, IMF, Italian, Japanese, Portuguese, Swedish, Swiss, UK, USA, and World Bank participants.70 In 1982 Banco Português do Atlântico also opened a USD 1.5 million line for exports to Guiné-Bissau. The BNG Governor asked Banco de Portugal to channel credit lines directly to BNG, and the extension of credit to pre-­ fabricated houses. The Guinean government also wrote an economic stabilisation programme in December 1982 to address the issue.71 The 1982 credits included contracts with the Police and Armed Forces in Guiné-­ Bissau, signed by Portuguese firms, to provide them with USD 5 million of equipment. Economic difficulties in Guiné-Bissau required IMF and World Bank financial and technical assistance.72 In 1983 the Guiné-Bissau’s foreign public debt amounted to 140% of its GDP. In this institutional context Portugal adopted a new philosophy for emergency financial help to Guiné-­ Bissau. Instead of bank credit to Portuguese exporting firms, an

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agreement between BNG and Banco de Portugal, signed on 29 March 1983 for imports from Portugal was awarded directly to BNG, responding to a request from this bank “to avoid inconvenience of bureaucratic nature”.73 This agreement increased the Portuguese credit amount from 10 to USD 20 million.74 Equipment imports from Portugal having the USD 10 million ceiling consisted of heavy equipment, through trade contracts (with an 8 to 10-year horizon), light equipment, through trade contracts (with a 6 to 8-year horizon), and textbooks (with a 2-year horizon). The remaining USD 10 million were devoted to commodity imports from Portugal with the usual distribution: 5 million from Caixa Geral dos Depósitos with COSEC (Companhia de Seguros de Crédito) insurance guarantee, 2 million from BNU, 1.5 million from Banco Totta&Açores, and 1.5 million from Crédito Predial Português. A Memorandum from the Guinean Embassy in Lisbon acknowledges the importance of these credit lines for local consumption and the agricultural production campaigns that would begin in December. It was necessary to prevent Guinean farmers’ from selling the seeds for the next planting season against diversified food from neighbouring foreign persons, using a direct-exchange system that would decrease the amount of foreign currency in the monetary market of Guiné-Bissau, and threaten the coming agricultural year.75 The credit lines were revised on 14 September 1983, to accommodate less credit for equipment and more for consumption goods. The re-­ scheduling of  the Guinean accumulated debt of USD million 21  in the beginning of 1984 made possible to grant a new Portuguese banks’ loan on 11 October 1984 with a USD 17 million ceiling, for 8 years, at the Libor interest rate plus 1.5%.76 The increasing government deficit reached 24.5% of GDP in 1983, 30.9% in 1984, and 36.4% in 1985, and the World Bank considered that “The problem posed by external debt service obligations is likely to worsen over the medium term”.77 The role of the World Bank in Guiné-Bissau is considered to have been very important: “The Bank has played a key role in supporting Guiné-Bissau’s economic recovery program since 1983, including an active dialogue with the Government on the necessary policy reforms”. Credit was awarded for road construction, seaports improvement, technical assistance, and the petroleum sector, “in consultation with key donors, on the external resource requirements of the country over the medium-term”.78 In March 1984 União de Bancos Portugueses and Banco Fonsecas&Burnay opened two more credit lines of USD 500,000 each.79 The same

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happened with Banco Borges & Irmão. In October 1984 USD 3 million were added to credit lines to Guiné-Bissau for one year to support the exportation on Portuguese commodities, to be equally distributed among ten Portuguese banks (which means USD 300,000 to each one of them, at the 6-months LIBOR interest rate plus a 1.5% spread and a1/8 ‘flat’ commission) with a COSEC insurance guarantee.80 Guinean exports to Portugal included caju and sugar-cana wine, licour, vinager and rhum, lumber (for furniture production), tropical palm, and peanuts for oil production, but the capacity for down payments to repay credits was low, obliging repayment postponements.81 Banco de Portugal authorised the Portuguese commercial banks to observe a moratorium until the next IMF meeting on the financial problems of Guiné-Bissau. In what respects local banks, the merger of saving banks into the Instituto Nacional de Seguros e Previdência Social in January 1979 anticipated a reform of the Guinean banking system, which included a revised statute of BNG in 1983. The separation of commercial banking functions from BNG took place in 1989,82 giving way to the birth of Banco Nacional da Guiné-Bissau (BNGB) and Banco Internacional da Guiné-Bissau (BIGB) with participation of Portuguese banks in the equity of the latter (49%), after a first failed attempt to create another short-lived commercial bank (Banco do Crédito Nacional, 1990–1991). Banco Totta&Açores opened an agency in Bissau in 1992. In July/August 1984 Banco Espírito Santo & Comercial de Lisboa, and Banco Fonsecas & Burnay opened a new credit line amounting to USD 500,000 with the same purpose and conditions.83 Mixed co-operation commissions went on meeting to analyse the Guinean difficulties. In 1985 rescheduling the debt repayment was not possible, and USD 24 million of commercial debt to Portugal was transformed into consolidated debt with exchange risk guarantee of COSEC and FGRC (Fundo de Garantia de Riscos Cambiais).84 On 18 December 1986, the Portuguese Treasury accepted to award a new credit line of USD 4 million to fund the agricultural year of 1986/87.85 On 12 June 1987 a contract between BNG and a Portuguese consortium of banks assumed a loan (equal to the amount of the existing debt plus non-paid interests), which reached USD 27,369,050.53.86 Nine private Guinean entrepreneurs operated in the trade sector.87 After negotiations in Lisbon in March 1987, it was decided to create a Portuguese-Cooperation Fund in BNG to pay Portuguese Treasury expenditures in Guiné-Bissau. The agreement reached on 12 June 1987

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was considered effectively void at the end of 1987.88 Portugal did not attend the Paris Club meetings (of 8 September and 27 October 1987) for the Guinean debt rescheduling. Table 10.4 reports the cumulative accounting of the debt. In the same year, with the guarantee of the Portuguese Treasury, a banking syndicate awarded a long-run loan, which amounted to USD 71.5 million for 20 years (followed by 10 more years as a grace period), for rescheduling the debt of Guiné-Bissau.89 All in all, the Paris Club considered that statistical indicators demonstrated that Guiné-Bissau was one of the poorest countries in the world. Life expectancy at birth was below 40  years, and the national road network was about 100 metres per km2. The role of exchange rates for economic growth was recognised. In 1990, Guiné-Bissau was the first Portuguese-speaking country to benefit from a monetary agreement with Portugal for a crawling peg of the Guinean peso to the Portuguese escudo, the AAM, Acordo de Arranjo Monetário. A technical unit was founded to give assistance for this purpose in Bissau, Unidade Técnica do Arranjo Monetário (UTAM).90 Thanks to a mixed commission made up of representatives of the two governments (Portugal and Guiné-Bissau) this Technical Commission for the Monetary Agreement UTAM (Unidade Técnica do Acordo Monetário), was headquartered at Bissau with the task of conceiving the operational mechanisms that would frame the pegging of peso to the escudo: “The rules for the convertibility peso/escudo were already the object of discussion with the IMF/WB, having these institutions declared of the highest importance, in the short run, the control and management of the fiscal and monetary policies”.91 In order to make possible reaching the targets agreed with the World Bank by Guiné-Bissau, a new Portuguese credit line amounting to PTE 16 million to last for 20 years was agreed, renewable at the interest rates of 4% and 8% for the first USD 5 million, and for the second USD 5 million respectively. Banco de Portugal was in charge of monitoring the loans under this credit line. The cost of the UTAM in the Portuguese public budget of 1991 was USD 240,000.92 However, the success of the AAM monetary agreement was limited. It was at work in 1990, after discussion with the IMF and the World Bank on convertibility to the Portuguese escudo. In this same year Guiné-Bissau benefited from the total amount of the accredited funding facilities, to be repaid within the next year. Parallel markets in the country, namely because of the absence of a banking network to cover this country, required some

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control, and there was the need of regulation for operations of exchange markets. These were decisive instruments for the local economic growth and development.93 There was a need of restructuring the department for foreign relations in the context of the organic design of the institution. In 1991 BNGB asked for technical assistance from the Banco de Portugal. The AAM was not respected in 1992, not only because of financial difficulties that prevented any repayment, but also because Guiné-Bissau disrespected the ceilings recommended for monetary circulation. It was no longer functioning after 1994, and was extinguished in 1996. The exchange rate to the Portuguese escudo was not fixed, but was a crawling-­ peg to allow for depreciation. In spite of also having accredited facility mechanism, the proceedings were less well-defined than in the future case of the 1998 Cape Verdean ACC. The technical unit was in charge of making the macroeconomic monitoring, but the commitment was not bilateral. All these aspects may have contributed to the short-lived character of the AAM.94 Moreover, it was the first monetary agreement of this kind that was signed, which means that no previous experiences were available to introduce improvements. Domestic military instability also plagued the country. The disrespect of the AAM aims after 1992 and indebtedness brought the need of restructuring the public debt of Guiné-Bissau through a rescheduling.95 Guiné-Bissau is geographically within the sub-Saharan world of the French colonial empire. Those territories had created the Economic Community of West African States (ECOWAS, or Communauté Economique des Etats de l’Afrique de l’Ouest, CEDEAO) to implement the economic integration of these national economies.96 They had also created a monetary union, the West African Monetary Union (WAMU, or Union Économique et Monétaire de Ouest Afrique, UEMOA), which also included some neighbouring countries.97 Guiné-Bissau joined the West African Monetary Union, and the franc (CFA), on 1 January 1997, at the exchange rate of 1 CFA franc  =  65 pesos. The area has a joint-monetary policy shared with all the other members of the monetary union. In an historical context of new agreements for monetary co-operation without determined duration that allow leaving UEMOA, Guinea Equatorial joined in 1985, and Guiné-Bissau negotiations occurred between August 1986 and May 1996.98 This led to a Guiné-Bissau participation of 1/7 in the equity of BCEAO, as an entrance fee. BNGB was extinguished on 30 April 1997 when issuing functions were transferred to the Central Bank of the West

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African Monetary Union (BCEAO), which opened a local agency in Guiné-Bissau, headed by a national director.99 After an information campaign in the media, the exchange of the Guinean pesos for CFA francs took place from 2 May to 31 July 1997, with the total commitment of Guinean political authorities. A national commission made up of six members plus 24 technicians headed the entire process, using 16 logistic centres, five in the capital city of Bissau, and 11  in different continental regions (Bafatá, Bolama, Buba, Bubaque, Cachungo, Catió, Gabu, Farim, Ignoré, Mansoa, and Quinhamel).100 For the islands (70 islands in the archipelago of Bijagós), as well as for villages and inhabitants without road access, helicopter-transported teams helped to conclude the operation. For a total population of about 1 million people, 1142 persons from the banking sector (including retired people) participated in the teams for the exchange of Guinean banknotes, with the presence of the army for safety reasons. The operation was successful. Political instability remained a problem for Guiné-Bissau. Military unrest, short-lived governments, and periods of political turmoil have been less favourable to economic growth and prosperity aims for the new millennium. No significant attempts were pursued to create a Stock Exchange in Guiné-Bissau.

The S. Tomé e Príncipe Dobra and the Portuguese Co-operation The political agreement between Portugal and Movimento de Libertação de S. Tomé e Príncipe (MLSTP) for the independence of this territory was signed on 26 November 1974, in Argel. The only banks operating in São Tomé e Príncipe in colonial times were the issuing and commercial bank, BNU, and Banco Comercial de Angola (BCA), a subsidiary of Banco Português do Atlântico (BPA). BNU had operated in S. Tomé e Príncipe since 4 December 1867 and BCA since 1973.101 On 12 July 1975 the independence of S. Tomé e Príncipe led to the creation of the Democratic Republic of S. Tomé e Príncipe. Formally, Banco Nacional de São Tomé e Príncipe (BNSTP) came into being on 3 June 1975.102 However, only after the signature of the political agreement of 22 March 1976  in Lisbon, between the governments of Portugal and S. Tomé e Príncipe, was BNSTP actually created, thanks to the transfer of the local BNU’s assets and liabilities.103 A mixed

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management commission was created to analyse the assets and liabilities of BNU reported as of 31 May 1976, which were transferred to BNSTP, benefiting from total fiscal exemptions.104 On this date the S.  Tomé Foreign Exchange Management Fund account at the Banco de Portugal amounted to 5,939,922 escudos. BNU in S. Tomé then ceased all its activity. The management commission served as the provisional board of the newly-created bank to direct its activity (Fig. 11.3). The local BNU staff was transferred to the newly-created BNSTP (automatically for S.  Tomé e Príncipe nationals, or by contract as co-­ operands for the Portuguese who preferred to stay). All others continued as BNU workers and were transferred to Portugal.105 The local government nationalised agricultural units, including cacao plantations, as well as storage stocks and planters’ bank deposits.106 The repatriation of private capital to pay Portuguese banks’ credit to planters was negotiated, as well as payments for S. Tomé cacao exports before the independence.107

Fig. 11.3  The headquarters of BNU in S.  Tomé. (Source: BNU Historical Archives in Caixa Geral dos Depósitos)

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In practice, BNSTP began its activity on 1 June 1976. In order to organize and structure BNSTP, the co-operation with the Portuguese central bank (Banco de Portugal) was established in political negotiations of July 1975, for bank staff internships and training in Portugal. The colonial Inspecção do Comércio Bancário e da Caixa de Crédito de São Tomé e Príncipe was merged with BNSTP, which means that by then BNSTP took on regulation functions beyond those pertaining to commercial and development banking. The appointment of the first Governor and administration Board for a 3-year term mandate was formally communicated to the Banco de Portugal on 22 July 1976.108 The first charter, issued on 3 September 1976, consecrated all these aspects.109 After the independence, local BNU banknotes circulated with a BNSTP provisional stamp. One week was enough to stamp all local escudo banknotes. The new currency unit was also created in 1976.110 The choice of the name dobra (Db) for the new currency unit for the newly-­ independent country evokes the currency first used on these islands at the end of the fifteenth century, “double”. The first historical evidence reports a payment by the first Portuguese Governor (Capitão-donatário) of the islands, Álvaro de Caminha, which was made of dobras and slaves.111 Research is available on the currency used in S. Tomé e Príncipe from the fifteenth century to the 1960s.112 The issuing of the first dobra banknotes (of 50, 100, 500, and 1000 Dbs) and the striking of the first dobra coins (of 0.5, 1, 2, 5, 10, 20, and 50 Dbs) were authorised to begin to circulate one year later, at a total amount of USD 371,250,000.113 The new banknotes entered in circulation, on 8 September 1977, as legally established, and this fact was proudly announced in the media through the Soviet TASS agency.114 Local newspapers had a significant role in interpreting that moment as the end of the colonial system that had lasted for long, and the beginning of a national political system warranting economic independence.115 The design of S. Tomé e Príncipe’s national banking system was related with the adoption of a centralised-economy project, so fashionable in Africa at the time, and continued taking shape under this framework. Banco Comercial de Angola ceased all its activities in São Tomé e Príncipe. The local branch of this bank was merged with Banco Nacional de São Tomé e Príncipe, after an audit to determine assets and liabilities for the merger purpose.116 Another banking institution, Caixa de Crédito de S.  Tomé e Príncipe was also integrated in BNSTP, which in addition received the assets of the local Inspecção do Comércio Bancário. The

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foundation of a new banking institution, Caixa Popular, on 30 August 1980, aimed at stimulating savings. Although having some administrative and financial autonomy, it reported to BNSTP. Economic difficulties led this new country to growth stagnation. In 1981 the domestic GNP fell 11.5%, amounting to only USD 27.6 million, while imports amounted to 9 million. Such a dependency of the country on imports (which reached about 30% of GNP and 60% of national consumption) translated into balance of payments problems and foreign indebtedness in the following years, as the international price of cacao also fell, and there was an exhaustion of non-renewed plantations.117 Such difficulties also extended to transports. Under these conditions, Portuguese assistance included118: • A trade agreement signed in Lisbon on 9 December 1982 allowing Portuguese banks to lend USD 10 million in order to promote imports from Portugal, at 8 to 9% interest rates, with BNSTP guarantee. Five million was the credit ceiling for equipment imports. Heavy equipment, through trade contracts, had 6 to 8-year maturity loans to finance. Light equipment, through trade contracts had an 8 to 10-year maturity. The remaining 5 million were assigned to commodities, through trade contracts, with a 2-yearmaturity.119 • A Banco Fonsecas & Burnay (BFB) credit line of USD 1.5 million for imports from Portugal, signed in April 1983, and a Banco Totta & Açores (BTA) credit line of USD 0.75 million for the same purpose, signed in December 1983. • Agreements for the Portuguese TAP airline connections required local airport improvements with costs amounting to 300 million escudos, at first, but led to a loan from Caixa Geral de Depósitos, and a BFN loan to BNSTP amounting to USD 3 million to fund 40% of the cost of extending the airport of S. Tomé; it was increased to USD 5,186,810.32 in April 1984, the year of the first flight connections to Portugal. • Another 3 million USD loan from a consortium of nine Portuguese banks had the Portuguese government guarantee at a 1.5% spread above the one-quarter LIBOR interest rate, in 1984.120 • BFN (with other Portuguese banks) lent USD 1,972,882.37 on 20 June 1986, for 7 years, at the Libor interest rate plus 1.5%, for payments to Portuguese builders of the airport, under the Portuguese government guarantee.

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• CGD opened a USD 1 million credit line in October 1986. Economic growth difficulties and disappointment with the centralised economy national project led to the adoption of a more market oriented economy. A first reform of BNSTP took place, which stressed regulation and supervising functions for BNSTP thanks to the new charter of 1986.121 New policy strategies were required for the domestic economy, which included resorting to IMF assistance. Imports from Portugal led to a debt amounting to USD 22,163,121.87 million on 22 April 1991 and USD 19.4 million at the end of the year. In this historical context, Banco Central de S. Tomé e Príncipe (BCSTP) replaced Banco Nacional de São Tomé e Príncipe (BNSTP) as central bank in June 1992.122 The commercial banking activity of BNSTP went on until the creation of Banco Internacional de São Tomé e Príncipe (BISTP).123 The opening date for BCSTP’s activity was 26 August 1992. A second reform, of the same date, opened up the way to the emergence of private financial institutions, and market liberalisation. New banks started operating in the country: • Banco Internacional de São Tomé e Príncipe, BISTP, since March 1983 with the participation of the central state and the Portuguese banks BNU, and Banco Totta & Açores. • Caixa Nacional de Poupança e de Crédito, the old Caixa Popular (between May 1993–1997). • Banco Comercial do Equador (from December 1995 up to 2001). • Afriland First Bank STP, in 2003. • Banco Equador SARL since 2001 to replace Banco Comercial do Equador. • Island Bank, since March 2004. • Commercial Bank STP, since July 2005. • Ecobank, since 2007. • Oceanic Bank STP in 2008, soon transformed into Energy Bank STP. • Investment bank Banque Gabonaise et Française Internationale (BGFI) STP. • Banco Africano de Investimento (BAI), from BISTP and Banco Totta & Açores. On 28 July 2009, S. Tomé e Príncipe signed an Economic Cooperation Agreement (ACE, Acordo de Cooperação Económica) with Portugal.

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Although the agreement had no explicit exchange rate mechanism associated, political authorities in S. Tomé decided to peg the dobra to the euro, from 1 January 2010 on (STD 24,500 = 1 euro), “giving credibility to the monetary regime”.124 It had depreciated in terms of dollars from USD1  =  STD 30  in 1975, to USD1  =  STD 20,000  in 2009.125 Credit facilities were also associated with the ACE, the so-called FCACE (Facilidades de Crédito do Acordo de Cooperação Económica). The aim was to have flexible financial assistance in case of short-run difficulties of the balance of payments to keep the fixed exchange rate. In decreasing business risk because of fixed exchange rates, this monetary strategy sought to improve business environment and macroeconomic stability. This tie with the euro zone was also seen as a positive factor for the convergence of interest rates and prices. Convertibility was recognised as instrumental for credibility to access international capital market loans in order to benefit the balance of payments, economic growth, and local prosperity. The political authorities in S. Tomé e Príncipe committed to sound macroeconomic policies to preserve the ACE, which continues in effect until the present. The agreement was also seen as a component of economic and financial reforms to frame economic growth and development. Hopes on the peg to the euro even included the expectation for becoming a pole for regional Atlantic trade. Among all the territories of the ex-Portuguese empire, Cabo Verde and S. Tomé are a cluster case of this kind. Sao Tomé and Príncipe has no Stock Exchange.

Notes 1. DR II Série, n° 262 of 13/11/1979. 2. Portugal. Arquivo Histórico do Banco de Portugal, “Informação, n° 134/87 DCF”, of 28-05-87 SC/HG. Acordos de Crédito entre o Banco de Portugal e os Bancos Centrais dos PALOPs 1986–88”. [Documentação não tratada]. 3. Portugal. Arquivo Histórico do Banco de Portugal. Acordo de Arranjo Monetário com a Guiné-Bissau: 1991–1996. Jorge Braga de Macedo: “Uniões Monetárias com Micro-Estados”, Dez 1987, pp.  1, 2. [Documentação não tratada]. 4. Law 5/75 of the same date. It was published in the official bulletin Boletim Oficial nr. 13, Suplemento on 29 September 1975. Estevão 2015, p. 210; Rocha 2016, p. 78; Banco de Cabo Verde 2016, pp. 5, 6, 10. 5. For the opening of new BNU branches in the overseas territories in the 1960s–1974 see Valério 2006, p. 181.

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6. Santos 2016, p. 25. 7. Abel Magalhães assumed the same professional functions in BCV, and was later on Inspector and Administrator of this Bank in charge of expanding the BCV network of local agencies. Magalhães 2016, pp. 40–41. 8. PAIGC 1974. 9. Pires 2016, p. 103. 10. Santos 2016, p. 31. The BCV head treasurer, Mário Anjos, was in charge of the process. Cruz 2016, p. 55. 11. Decree-law 60/77 of the same date, from 1 July 1977, published in the local official bulletin Boletim Oficial, nr. 26, Suplemento, pp. 1–2. Estevão 2015, p. 212. 12. In the decree 61/77. Estevão 2015, p. 212. 13. Pires 2016. 14. Veríssimo 2016. 15. Cardoso 2016, pp. 35–36. 16. Law 13/76 of 26 June 1976, Boletim Oficial nr. 26, Suplemento. Estevão 2015, p. 211; Banco de Cabo Verde 2016, p. 13; Rocha 2016, p. 78. 17. Rocha 2016, p. 79. 18. Of decree-law nr. 82/85, of 3 August 1985. Estevão 2015, p. 215. 19. Abel Magalhães co-operated in this aspect. Cruz 2016, p. 56. 20. Santos 2016, p. 27. 21. Relações Financeiras com a República da Guiné-Bissau. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. Cronologias, Relações Financeiras. 22. D.R. 15-7-1980. 23. Portugal. Banco de Portugal. 120-002-006. Acordos de Cooperação 1981–82, Acordos de Cooperação com Cabo Verde. [Documentação não tratada]. 24. According to law 43/III/88 of 27 December 1988. (Decree-law 69/90 of 27 August 1990). Marta 2016, p. 65. 25. (Decree-law 69/90 of 27 August 1990). Marta 2016, p. 65. 26. Decree-law nr. 167/85, of 30 December 1985. 27. Decree-law nr. 52-D/90, published in Boletim Oficial nr. 26, Suplemento, of 4 July 1990, pp. 21–34. Estevão 2015, p. 217. 28. Decree-law nr. 52-E/90 of 4 July 1990. Estevão 2015, p. 218. 29. Decree-law nr. 42/93 of 16 July 1993, Boletim Oficial nr. 25, Suplemento, of 16 July 1993. Estevão 2015, p. 219. 30. Banco de Cabo Verde 2016, p. 21. 31. Law 2/V/96, of 1 July 1996. Banco de Cabo Verde 2016, pp. 12, 16; Medina 2016, p. 72. 32. Silva 2016, pp. 93–95.

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33. The equity of Banco de Cabo Verde was 100 million escudos in 1975 to 400 million in 1981, 1000 million in 1990, 500 million in 1993, and 200 million after 2002. Banco de Cabo Verde 2016, p.  18; Rocha 2016, p. 79. For details on the functional organisation of the Bank see pp. 18–21; Cruz 2016, p. 59. 34. Banco de Cabo Verde 2016, p. 20; Marta 2016, p. 64, 65, 67. 35. Sancha 2016. 36. For details see Cruz 2016, pp. 56–57, 59. 37. According to the head of the Portuguese technical team for signing the ACC, António Rebelo de Sousa in. Neves 2016, p. 99, 126. 38. Santos 2016, p. 29. 39. Banco de Cabo Verde 2012; Lorenzo 2016. 40. Decree-law nr. 26/98 of 29 June 1998. Banco de Cabo Verde 2012, 2016, p. 126, 127; Cruz 2016, p. 58. 41. The auditor, Encarnação Alves Rocha, is former member of the Administration Board of Banco de Cabo Verde. Rocha 2016, pp. 76, 80. 42. Nr. 1, art 5, code approved by local decree nr. 1/2012, of 27 January 2012, republished on 3 April 2012. 43. Law 10/VI/2002, of 15 July 2002. Banco de Cabo Verde 2016, p. 15; Medina 2016, p. 73. 44. “Acordo de amizade e cooperação entre Portugal e a Guinea-Bissau”, Jornal do Comércio, 12 June 1975. 45. Rudebeck 1979. 46. Recenceamento Geral da População, 1960. See also Paulini 1984; Andréini 1978; Lopes 1999; Lopes 2005. 47. Israel 2000, II vol, p. 556. 48. Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 49. Regime de pagamentos com as ex-colónias, 4 Maio 1976, Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 50. Letter of 22 March 1976 from the Banco de Portugal to Serviço de Coordenação da Actividade Bancária, recognising that payments between Portugal and República da Guinea-Bissau were almost paralised. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 51. Nô Pintcha, of 7 January 1978, “Iniciadas ontém, em todo o país prosseguem em bom ritmo as operações de troca de moedas”, 10 January 1978. PALOPs, Documentos Diversos, Guiné1975–1990, Pasta 7, Banco de Portugal Historical Archives. 52. Letter from the office of the Portuguese Minister of Finance to the Governor of Banco de Portugal. Portugal. Arquivo Histórico do Banco de

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Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 53. Portuguese decree nr. 6/77 of 20 December 1976, Portuguese Diário do Governo, I Série, nr. 7, of 10 January 1977. 54. IMF Survey 4/4/1977. PALOPs, Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 55. Valério 2019, p. 308. 56. Letters to the Administration Board of the Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 57. Letter from Associação Nacional das Indústrias Têxteis Algodoeiras e Fibras (n.d), from Porto, to Banco de Portugal, received on 14 February 1976, claiming for export payments from Guiné. Letter of 12 October 1978 from Martins & Soares Lda, Aveiro. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. GuinéBissau. 1975–1990. 58. Letter from the Portuguese Ministry of International Trade, Ministério do Comércio Externo, to Banco de Portugal, received on 6 May 1977. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 59. Portuguese decree n° 7/77 of 11 January 1977, Diário do Governo, I Série, n° 8, of the same date. 60. Laws 17/77 and 18/77 of 1 March 1977, Portuguese Diário do Governo, I Série, n° 50, authorised redeemable loans to Guiné amounting to 90 and 140 million escudos, respectively. Resolutions 7 and /78 of the Council of Ministers, Diário da República of 18 January 1978 decided to apply them to delayed payments of transactions that had occurred during 1975/76. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. 61. Crédito Predial Português, Referência n° 52/DTC, 3/4/1979, Portugal, Arquivo Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau, Histórico 1978–1987. [Documentação não tratada]. 62. “Banca concede linha de crédito à Guiné-Bissau, Diário Popular, 23/7/1979. 63. Diário de Notícias, 9 June 1980, and letter N° 95/DTC, 28 de Junho 1979, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola I–II. 1975–1990. 64. Nations Unies, 1981. FAO, 1982.

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65. Doc. Diversa, Guinea-Bissau, I–II, 1. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. GuinéBissau. 1975–1990. 66. Portugal. AH Banco de Portugal. 120-002-006 Acordos de Cooperação 1979–1982 Acordo de Cooperação Financeira com a Guiné-Bissau 1979–1982. [Documentação não tratada]. 67. Krozewski 2015, p. 227, 233. 68. Expresso, “Relações com Bissau à espera dos «doadores»”, 10 September 1983, where one can read that Guiné was “the country that received the highest foreign aid per capita in the world”. 69. Direcção de Serviços e Transacções Correntes, comunicação n° 138, 16/6/1981, DESFE. Portugal, Arquivo Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau, Histórico 1978–1987. [Documentação não tratada]. 70. Diário de Notícias on 20-11-1983 reports USD million 15, for help. 71. Memorandum from the embassy of Guiné-Bissau in Lisbon. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. Pastas 2, 12, 20. 72. Telex of 31 October 1983 to the Banco de Portugal from the Governor of BNG.  Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. Pasta 1, 13. 73. Memorandum from Embaixada da Guiné Bissau in Lisbon. Letter of 25 November 1982 from the BNG’s Governor, Pedro A. Godinho Gomes, to Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. Pasta 1, 12 and 13. 74. Portuguese law n° 20/83 of 12 August 1983, Diário do Governo I Série, n° 205, of 6 September 1983. 75. Memorandum, Page 5. Signed by the Ambassador Leonel Sebastião Vieira. Letter from the BNG’s Governor received on 10 October 1983. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Guiné-Bissau. 1975–1990. Pasta 1, 13. 76. Relações Financeiras com a República da Guiné-Bissau. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. CRONOLOGIAS, RELAÇÕES FINANCEIRAS. See also DG, I Série, 236 of 11/10/1984, p. 3167. 77. The World Bank 1987, p. 5. 78. Ibid., 1987, p. 54. 79. Jornal de Notícias, “Guiné Bissau não recebeu todo o crédito prometido”, 20 March 1984.

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80. ETG/RM, 7/8/1984. Portugal, Arquivo Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau. 1978–1987. [Documentação não tratada]. 81. Portuguese decree-law n° 314/83 of 7 June 1983 (Diário do Governo, 2 July 1983, I Série, n° 150, of 2 July 1983) transfers to 31 July 1987 the Guinean obligation to begin the repayment of credit lines approved in decree-law n° 77/76 of 27 January 1976. 82. Guinean decrees 31 and 32/89. Israel 2000, II vol, p. 537. 83. Portugal, Arquivo Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau. 1978–1987. [Documentação não tratada]. 84. O Primeiro de Janeiro, “Portugal consolida dívida da Guinea-Bissau”, 20 April 1985. Portuguese Decree-law 65/84 of 11 October 1984, Diário da República, II Série, nr. 236, of 11-10-1984. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. “Acordos de Crédito entre Portugal e a Guiné-Bissau, Reestruturação da dívida 1986/95”. 85. Ibid. 86. On 6 April 1989 it amounted to USD 26.1 million. Relações Financeiras com a República da Guiné Bissau. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. Cronologias, Relações Financeiras. 87. Armazéns do Povo, Victor Mandinga, Abdu Sani, Joaquim Escada & Cª, Mamadu Djabi & Irmãos, Mamadú Jaité & Filhos, Perfila Lda, Costa Campos Lda, and Interloja: Letter to the Portuguese Embassy in Bissau from the local Ministry of Trade. Instituto para a Cooperação Económica, 2/4/1987. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau, 1978–1987. [Documentação não tratada]. 88. Letter of Banco de Portugal, n° 436/DTC, 23/12/1987. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Linhas de Crédito a favor da Guiné-Bissau. 1978–1987. [Documentação não tratada]. 89. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. “Acordos de Crédito entre Portugal e a Guiné-­ Bissau, Reestruturação da dívida 1986/95”. 90. Decreto-Lei 303/90, Diário da República, I Série, n° 224, 27-9-1990. 91. Ministério das Finanças, DSPOC, Assistência Financeira à República da Guiné-Bissau, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Acordos de Crédito entre

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189

Portugal e a Guiné-Bissau, Reestruturação da dívida. 1986–1995. [Documentação não tratada]. 92. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. Acordos de Crédito entre Portugal e a Guiné-­ Bissau,1978–1990. DRI. [Documentação não tratada]. 93. Baptista 1992, pp. 14, 15; Banco de Portugal 1999, p. 45. 94. Saramago 2015, p. 10. 95. Ministério dos Negócios Estrangeiros e das Finanças, Instituto para a Cooperação Económica, Ref 2657, 26 Out1987. Portugal. Banco de Portugal. Acordo de Crédito entre Portugal e a Guiné-Bissau. Reestruturação da Dívida 1986/95. [Documentação não tratada]. 96. Robson 1983. 97. It includes Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Israel 2000; Valério 2006. 98. Banque de France 2012. 99. Israel 2000, vol. II, p. 557. 100. Seven more exchange centres were opened in Bissau. Israel 2000, pp. 568–563. 101. On the foundation of the BNU agency in 1867 see the letters of its founder, Francisco d’Oliveira Chamiço, collected in BNU, 1973. 102. By the local Decree-Law nr. 56/T/75. 103. According to local Decree-Law nr. 16/76 of the day after (24 May 1976), and the Portuguese Decree-Law 425-A/76 of 31 May 1976. Portuguese Diário da República, I Série n° 127. Banco Central de São Tomé e Príncipe, 2008, pp. 2–11. 104. According to local Decree-Law nr. 36/76 of 17 August 1976. 105. Acordo entre a República de Portugal e a República Democrática de S.  Tomé e Príncipe sobre a transferência do Departamento do Banco Nacional Ultramarino em S.  Tomé e Príncipe Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990, 4. 106. Letter of 7 April 1976, from Companhia Agrícola de Porto Real e Bela Vista SARL, headquartered at 99, 2°E, Rua dos Bacalhoeiros, in Lisbon, to the Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990, 4. 107. Letter of 28 July 1975 from the Banco de Portugal to the Minister of Economic Co-ordination of S. Tomé, N° 0-5709/ORE, replied on 29 August 1975 (N023410) Assunto 20 N° 468/304/975. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990.

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108. Victor Manuel Lopes Correia, Governor; Celestino Rocha Costa, Teotónio Ângelo d’Alva Torres, Manuel Nazaré Mendes, Maria do Rosário Neto Afonso de Barros, Francisco Inácio da Silveira Rita, and Hildeberto Mário do Nascimento Séca, administrators. Letter from the Portuguese Ministry of Foreign Office to Banco de Portugal, 1039, 43/ STP/2.8. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990, 4. 109. Local Decree-Law nr. 41/76. 110. Decree-law n° 23/76 of 15 July 1976. 111. Banco Central de São Tomé e Príncipe, n° 1, p. 2. 112. Ambrósio 1971. BNU, Boletim Trimestral, n° 87/88, 1971, pp. 9–48. 113. On 8 December 1976, local Decree-Law nr. 50/76. 114. Telegram of 7 September 1977 to the Banco de Portugal, from the Portuguese embassy in S. Tomé. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990, 5. 115. Diário de Notícias, 28 September 1977. 116. Decree-Law nr. 36/76 of 17 August 1976. 117. COSEC, Relatório de Março de 1983. Banco de Portugal Historical Archives. 118. Relações Financeiras com a República da Guinea-Bissau. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. CRONOLOGIAS, RELAÇÕES FINANCEIRAS. 119. Acordos Internacionais, Circular série A, n° 54, of 10 February 1983, p. A-0315.6/01. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs.S. Tomé e Príncipe. 1975–1990. 120. By contract of 18 September 1984 with Banco Borges & Irmão, BESCL, Banco Fonsecas& Burnay, BNU, Banco Pinto&Sotto Mayor, Banco Português do Atlântico, Banco Totta&Açores, Crédito Predial Português, and União de Bancos Portugueses: Diário da República, II Série, N° 152, of 3 July 1984, p. 5800. 121. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs.S. Tomé e Príncipe. 1975–1990. 122. Local law Nr. 8/92 of 16 June 1992. 123. Telex 08053 of 8 September 1992 to Banco de Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Relações Internacionais. PALOPs. S. Tomé e Príncipe. 1975–1990. 124. Saramago 2015, p. 8. 125. Valério 2019, p. 308.

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191

Bibliography Ambrósio, António, “Memórias de África e do Oriente”, Permanência, ano1, n° 9, Fev, 1971. Andréini, J-Cl. and Lambert, M. L., La Guiné-Bissau d’Amilcar Cabral à la reconstruction nationale, Paris, 1978. Banco de Cabo Verde, Banco de Cabo Verde, 40 Anos de História, Praia: Alfa-­ Comunicações, 2016. Banco de Portugal, Revista Interna do Banco de Portugal, n° 55, Dez 1999. Banco de Cabo Verde, O pilar da estabilidade financeira, Cadernos BCV, Série Geral, Cidade da Praia, 2012. Banque de France, Direction Générale du Trésor avec recherche historique par Vincent Duchaussoy, Zone franc, 40 ans de coopération monétaire, Paris, 2012. Baptista, Manuel Couchinho, “Banco Central da Guiné-Bissau: BP apoia reestruturação da Direcção de Estrangeiros”, Revista Interna do Banco de Portugal, n° 26, Fevereiro 1992, pp. 14, 15. BNU, Boletim Trimestral, n° 87/88, 1971. Cardoso, José Maria, “À luz da experiência de países amigos”, in 40 Anos de História, Praia: Alfa-Comunicações, 2016: 33–38. Cruz, António Hilário, “BCV determinante para sobrevivência de Cabo Verde”, in Banco de Cabo Verde, 40 Anos de História, Praia: Alfa-Comunicações, 2016: 53–61. Estevão, João, História da Moeda em Cabo Verde: Do início do povoamento à actualidade, Praia, Banco de Cabo Verde, Tipografia Santos, 2015. Israel, George (ed.), Histoire de l’Union Monétaire Ouest Africaine, Banque Centrale des Etats de l’Afrique de l’Ouest (3 vols.), Paris, 2000. Krozewski, Gerold, “Global Britain and the post-colonial World: The British approach to aid policies at the 1964 juncture”, Contemporary British History, 29 (2), 2015: 222–240. Lopes, Carlos, “O Kaabu e os seus Vizinhos: Uma Leitura Espacial E Histórica Explicativa de Conflitos”, Afro-Ásia, 32, 2005: 9–28. Lopes, Carlos Kaabunké: Espaço, território e poder na Guiné-Bissau, Gâmbia e Casamance pré-coloniais, Lisboa, Comissão Nacional para as Comemorações dos Descobrimentos Portugueses, 1999. Lorenzo, Fernando Carnero, “Las pequenas economias insulares africanas 1950–2010, Una perspectiva comparada”, Investigaciones de História Económica – Economic History Research, n° 12, 2016: 45–56. Magalhães, Abel, “Criação e expansão das agências”, in 40 Anos de História, Praia: Alfa-Comunicações, 2016: 39–41. Marta, Vasco, “Primeiras estatísticas surgem em 1978”, in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 63–67. Medina, Raquel, “Lei orgânica reforça autonomia do Banco Central” in Banco de Cabo Verde, 40 Anos de História, Praia: Alfa-Comunicações, 2016: 69–73.

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Nations Unies, Conférence des Nations Unies sur les pays les moins avancés, reunions de consultation par pays. Mémoire de la Guiné-Bissau. Geneve. 1981. Neves, José Maria, “O BCV tem um percurso de muito sucesso”, in Banco de Cabo Verde, 40 anos de História. Praia: Alfa-Comunicações, 2016: 123–127. PAIGC, História. A Guiné e as Ilhas de Cabo Verde. Paris, 1974. Paulini, Thomas, Guiné-Bissau Nachkoloniale Entwicklungeiness Agrarstaates. Gottingen, Edition Herodot, 1984. Pires, Pedro, “Moeda nacional foi uma necessidade prioritária” in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 101–105. Robson, Peter Integration, Development and Equity: economic integration in West Africa, London: George Unwin, 1983. Rocha, Encarnação Alves, “Extroversão económica muda paradigma da economia”, in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 76–81. Rudebeck, L., “Development and class struggle in Guiné-Bissau”, Monthly Review, vol. 30, (8), New York, 1979. Sancha, Joaquim, “De COBOL para C Sharp”, in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 43–45. Santos, Firmino Silva, “Supervisão do sistema financeiro”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2016: 157–167. Santos, Corentino, “O princípio da autonomia norteou a existência do BCV”, in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 24–31. Saramago, Luís, “Acordos de Cooperação cambial e económica na esfera da Lusofonia: Os casos Luso-Cabo-Verdeano e Luso-Santomense”, Banco de Portugal, Cadernos de Co-operação, 6, 2015, 6–16. Silva, Ulisses Correia e, “No centro da história económica e financeira de Cabo Verde”, Banco de Cabo Verde, 40 Anos de História, Praia: Alfa-Comunicações, 2016: 92–95. Sousa, António Rebelo de “Acordo Cambial garantiu estabilidade”, in Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 93–96. The World Bank, Guiné-Bissau: a Prescription for Comprehensive Adjustment, A World Bank Country Study, 1987. Valério, Nuno, “Monetary decolonisation of the Portuguese Colonial Empire”, in Alice Cunha, Cristina Rodrigues, Ivo Veiga (eds), Economia e História, Estudos em Homenagem a Brandão de Brito, Colibri, 2019: 301–308. Valério, Nuno, 2015, “Political Independence and Technical Independence of Central Banks: A Crucial Distinction for European Monetary and Banking Union”, The Journal of European Economic History, XLIV, 2: 9–37. Valério, Nuno, History of the Portuguese Banking System, 2 volumes, Lisbon, Banco de Portugal, 2006. Veríssimo, Érico, “A vontade de homenagear Amílcar Cabral”, Banco de Cabo Verde, 40 anos de História, Praia: Alfa-Comunicações, 2016: 47–51.

CHAPTER 12

The Angolan Kwanza and the Portuguese Co-operation

Reached in a conference on 15 January 1975 in Alvor (Algarve- Portugal), the Angolan independence agreement settled the parameters for political power sharing amongst the three Angolan political parties and pro-­ independence guerrilla groups, Movimento para a Libertação de Angola (MPLA), Frente Nacional de Libertação de Angola (FNLA), and União Nacional para a Independência Total de Angola (UNITA). This agreement, also signed by Portugal, recognised the political sovereignty of Angola and thereafter its right to become an independent country.1 According to the terms of the agreement, which included the disposal of Portuguese military assets, armament and weaponry in Angola,2 a Portuguese high-commissioner and a local transition government were to prepare the independence and the new state formation. However, during the transition period a civil war broke out opposing MPLA to the alliance FNLA/UNITA. The independence was proclaimed on 11 November 1975.3 After the independence, national enthusiasm was very important for promoting local economic activities, but a great number of trained staff left public administration and all economic sectors of activity, leaving room for improvisation under a political and ideological framework for collective property. This framework provided for the means of production and socialist central-planning of the economy in order to change the production relationships in the Angolan society, later with the support of Cuban military forces.4 The coordination of banking activities was awarded to a Committee of the Ministry of Planning and Finance of Angola, but © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_12

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foreign counterparts still considered Banco de Portugal responsible for Angolan international payments.5 Following the political agreements with Angola, a government resolution from the meeting of 19 December 1975 of the Portuguese Council of Ministers, headed by the Prime Minister José Baptista Pinheiro de Azevedo, took over the Angolan debt expressed in Treasury bonds and bills (Obrigações do Tesouro e do Fomento Ultramarino) legally exported to Portugal before 20 September 1974.6 Another resolution from the same meeting took responsibility for the payment of all payment orders presented during the inter-territorial payment system that were in arrears, because Portuguese firms were not paid for exports that local importers had paid to BNU in Angola. They should be settled in three steps: –– 1/3 by 31 December 1975; –– 1/3 by 31 March 1976; –– 1/3 by 30 June 1976. These transfers were called “hidden consolidated delayed”. The Banco de Portugal, as agent of the inter-territorial settlement system, used the Treasury account at the Banco de Portugal and paid these transfers, amounting to 907,558,735.36 escudos, in two steps7: –– 2/3 of their amount, 603,154,626.1 escudos, from 1 to 9 April 19768; –– The remaining 1/3, amounting to 304,404,109.26 escudos, after 26 April 1976. Exporters who could not prove that local importers had paid to Banco de Angola in Angola, could benefit from bank credit.9 As for consolidated delayed transfers, which resulted from operations that had not been paid in Angola, this country should settle them. Portuguese export firms made claim for their payment.10 Difficulties were also related with Portuguese interests harmed through the Angolan nationalisation of the diamond company, Diamang, without any indemnities.11 The issuing and commercial bank, Banco de Angola, had been created in 1923.12 It received the issuing monopoly in 1926 from Banco Nacional Ultramarino,13 and had been headquartered since then in an historical building inaugurated in 1927. Later on, Banco de Angola moved to a

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195

Fig. 12.1  The headquarters of Banco de Angola in Luanda. (Source: Arquivo Histórico do Banco de Portugal)

grandiose 2 ha building on the Luanda bay that is an icon in the landscape of the capital city. It was one of the most beautiful Portuguese buildings, both overseas and in the Mainland, with architectural and sculptural influences from neoclassicism and baroque. It was inaugurated on 7 September 1956. Classified as historical-cultural patrimony since 8 April 1995, the Lisbon based architect Vasco de Morais Palmeiro Regaleira and the engineer José Carlos Pinheiro da Silva used marble staircases with Doric and Jonick columns, and also did “admirable work in all the colonial buildings they designed throughout the Portuguese empire”.14 Even before the Carnation revolution there were claims to provide Banco de Angola with central banking functions in the territory.15 Aside from this bank, with 22 agencies in the Mainland, and about 900 employees,16 a relatively sophisticated banking system existed in Angola in colonial times: –– Caixa Económica Postal, since 1929. –– Montepio Geral de Angola, since 1933. –– Banco Comercial de Angola, born in 1957, related with Banco Português do Atlântico banking group, with 37 branches in Angola; –– Banco de Fomento Nacional de Angola, since 1960, as a branch of the Portuguese Banco de Fomento Nacional. –– Caixa de Crédito Agro-Pecuário, since 1961. –– Banco de Crédito Comercial e Industrial, born in 1965, subsidiary of the Porto Banco Borges & Irmão, with 19 agencies;

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–– Banco Totta-Standard, from 1966, a joint venture between the South African Standard Bank, and the Portuguese Banco Totta & Aliança (renamed Banco Totta & Açores after 1969), with 11 agencies. –– Banco Pinto & Sotto Mayor, related with group Champalimaud, from 1967, with 16 agencies; –– Instituto de Crédito de Angola from 1969, for medium to long-­ run credit17; –– Banco Inter-Unido from 1973, a joint venture between the American First National City Bank and the Portuguese Banco Espírito Santo e Comercial de Lisboa. In 1975 a generalised attempt to transfer savings to the Mainland left all banks in difficult financial conditions. Residents leaving Angola could take with them currency amounting to only 15,000 escudos, and jewellery or other values for strict personal use.18 To avoid hoarding and large withdrawal of deposits, interest rates were increased, and interest payments were automatically transferred to residents abroad.19 Banks were nationalised and the Angolan Ministry of Planning and Finance occupied all banking agencies in Angola on 14 August 1975 (before the independence). The date of this action, evoked as “Tomada da Banca”, became a free day for banking employees.20 Between September 1975 and December 1976 banks in Angola had no Governors. A Coordinator Commission for Banking Activity (Comissão Coordenadora da Actividade Bancária, CCAB) headed by the first Angolan Minister of Finance, Saidy Mingas, ruled the entire system. At the date of the independence, the issuing bank had 26 agencies in Angola employing about 1500 people. Neighbouring Banco de Angola, the building that until then headquartered the largest Portuguese corporation, CUF, became the Angolan Ministry of Finance to be close to BNA.21 Banco de Angola received all the operations of Instituto de Crédito de Angola and Banco de Fomento Nacional de Angola, and was at work for the one year transition period, ceasing all its activities on 10 November 1976.22 On this date all assets and liabilities were transferred to Banco Nacional de Angola (BNA), which assumed all the functions and commitments of Banco de Angola, under the responsibility of a Governor and two vice-­ governors, assisted by a Direction Board and a Commission for Control.23 BNA replaced Banco de Angola in all its assumed commitments, in Angola

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197

or abroad. The Bank confirmed to use the same telegraph address and keys of the former Banco de Angola.24 On the first anniversary of independence, the law on national currency of 11 November 1976 created the kwanza (Kz) as the Angolan national currency unit to go into effect on 8 January 1977, with a fractional unit, the lwel (1 kwanza equal to 100 lwel). The new legal tender banknotes celebrated Angolan heroes, namely the first President, Agostinho Neto, on banknotes of 1000, 500, 100, 50, and 20 kwanzas.25 On 8 September 1977 BNA announced the collection of all Portuguese banknotes and coins expressed in escudos until 10 November, and announced this date as the deadline for their replacement.26 The old official parity with the Angolan currency was over, and the Portuguese escudo depreciated.27 With independence a new and simplified banking system was born in Angola. Banco Comercial de Angola was nationalised and gave origin to Banco Popular de Angola.28This state-owned bank began operating in Angola in 1976. All other colonial banks handed operations over to this bank.29 The continuous return to Mainland of a large number of Portuguese persons hurt the Angolan economy by interrupting economic activities (especially in exporting sectors such as iron and copper mining).30 The civil war amongst the movements fighting for independence brought great disruption to many regions of the country. The Angolan state-owned Companhia de Seguros de Créditos E.P., stated that “GDP declined in almost all sectors of economic activity after the independence. (…) In 1977 GDP at constant prices was 60 percent of what it was in 1971”.31 At the time, according to confidential Foreign Office information, rumours circulated announcing a coming replacement of kwanza currency for a new monetary unit, the zimbo.32 After the June 1978 meeting of the Angolan and Portuguese Presidents (Agostinho Neto and Ramalho Eanes, respectively) at Bissau in July 1978, Banco de Portugal and BNA signed technical co-operation and payment protocols for trade to promote Portuguese exports and technical assistance to Angola for light and heavy equipment, academic, scientific, and technical books, textiles, shoes, other commodities such as cork and pharmaceutical goods, and services, including training for BNA staff.33 Contracts were expressed in USD using a credit system scheme from Portuguese banks for export credit lines over periods between two to nine years, with ceilings varying from 30 to USD 150 million, and interest rate

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spreads based on LIBOR 6-months. Down payments included 5% of the contract value within one month, 5% more on the export date, and the remaining value on other dates, depending on the commodities and contract values.34 FOB prices adopted for the Portuguese exports were commodity stock-exchange prices.35 A Portuguese and an Angolan commission, headed by the Ministers of Trade, met for implementing commercial, economic, technical, and scientific co-operation.36 Long lists of commodities were agreed for trade. Joint commissions of Angolan and Portuguese experts examined co-operation accords for agriculture and animal husbandry, fishing, industries, housing and public works, transports and communications, banking and insurance, commerce and tourism, and health.37 The agreement between Banco de Portugal and BNA was the first one to be signed with ex-colonies, and was renewed on 2 November 1979 (with a mutual condition of most favoured nation),38 24 October 1981, and 7 June 1982 (raising the ceiling of credit lines for Portuguese exports from 40 to 60 and USD 90 million, respectively) which also  included intermediary goods such as textiles, electrical batteries and wires, paper, raw material for shoe industries, and chemical components. A special co-operation agreement for the electricity sector was also signed on 17 February 1979.39 A second phase for the Cambambe dam and its hydro-mechanical equipment required USD 55 and 102 million, respectively. The Portuguese oil company Petrogal also applied for oil prospecting, while Portuguese metal firms Sorefame and Mague invested 1 billion escudos in oil platforms, and 1 million more to update the Luanda oil refining unit.40 Portuguese access to fisheries was also negotiated. Credit risk, exchange-rate risk, and commercial risk required insurance contracts.41 On 9 January 1980 Angola chose two Portuguese banks as representatives (correspondentes) of BNA in Portugal, and communicated this choice to Banco de Portugal42: Banco Borges & Irmão, and Banco Espírito Santo e Comercial de Lisboa. Several Portuguese banks granted credit lines to BNA, and COSEC provided risk insurance to the trade operations, whose ceilings were (Table 12.1)43: Contracts established the Angolan repayment up to one year after the departure of Portuguese exports, two years in the case of didactic, technical, or scientific books, five to seven years for the light equipment, and seven to nine years for heavy equipment. Angolan delays in the payment

12  THE ANGOLAN KWANZA AND THE PORTUGUESE CO-OPERATION 

Table 12.1 Credit lines to BNA by several Portuguese banks (1980)

Banco Borges & Irmão Banco Espírito Santo & CL Banco Fonsecas & Burnay Banco Pinto & Sotto Mayor Banco Português do Atlântico Banco Totta & Açores Crédito Predial Português TOTAL

199

USD 30,000,000 USD 5,000,000 USD 5,000,000 USD 5,000,000 USD 5,000,000 USD 5,000,000 USD 2000,000 USD 57,000,000

of Portuguese exports to firms operating in that country became frequent, particularly for heavy equipment, whose pay-back was foreseen to occur in several years and after the conclusion of agreed projects such as Caminho-­ de-­ferro de Benguela, Refinaria de Luanda, and Complexo de Lomaum.44 BNA issued quantitative and qualitative regulations for Angolan imports.45 Some Portuguese firms considered that they were an obstacle to the full development of trade with Angola, namely its application to payments resulting from past contracts for which prices had already been agreed, as well as an attempt to lower prices of pharmaceutical products already ordered.46 Main Portuguese exporters of equipment, technology and telecommunications were hurt. As credit agreements considered only a 5 year horizon for repayment, Portuguese banks asked for discounting these credits conceded to BNA.47 Coffee, cotton, sisal fibre, and tropical vegetable oils were the main Angolan export items, against Portuguese diversified textiles and clothing, shoes, bottled wine, paper, detergents, pharmaceuticals and medical instruments, food (including canned fish and preserved meat), machinery, and chemicals for industries.48 Food products were the most pressing Angolan needs, as 90 percent of them were depending on imports. USA, UK, Japan, and the Netherlands were the main destinations of Angolan oil, coffee, and diamonds, while Portugal, the Federal German Republic, and France were the main exporters to Angola. The credit profile of the Angolan Popular Republic assessed by insurance companies affiliated to the Union de Berne, COFACE (France), SACE (Italy), EKN (Sweden), as well as EXIMBANK (from the USA) was considered in a cautious and casuistic way, because the Angolan statistics on the Angolan foreign debt were not available or updated. The attitude of these countries was also very restrictive because of “the well-known political-military situation of the country”.49 Financial default was feared

200 

M. E. MATA

for credits granted by Portuguese BFN and the London BTA.  Annual interest rates applied to BNA credits or advance accounts amounted to 12%, from which the Portuguese Fundo de Garantia de Riscos Cambiais paid 7% to the exporters.50 In May 1982 the credit line from Banco de Portugal to the Angolan Popular Republic amounted to USD 150 million,51 of which 5 million corresponded to exports of chemical fertilizers by the Portuguese state-­ owned firm Quimigal, and about USD 2.7 million to equipment for water provision in Luanda by SORENIL.52 Food, gas, vehicles, and beer were some of the consumption goods demanded by Angola. There was clear Portuguese good will for the cooperation with Angola: “The conditions approved by Banco de Portugal for several operations are at the limit of what was possible to practice and at much more favourable conditions than what is the practice in mere financial markets”.53 Confidential communication with BNA through the Portuguese Embassy at Luanda on 4 May 1983 reveals difficulties of the Angolan balance of payments, and concerns on how “to solve the mutism [silence] of Angolan entities involved, and contribute for the solution of arrears”, because “all letters sent to debtors have not had any answer”.54 Local difficulties included the falling price of petroleum in 1981 and 1982, and the military and political turmoil associated with the presence of South-African military forces in parts of the territory.55 In 1983 BNA received a revised charter, and was integrated into the central-state administration, but assumed independent responsibility from the government. Its Governor had a seat at the Council of Ministers.56 Later on the 1991 charter assigned central-banking functions to BNA, maintaining the same traditional five regional sections built between 1932 and 1952, in the capital cities of five districts: Benguela, Cabinda, Huíla, Malanje, and Huambo.57 Since 13 July 1975, agreements for training of banking staff included the presence of Portuguese experts in Angola and the visit of Angolan bank employees to many Portuguese banks for internships and courses.58 Visits of the BNA governor to Banco de Portugal in returning from visits to European countries were good opportunities for cooperation agreements.59 The most sought specialisations for Angolan staff to visit the Portuguese banks were related with banking law, contracts and arbitrage, balance of payments and international operations, foreign debt, project analysis and credit risk assessment, exchange rates and management of currencies, and macroeconomic forecasting analysis. The training was provided under the same conditions established for all the

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Portuguese-speaking countries, which included scholarships for accommodation, meals in the banks, and a daily stipend. Many of the BNA economists graduated in Lisbon, had been colleagues of Portuguese economists working in the banking sector, and recalled their common Professors from their studies. Friendly personal relationships are clearly expressed in the archival sources.60 All letters and archival documents mention the excellent relationships between the banking institutions of both countries. The 1980s were a challenging period, and the application to the IMF and the World Bank’s programmes for international assistance was pursued. Angolan economic growth in the 1980s reached an average annual rate of 5 percent, was based on oil production, which increased at an average annual rate of 15 percent, and suffered from a negative average annual rate in all other productive sectors.61 In October 1982 the Angolan Foreign Office expressed the will to improve the credit conditions between Banco de Portugal and BNA, and invited Portuguese staff from Banco de Portugal to visit Sonangol at Soio to consider the conditions for oil exploration by Texaco, Gulf, Petrofina, and ELF. In order to shorten the time necessary to load tankers from eight days to two, Petrofina built two reservoir facilities, each with a capacity of 2000 tonnes of crude oil.62 A Portuguese mission visited Angola in 1983 at the invitation of the Minister of Finance and governor of BNA, Augusto Teixeira de Matos. At the same time, Hungarian support was also offered, and arrived in 1984.63 Following the report presented by the Portuguese mission’s visit to Angola, the 25 April 1984 agreement with Portugal regulated the settlement of term payments.64 The accounted credit awarded by Banco de Fomento Nacional to Angola, amounting to 135,442,044.1 escudos (considered as equivalent to USD 4,455,417.50), plus the Portuguese participation in the equity of firms (SONEFE), which amounted to USD 1,038,096, gave origin to a USD 5,503,513.60 fund in the BNA on 31 July 1984, belonging to Banco de Portugal, for Portuguese participation in the equity of mixed firms and co-operation.65 Co-operation with Angola also included several financial features. The medium-to-long-run debt of the Angolan Popular Republic to Portugal, amounting to USD 26.873 million, was rescheduled on 31 December 1986, in an agreement of 6 June 1987, between BNA and eight Portuguese banks (BBI, BESCL, BFB, BFN, BPA, BPSM, BTA, and CGD). It was to be fully repaid by 30 June 1991, thanks to amortisations over the previous 6 quarters (with USD LIBOR interest rates plus 1.5 percent spread).66

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M. E. MATA

The global socialist difficulties in the late 1980s (following the Perestroika and Glasnost) brought difficulties and lack of support to the Angolan socialist political regime, and the need to adapt to the new times. Public deficits required funding through issuing of currency and public debt.67 Additional features were added to the Economic Cooperation Agreement with Angola on 10 November 1988.68 They included the definition of conditions for Portuguese cooperants and their families to work in Angola for periods of two years, with wages partly paid in kwanzas, partly paid in dollars (to be transferred to Portuguese banks by BNA), and one month of holidays per year. Agreements for banking staff training in Portugal were renewed in the 1980s (1981,69 1983,70 198971), and included the provision of literature. The main challenges for BNA were the abandonment of central planning for the Angolan economy in favour of market mechanisms thanks to the approach to the IMF and World Bank support, the separation of commercial functions from central banking functions in the BNA, the design for departmentalisation, and computerisation. The creation of the Department for operations with foreign countries was the first step.72 Following meetings of the Angolan authorities with the IMF since 1986, Angolan bonds were issued abroad, while in July 1987 Angolan political authorities launched an economic and financial programme to improve the Angolan macroeconomic scenario, Program de Saneamento Económico e Financeiro (SEF).73 Privatisations followed, providing a smaller dimension to the state-owned economy. Angolan crude exports from Sonangol to Portuguese Petrogal served to boost the Angola-Portugal bilateral balance of payments.74 On 6 May 1987 a contract between Petrogal and Sonangol, the “Evergreen Crude Petroleum Sales Contract”, fuelled the financial relationships with Angola thanks to the implementation of corporate ties that made commercial and financial relationships between the two countries much easier. In the last quarter of 1987 BNA opened an oil-account for BPA. On 30 December1988 BNA signed a rescheduling scheme for the payment of Angolan debt to Portuguese banks (BBI, BESCL, BFB, BPSM, BPA, and BTA), because of non-paid amortisation until 31 December 1986. The new scheme designated BFN and CGD as agents, at flat agency costs of 5–16% and flat management costs of 7–16%. Credit lines to BNA reached USD 130 million with the agreement of Banco de Portugal, and debt service was satisfied through the BNA oil account payment orders discounted by BFN Brussels. Direct negotiations between BNA and Portuguese export firms

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took place for the payment of USD 27 million (USD 21.8 million of capital and USD 5.2 million of interest), and also involved the oil account. On 7 December 1989 another Angolan oil account was opened in the BFN, and Banco de Portugal authorised a credit line of USD 20 million to BNA on 20 December. Table 12.2 describes the financial situation on 7 March of 1990 (in USD million): According to Table 10.4, the Angolan medium-long-term debt to Portugal on 31 December 1991 amounted to USD 144.3 million. The Angolan state-owned economic activities were becoming increasingly affected by the civil war, because of the military clash between MPLA and UNITA, and an incipient private war-economy was spurting. The usual move of Portuguese co-operators to work in Angola was the other face of mutual assistance.75 After a long process of change of social and economic professed regime ideals, the move to a more market oriented economy required a financial system made up of a first level with private commercial banking and other private financial institutions, namely insurance companies, and a

Table 12.2  Financial situation of credit ceilings and credit awarded to BNA on 7 March of 1990 (in USD million) Banks BBI BESCL BFB BFE BNU BPA BPSM BTA Remaining Medium-long-term loans Operations to consider Other operations Effective medium-long-term debt Down payments

Ceilings 15 30 5 20 5 10 25 10 10 130

Total awarded 10.2 20.9 6.0 17.8 3.6 5.8 22.6 7.2 0 94.1

Remaining credit 4.8 9.1 (1.0) 2.2 1.4 4.2 2.4 2.8 10 35.9 USD 124.2 million 85.1 45.9 110.0 2.8

Source: PALOP, CRONOLOGIAS, Relações Financeiras, −4, 450/4, Arquivo Histórico do Banco de Portugal

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M. E. MATA

second-­level authority, a central bank empowered to regulate and supervise the entire system.76 This was a long technical process for BNA, at a time when global computerisation also required equipment and training. Finally, Angola joined the IMF and the World Bank for financial assistance on 19 September 1989, the year of the fall of the Berlin wall. The payment of the admission fee to the IMF required that Angola had international payment means for this purpose, but financial difficulties were making such a decision impossible. Banco de Portugal granted a loan to Angola for this purpose. BNA promised to repay this loan as soon as loans could be obtained from the IMF, a guarantee based on a gentlemen’s agreement of friendliness and honour between the two central banks’ governors (José Alberto Tavares Moreira, and António da Silva Inácio).77 The Angolan political authorities asked for Portuguese technical assistance, including the organisational aspects of framing the departments related with the new functions for BNA.  A Portuguese team of seven economistas moved to Luanda for these purposes for a mission that lasted from 1990 to 1992. In February 1991 an extensive cooperation and technical assistance agreement was signed between the two central banks. The purpose of Angolan authorities (Ministry of Finance and BNA) included the presence of Portuguese staff in Luanda to help identify again the local training needs amongst Angolan staff, as well as provide computational assistance and consultancy for monetary and financial legislation.78 In 1991 Angola joined the other Portuguese-speaking teams of governors and ministers of finance in the annual meeting of the IMF/World Bank in Bangkok, and a pre-meeting took place in Lisbon, at Banco de Portugal, establishing a tradition for future annual meetings of this kind.79 The opening of a delegation of Banco de Portugal in Luanda (DDL, Delegação de Luanda) in 1992 expresses the Portuguese/Angolan co-operation for trade in the context of the dissociation between the BNA functions of central banking from commercial banking. It was the only delegation of the Banco de Portugal in a foreign country in the twentieth century.80 The Cuban presence in Angola ended in 1991, the year of the break-up of the Soviet Union. The need was clear to move toward international markets.81 Confidence was important for international trade partners, and central banking cooperation a very important instrument for the dissemination of international co-operation. Foreign investment for the Angolan oil sector was decisive to sustain an increase of its production. The two central banks, Banco de Portugal and BNA, made great efforts to improve

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the situation by intensifying trade and other relationships between Portugal and Angola. Exports to Angola were paid with barrels (barris) of oil represented by deposits in accounts in Portuguese commercial banks. Portuguese exporters had priority to access payment from these accounts. For all operations the approval of the Portuguese central bank was required. The first operations were devoted to the delayed payment of previous exports. Not only exports, but also consultancy, tourism, migration, FDI, and emigrants’ remittances benefited from this system. The presence of Portuguese staff in Luanda with participation at the reorganisation of the BNA Accounting Unit and training courses lasted until 2003, when the delegation closed.82 From 1991 up to 1995 BNA progressively assumed the role of monetary authority and supervisor of the financial system, which already consisted of six commercial banks in 1995. In 2000 the insurance sector was also opened to private initiative.83 Seven emergency economic plans were attempted in Angola from 1990 to 1997. Prices were liberalised, and three-digit hyperinflation followed, while the depreciation of the kwanza made it possible to narrow the gap between the official and the informal exchange rates. The return to civil war in 1992 deteriorated the macroeconomic conditions. The highest level of macroeconomic instability related with the high inflation and exchange rate depreciation process for the kwanza was reached in 1995–1996. The exchange rate moved from USD1=AOK30 in 1975, to USD1=AOK 2100.000 in 1995 leading to the replacement of the original kwanza: The AOR=1000 AOK.  From USD1=AOR 2100  in 1995, USD1=AOR5,400,000 in 1999, leading to the replacement of the second kwanza: AOA=1,000,000 AOR. These were propitious conditions for the surge and spread of individual appropriation and corruption.84 Only after 1994 did the military conflict reveal the difficulties faced by UNITA. Confidence improved as the rising price of oil from 1999 until its boom of 2002 were reinforced with the end of the civil war in 2002, “a structural break that made possible the accelerated growth of the next decade (mainly until the 2008 crisis)”.85 Authors agree in arguing that conditions for an economic recovery in the new millennium were created: “The African nation of Angola opened a new chapter in 2002, when it ended a civil war that had been raging in the country since 1975”.86 Meanwhile, a new legislation package was issued in 1999, complemented in 2003 with the Monetary and Exchange Rate Measures in order to improve the Angolan financial system. Foreign banks increased their

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M. E. MATA

presence in Angola, and the banking network improved throughout the territory. Strong economic growth followed until the 2008 global crisis (which analysis is beyond the scope of this book). Financial institutions were required to support the economy. The Angolan Association of Banks was born in April 2001 (made in the image of the Portuguese Associação Portuguesa de Bancos, APB), and included public and private owned banks. First announced in 2006, Angola Securities and Debt Stock Exchange (Bolsa da Dívida e Valores de Angola, BODIVA) was launched to meet these goals, and began operating in 2014 as a secondary public debt market, namely for Treasury Bills and government bonds (obrigações do Tesouro).

Notes 1. Article 10 of the Alvor agreement, signed by the Portuguese Minister of Foreign Office, Mário Soares, the Minister of Inter-territorial Co-ordination, Almeida Santos, and the Minister for Decolonisation issues, Melo Antunes. Vítor Crespo, admiral of the Portuguese Navy and member of the military movement for the revolution of 25 April 1974, created an informal and ad hoc commission for the transfer of patrimony, in October. Miguel Galvão Teles, Isabel Magalhães Collaço, Jorge Sampaio and Eduardo de Sousa Ferreira joined this commission to give support to juridical frameworks related with the political process of the independence of Angola. 2. Boletim Oficial de Angola of 8 October 1975, I Série, Nr. 235, p. 2. 3. For a comparison on state formation and civil war see Young 2017. 4. Rocha 2018, p. 76. 5. O 6776/ORE of 24 September 1975, from Morgan Guarantee Trust C° of New York, saying that Angola was still “an integral part of Portugal”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1975. 6. Diário do Governo of 31 December 1975, I Série, nr. 300, 2° Suplemento. 7. Resolução do Conselho de Ministros, Diário do Governo, I Série, 2° Suplemento, of 31 December 1974. 8. Ofício n° 2508- 2ª Secção B  – Proc° 2/46-G/1  – Repartição do Tesouro. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 9. Resolução do Conselho de Ministros, Diário do Governo, 25 de Fevereiro de 1976, I Série, n° 47.

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10. A letter of 11 February 1976 from Ferragens Reunidas de Águeda to Banco de Portugal claimed for 230,830$70, for example. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 11. The Angolan Decree-law of 30 August 1977 nationalised the 852,755 shares of the equity of Diamang (Sociedade de Diamantes de Angola, SARL). Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. Letter nr. 627/42/DCIC/77 of 14 October 1977. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 12. Decree nr. 364 published in Boletim de Angola, n° 40, I série, on 15 September 1923. 13. Decree nr. 12131 of 14 August 1926. BNU was created in 1864 (law of 16 May 1864), and began operating in Angola in 1865. 14. Boletim Oficial de Angola. Fialho 2013, p. 30, 56–73, 151, 170, 172. 15. José Ricardo, “Planeamento Regional de Angola”, Jornal do Comércio, 30 March 1974. 16. Banco de Angola, Situação Económica e Financeira de Angola, Relatório e Contas, 1973, pp. 309, 324. Torres 1983, p. 1109. 17. Authorised by Decree-law nr. 48996 of 8 May 1969, adapted by Decree-­ law nr 234/72 of 9 July 1972. Jornal do Comércio of 9 July 1972. 18. Secretaria de Estado das Finanças, Despacho nr. 28/76, Jornal de Angola, 13 April 1976, sent by the Portuguese Foreign Office to the Portuguese Minister of Finance on 26 April 1976. 19. Angolan decrees 130 and 131/75 of 8 and 9 October 1975. 20. Fialho 2013. P. 31. 21. Fialho 2013. 22. Angolan law nr. 69/76 issued in the official Angolan Diário da República, I Série, n° 266, of 10 November 1976, rectified in Diário da República, I Série, n° 278, of 25 November 1976. 23. Ibid. 24. Law 69/76, of 5 November 1976, with charter (Lei Orgânica) of 3 October 1975. 25. Law nr. 71-A/76, called Lei da Moeda Nacional, Angolan Diário da República of 11 November 1976, I Série, N° 266, p. 1. Rectified on the Angolan Diário da República of 7 February 1977, I Série, N° 30, p. 1 to change details on banknotes and coins. 26. Ministério dos Negócios Estrangeiros, Direcção Geral dos Negócios Económicos, EAA 43/ANG/3.1, Secretaria Geral do Tesouro, Entrada n° 5870, Livro 34, Proc. 47; Ministério das Finanças, Ofício 5745, Ent.

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5870, L° 22, P° 47, of 15 September 1977; Jornal de Angola of 3 of September 1977, p. 1. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 27. For example, on 24 January 1978, Esc 1 = 0.765 and 0.781 Kz, for buy and sell operations, respectively. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondênciacom o Ministério das Finanças. 1978–1979. 28. Angolan law 70/76, of 5 November 1976 issued in the official Angolan Diário da República, I Série, n° 266, of 10 November 1976. 29. Nunes et al. 2011. 30. B.P.A. Paris, p. 1, Documentação Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. Angola III, 24, 1975–90, Banco de Portugal Historical Archives. 31. República Popular de Angola, Direcção de Estudos Económicos, Ficha de Actualização n° 2, Fevereiro 1981, pp. 2, 3. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 32. Ministério dos Negócios Estrangeiros, Direcção-Geral dos Negócios Económicos, EAA1139, of 1 April 1977, Doc. Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 33. Redondo, and Oliveira, 1981. 34. The BNA’s Portuguese partners were Banco Borges & Irmão, BESCL, Banco Fonsecas& Burnay, and Banco Pinto&Sotto Mayor. Portugal, PALOPs, Documentos diversos, Angola, I-II, 1975–1990, Banco de Portugal Historical Archives. 35. Angola, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 36. In Luanda, on 22 January 1979. Comunicado conjunto. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 37. “Despacho conjunto” of 7 March 1979, Presidência do Conselho de Ministros. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 38. Redondo and Oliveira, 1981, p. 8. Letter from the Governor of BNA, José Carlos Victor de Carvalho, to Banco de Portugal, of 23 June 1982. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola II. 1975–1990. 39. In Luanda, published as Decree-law nr. 30/79 of 14 April 1979  in the Portuguese Diário da República, I Série, n° 87, of the same day. The list of

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banks conceding credit to exporters for direct funding to Angolan importers included Banco Borges&Irmão, Banco Espírito Santo e Comercial de Lisboa, Banco Fonsecas&Burnay, BNU, União de Bancos Portugueses, Banco Português do Atlântico, Banco Totta&Açores, Banco de Fomento Nacional, Sociedade Financeira Portuguesa, Bank of London&South America, Credit Franco-Portugais, Banco do Brasil, and Banco Micaelense. Caixa Geral de Depósitos, Crédito Predial Português and Banco Pinto&Sotto Mayor also joined in 1981. 40. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 41. Companhia de Seguros de Créditos, E.P. (COSEC) co-operated in these needs. Liz 1979. 42. Telex 16554C BAGAL and 3005 BANANG. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola II. 1975–1990. 43. “Informação, 24 de Janeiro de 1980”, and letter “n° 343/ORE, 5 de Fevereiro 1980”, from Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 44. Interest rates could reach the LIBOR rate at 6 months plus 0.5%, 7.5% for equipment, 8% for books, and 12 percent for intermediary goods. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 45. From the Angolan Decree nr. 18/80 of 15 February 1980. 46. “Dificuldades às exportações portuguesas para Angola através do controlo de preços”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 47. “Dificuldades de cobrança de exportações p/novos países de expressão portuguesa”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 48. “Programa Global de Supervisão das Importações, Informações Gerais para os Exportadores”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 49. “Informação n° 214/82 DESFE, Acordo Comercial entre o Banco de Portugal eo BNA, 21 Dez82”, p. 5. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola II, 1975–1990. 50. “N° 783/DES/SC, 13 DE Julho de 1982, Linha de Crédito a favor do Banco Nacional de Angola”. And letter from Banco Espírito Santo e Comercial de Lisboa to Banco de Portugal, of 29 March 1983. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola I-II, 1975–1990.

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51. Telex 42,338 DMOP, Linha de Crédito para R. P. de Angola. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 52. Letter 24/05/82 from Quimogal to Banco Borges &Irmão. Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 53. Letter 07983 of 16 July 1981 from the vice-Governor of Banco de Portugal Emílio Rui Vilar to the Governor of BNA. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 54. Informação n° 44/83/DESFE, de 4 de Maio de 1983. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 55. Rocha 2018, p. 78. 56. Law nr. 3/83 of 23 May 1983, published in the Angolan Diário da República of 21 May 1983, I Série, N° 120, p. 1, announced in Jornal de Angola de 28 de Junho de 1983, p. 1. 57. Fialho 2013, p. 34. 58. DRI/VJ/ma from Banco Fonsecas & Burnay to BNA. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs II. Angola. 1975–1990 59. Ministério dos Negócios Estrangeiros, Proc. 42/ANG/4.6of 5.9.1979. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990. 60. BNA letter 18.02.83, and letter from Banco de Portugal 03.09.1986. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990. 61. Rocha 2018, p. 80. 62. “Relatório de 9 Março 1982 sobre as negociações entre o Banco de Portugal e o BNA”, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 63. The Portuguese mission included José da Silva Lopes, Maria Manuela Morgado, Ana Maria Neto, and António Guterres. Rocha 2018, p. 78. 64. Decrees-law 351-C of 26 August 1985 and 524/85 of 31 December 1985. 65. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 66. Informação n° 76/87 FGRC, Documentação Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 67. Rocha 2018, p. 76. 68. Published by decree 26/90 of 7 July 1990, issued on the Portuguese Diário da República I Série, nr 155 of 7 July 1990. 69. Jornal de Angola, 21.10.1981.

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70. “Programa anual de cooperação técnica para 1983”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 71. “Relatório da Missão Técnica ao Banco Nacional de Angola”, 30.12.1988; Letter 17.1.1989 from the governor of Banco de Portugal to the BNA governor. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990. 72. “Relatório da deslocação ao Banco Nacional de Angola de uma delagação do Banco de Portugal”, 28.11.88. “Relatório das acções de cooperação desenvolvidas com o BNA no período de 28 Out° a 15 Dez° 1989”. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola III. 1975–1990. 73. Resolution 8/87, Conselho de Defesa e Segurança. 74. Acordo Banco Nacional de Angola/Banco de Portugal: Abertura de conta do B.N.A. no B.P.A., of 26 October 1987. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 75. Decree-law 29/90 of 7 July 1990 renews the guarantees for their transportation and local labour conditions, including wages and retirement conditions of the agreements of 10 November 1988. 76. Angolan laws 4/91 and 5/91. 77. Banco de Portugal, 2015, p. 89. 78. Baptista 1991, pp. 4–6. 79. Saramago 1991, pp. 11–12. 80. Relatório do Banco de Portugal, 1991, pp. 24, 34, 35. Couchinho Baptista (1992–96), António Direitinho (1996–99), and Luís Saramago (1999–2003) successively headed the Delegation of Banco de Portugal in Luanda from 1992 to 2003. Portugal. Banco de Portugal. Delegação de Luanda, Correspondência enviada 17-9-1999 a 12-11-2003. [Documentação não tratada]. 81. Rocha 2018, p. 81. 82. Diretinho 2015, pp. 52–53. 83. Saramago 2014, p. 8. 84. Valério 2019, p. 308. 85. Saramago 2014, p. 8. 86. Redford 2017, p. 91.

Bibliography Banco de Angola, Situação Económica e Financeira de Angola, Relatório e Contas, 1973. Banco de Portugal, 25 Anos de Cooperação entre Bancos Centrais”, Lisboa, Banco de Portugal, 2015.

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Boletim Oficial de Angola. Baptista, Manuel Couchinho, “Bancos de Portugal e Nacional de Angola assinam protocolo de cooperação”, Revista Interna do Banco de Portugal, n° 23, Junho 1991, pp. 4–6. Diretinho, António, “Delegado do Banco de Portugal em Angola (1996-1999)”, in Banco de Portugal, 25 Anos de Cooperação, entre Bancos Centrais, Banco de Portugal, 2015, pp. 52–53. Fialho, Filomeno, Banco de Angola, 60 anos de edificação, Luanda, Banco de Angola/Caleidoscópio Edição e Artes Gráficas, 2013. Liz, Jorge Pegado, Companhia de Seguros de Créditos, E.P. (COSEC). 1979. PALOPs Documentação Diversa, Angola III, 21, 1975-90, Arquivo Histórico do Banco de Portugal. Macedo, Ensino e Prática da Macro de Economia Aberta depois de Abril, Working Paper 619, Nova School of Business and Economics, 2018: 66–88. Nunes, Ana Bela, Carlos Bastien, Nuno Valério, Rita Martins de Sousa, and Sandra Domingos Costa – “Banking in the Portuguese Colonial Empire (1864-1975)” – Économies et Sociétés, Série Histoire économique quantitative, AF, n.° 44, 9/2011, pages 1483–1554. Redford, Dana, “High-impact entrepreneurship and its importance in Sub-Saharan Africa”, Dana Redford, (ed.), Developing Africa’s Financial Services  – The Importance of High-Impact Entrepreneurship (editor), London, Emerald, 2017. Rocha, José Alves da, “Introdução do Ensino da Economia em Angola”, in Jorge Braga de Macedo, Ensino e Prática da Macro de Economia Aberta depois de Abril, Working Paper 619, Nova School of Business and Economics, 2018. Redondo, Ana Mafalda and Oliveira, Jaime Pereira de, “Relações económicas de Portugal com Angola”, DEE, 16 October 1981, PALOPs, Documentação diversa, 1975-1990. Arquivo Histórico do Banco de Portugal. Saramago, Luís, “O Encontro de Lisboa, momento alto da cooperação com os PALOP”, Revista Interna do Banco de Portugal, n° 25, Dezembro 1991: 11–12. Saramago, Luís, “Apontamentos sobre a evolução da banca nos PALOP – características e tendências (1990-2013)”, Banco de Portugal, Cadernos de Co-operação, 4, 2014, 6–12. Torres, Adelino, “Pacto colonial e industrialização em Angola (anos 60-70)”, Análise Social, vol. XIX (77-78-79), 1983, 3º, 4º, 5º: 1101–1119. Valério, Nuno, “Monetary decolonisation of the Portuguese Colonial Empire”, in Alice Cunha, Cristina Rodrigues, Ivo Veiga (eds), Economia e História, Estudos em Homenagem a Brandão de Brito, Colibri, 2019:301–310. Young, Alden, Transforming Sudan: Decolonisation, Economic Development and State Formation, Cambridge, Cambridge University Press, 2017.

CHAPTER 13

The Mozambican Metical and the Portuguese Co-operation

In 1975 a Portuguese delegation negotiated with FRELIMO (the independence guerrilla movement) the terms of the political agreement for the independence of Moçambique, including financial and banking issues.1 Major difficulties in negotiations had to do with discussions that focused on the Cahora Bassa dam, Portuguese mining investments, the Zambeze Plan, Banco de Fomento, and the Escudo Monetary Fund loans. The meetings took place on 18 January in Lourenço Marques, 20 February in Sintra, 3 March in Lisbon (with the presence of the Portuguese Prime Minister Vasco Gonçalves), and 9 April 1975 in Lourenço Marques (with the presence of the Vice-President of FRELIMO and future first Mozambican Prime Minister Joaquim Chissano).2 After the independence agreement signed at Lusaka, a long letter dated 18 April 1975, from the FRELIMO President, Samora Machel, to the Portuguese Prime Minister Vasco Gonçalves rejected the payment of compensations to Portugal and threatens to break up the political negotiations with Portugal, because “BNU was one of the major pilferer firms in Moçambique”. The claim also included the transfer to Moçambique of the Banco de Fomento subsidiary in Maputo, pardon on debts for local public works, and the Cahora Bassa dam.3 A letter of 9 May 1975 from the Portuguese Prime Minister Vasco Gonçalves to Samora Machel declares that, “Portugal considers definitely closed what has been called ‘the economic-financial disagreement’ (…) reinforcing what was already said by the foreign affairs Minister Melo © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_13

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Antunes, as envoy of the Government, to the recent meeting of Haia, with the Vice-President of FRELIMO”.4 This agreement between Portugal and Mozambique was signed on 23 June 1975. As in the Angolan case, a government resolution from the meeting of 19 December 1975 of the Portuguese Council of Ministers, headed by the Prime Minister José Baptista Pinheiro de Azevedo, took over the Mozambican debt expressed in Treasury bills legally exported to Portugal before 20 September 1974.5 Another resolution from the same meeting also took over the payment of all transfer orders presented during the inter-territorial payment system that were queuing, because Portuguese firms were not paid for exports that local importers had already paid to BNU in Moçambique, the so called “hidden consolidated delayed transfers”. As in the Angolan case, they were to be settled in three steps6: • 1/3 by 31 December 1975; • 1/3 by 31 March 1976; • 1/3 by 30 June 1976. According to the agreements of 23 June 1975 these transfers were not part of Banco de Moçambique’s liabilities.7 Until 24 June 1975 they were settled, as usual, using the reserve account of the Mozambican Foreign Exchange Management Fund at the Banco de Portugal. To ensure the continuation of settlements, the Banco de Portugal sequestered 12,470,139$50 from the reserve account of the Mozambican Foreign Exchange Management Fund on 24 June 1975, according to the Lusaka agreement, which transferred assets and liabilities, as well as patrimony reported until 31 July 1975.8 As the agreement with Moçambique was signed on 23 June 1975, Banco de Moçambique contested this decision.9 Lisbon argued that this was the way always used to settle arrears. Moreover, the Banco de Portugal was not yet aware of the 23 June 1975 agreement with FRELIMO after the meetings of 17 June, and this agreement also did not consider the proceeding to be irregular, because all assets and liabilities of BNU were transferred to Banco de Moçambique, and payments in arrears were liabilities.10 Also as in the Angolan case, thereafter the Banco de Portugal, as agent of the inter-territorial payment system, used the Portuguese Treasury account in the Bank to settle these transfers, amounting to 907,558,735.36 escudos, in two steps:

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• 2/3 of their amount, 603,154,626.1 escudos, from 1–9 April 197611; • The remaining 1/3, amounting to 304,404,109.26 escudos, after 26 April 1976.12 Exporters who could not prove that local importers had paid BNU in Moçambique, could benefit from bank credit.13 As for operations that had not been paid in Moçambique, Moçambique should pay for them, the same principle which was being followed in the case of Angola. It was possible to accommodate Portuguese export firms’ claims for their payment. They had credit lines from Portuguese banks, amounting to the value of their exports, at a 4.5 percent interest rate.14 Difficult cases were related with goods exported from Portugal that disappeared from customs upon arrival at Moçambique, in the context of the social turmoil that prevailed following the Portuguese revolution of 25 April 1974.15 Banco de Moçambique was a major shareholder of Mozambican agro-­ industrial companies (Açucareira de Moçambique, devoted to sugar; Maragra, Buzi, Caju Industrial, and Mac-Mahon); mining (Carbonífera de Moçambique); cement (Cimentos de Moçambique); and metal (Cometal-­ Mometal), among others.16 The headquarters were located at the BNU headquarters building, inaugurated in 1964  in Lourenço Marques, the capital city (Fig. 13.1). All agencies closed their balances and transferred them to their respective accounts in the new Banco de Moçambique, and listed real estate, furniture, and equipment. A stamp saying Banco de Moçambique was posted on all files containing documents originally from BNU. The same stamp countermarked all BNU banknotes.17 In colonial times (1960s) Moçambique had developed a rather sophisticated banking system for African standards. In addition to both issuing and commercial functions, BNU, with 26 branches in the territory, there were other banks: • Banco de Fomento Nacional Moçambique, since 1960; • Banco de Crédito Comercial e Industrial (BCCI), since 1965, a subsidiary of Banco Borges & Irmão from Porto, in Mainland; • Banco Pinto & Sotto Mayor BPSM, since 1966; • Instituto de Crédito de Moçambique, since 196918; • Banco Totta-Standard, from 1966, a joint venture between the South African Standard Bank, and the Portuguese Banco Totta & Aliança (renamed Banco Totta & Açores after 1969).

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Fig. 13.1  The headquarters of BNU in Lourenço Marques (Maputo) inaugurated in 1964. (New headquarters are now available). (Source: BNU Historical Archives in Arquivo Histórico da Caixa Geral dos Depósitos)

• Casa Bancária de Moçambique (CBM), • Banco de Angola (BCA), • Montepio de Moçambique. Banco de Moçambique was created on 17 May 1975.19 It was conceived as the symbol of the country’s political independence. A joint working group comprising representatives of the BNU and the future Banco de Moçambique audited the Mozambican subsidiary of BNU.20 The names of the first Governor and Vice-Governor for Banco de Moçambique were known on 28 May 1975.21 The agreement for the transfer of BNU-Moçambique to Banco de Moçambique was signed on 16 June 1975, and the transfer of assets and liabilities (as well as patrimony reported until 31 July 1975) to Banco de Moçambique took place on 25 June 1975.22

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A co-operation agreement between Portugal and Moçambique was reached on 2 October 1975. FRELIMO, the single political party in the government of the newly independent country, awarded all economic policy functions to Banco de Moçambique, in its third Congress of 7 February 1977. Formal parity with the Portuguese escudo continued (at the usual and historical 1:1 exchange rate) until 25 February 1977, but the depreciation of the Portuguese escudo led the first Governor of the Mozambican national bank, Alberto Francisco Cassimo, to peg the Mozambican escudo initially to the USD, and after 6 March 1977 to a basket of currencies.23 In order to establish a banking system at the service of a socialist national state, private banks were nationalised.24 The Mozambican decisions to suspend activity of all private banking on 31 December 1977 was known in Lisbon on the same day through the Portuguese embassy in Maputo, and it was associated to the possibility of introducing a new monetary unit or to the intended implementation of a restructuring project for the Mozambican banking system.25 Those instructions suspended the activities of Casa Bancária de Moçambique (CBM), Banco de Crédito Comercial e Industrial (BCCI), and Banco de Angola (BCA), to merge them with Banco de Moçambique.26 The same law also extinguished the Mozambican branches of Portuguese banks (Banco de Fomento Nacional BFN, and Banco Pinto & Sotto Mayor BPSM, related with the Champalimaud Group), which had been nationalised in Portugal. No indemnities were paid.27 The Mozambican branch of the Portuguese bank Montepio de Moçambique was nationalised and merged with Instituto do Crédito de Moçambique (ICM) giving birth to Banco Popular de Desenvolvimento.28 This merger faced considerable technical difficulties, owing to the use of different accounting systems in the banks, and different banking cultures among staffs. In the next years it was decided in Moçambique to move the Exchequer offices to the central bank and to its agencies throughout the country,29 and create a school for banking to address the need for trained experts and staff. Credit was acknowledged as a very important factor for funding economic activity, and there was a political stimulus to transform available savings into bank deposits, while there was also the purpose of disseminating the adoption of double-entry accounting among all firms, whatever their size, in order to have sound and reliable indicators to guide credit allocation. The Credit policy was based on the definition of active and passive interest rates for the whole banking system.30

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In spite of foreign aid, the Mozambican annual current account was in deficit in 1979, and the public deficit amounted to USD 120 million in the same year. The 1980s were difficult times plagued by a civil war between FRELIMO and a competing political party, RENAMO (Resistência Nacional Mozambicana). The latter received financial and military support from Rhodesia and South Africa.31 As Cahora Bassa was just beginning the commercial production of electricity in 1979, which supported the service of loans for its construction, the effects of sabotage on this plant were quite severe.32 Government aims included a socialist economic plan for the development of the country, and sought the co-operation of the population for its implementation.33 In the first half of the decade exports (mainly cotton, sugar, lumber, copra, cashew nuts, rice, and tea) fell by 75 percent. The trade balance deficit reached peaks of 21.4 percent of GDP in 1980, and 24.5 percent of GDP in 1982, leading the Soviet Union and German Democratic Republic to provide 26 percent of Mozambican imports in 1984, in a show of political solidarity.34 With a three-digit inflation rate owing to “a widespread crisis in production and supply (…) the already critical situation took a turn for the worse due to economic sabotage, a flight of capital and resources, and a stoppage of production”, while foreign debt reached 275 percent of GDP.35 Moçambique joined the convention of Lomé in 1981.36 On 30 January 1984 the Banco de Moçambique started negotiations for rescheduling the foreign debt.37 The conflict with South Africa translated into economic disruption, and included a fall of emigrants’ remittances, because the number of Mozambicans working there decreased 60 percent, constraining the Mozambican balance of payments. Domestic difficulties with military actions from the opposition party, RENAMO, also disrupted rail transportation and exports. Effective management principles for corporations and small firms were considered as indispensable for promoting production, exports, and the success of the independent Mozambican economy. The United Nations estimated that Moçambique was among those world countries having a GDP of about USD 160 per capita, and estimated a population in the range of 12 to 13 million.38 Reliable national accounting data were inexistent but necessary for economic policy. A centrally-planned accounting system did not provide comparable data on national accounting. In the early 1980s, 90% of the Portuguese had left Moçambique, professional expertise was highly scarce, and training efforts were strongly required.

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Education was considered a priority, namely massive primary schooling, which jumped from 400,000 children in 1973 to 1.6 million in 1980.39 The control over the Mozambican balance of payments was a great worry for the government, and a Foreign Accounting Administration was created for this purpose.40 Co-operation agreements for trading with Portugal were signed on 30 October 1980.41 Working groups made up of staff from Banco de Portugal and Portuguese ministries drew up an agreement with Banco de Moçambique for bilateral and multilateral financial co-operation, signed on 30 October 1980 for one year, renewable for three more years. It was renewed in 1983 to be applied after 31 December, and aimed at minimising the Portuguese costs in the Cahora-Bassa dam.42 Both agreements were devoted to grant credit to contracts with Moçambique for exports of Portuguese commodities amounting to USD 120 million, at 7.5 to 8 percent interest rates, for one to nine years. Heavy and light equipment, consumption goods, and technical and scholarly-­ scientific books were the main items, as well as housing construction in Moçambique.43 The payment of interest overdue regarding previous exports to Moçambique was also under discussion.44 The agreements drove Mozambican staff to Lisbon for technical and banking training, as well as Portuguese experts to Moçambique. The specification of professional and living conditions to be offered to the Portuguese experts, namely economists, accountants, experts in credit, finance, computers, and civil construction, was included in letters from the Governor or Vice-­ Governors of Banco de Moçambique.45 Banco de Moçambique combined central and commercial banking functions, and had no independence (from the government). The bank was an instrument of governmental economic policy in classifying it as “a central body of the state apparatus”.46 The whole banking system was at the service of the central state plan for the Mozambican economic and social policy defined by the political party in the government of the country, FRELIMO. Portuguese technical assistance for staff training was regulated by agreements.47 In addition to banking training at the Banco de Portugal, many other institutions offered training opportunities, such as Caixa Geral dos Depósitos, Instituto Nacional de Seguros, Instituto Nacional do Frio, Centro Nacional de Embalagens, Junta Nacional do Vinho, Junta Nacional das Frutas, Comissão Reguladora dos Produtos Químicos e

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Farmacêuticos, Direcção Geral da Coordenação Comercial, Instituto dos Produtos Florestais, and Instituto da Propriedade Industrial.48 BNU colonial banknotes had legal tender, and new issues still followed up with overprinting declaring Banco de Moçambique. In 1980 the new currency unit of the country was created, the metical (MT), after a first attempt to create the metica, a currency that was to circulate after August 1976.49 These names mean peso, the gold currency unit used in the Monomotapa Empire, before the Portuguese colonisation, a name which came from the Arab word “mitghal” or metekal.50 Sérgio Vieira, the Governor of Banco de Moçambique at the time, describes in detail his appointment as Governor and his decision to introduce the new banknotes.51 Secrecy was the most important rule that was used in the whole process, in order to ensure the success of the operation. Printed in the Democratic Republic of Germany, the design for the banknotes was decided with Mozambican designers, as if it was for a collection of postage-stamps (postmarks). The new banknotes were accumulated and distributed to bank agencies throughout the country in boxes used for the transportation of guns and weaponry by troops (who were used to doing it), in complete ignorance of the real contents. The Vice-­ Governor and Minister of Finance were informed three weeks before the introduction of the new banknotes. The Board of the bank and government members received notice only on the day of the radio communication of Samora Machel, the President of Moçambique, to the entire population. To avoid speculation, the process to exchange BNU escudo banknotes (and the overprinted BNU escudo banknotes) into Banco de Moçambique meticals, was mainly accomplished in three days, from 14 to 16 June 1980.52 The changeover respected Law 3/80 on the exchange of BNU banknotes thanks to perfect logistics including staff from Banco de Moçambique, public administration, police, and members of FRELIMO. BNU banknotes lost their legal tender on 16 June 1980, and the local press announced that “creating a national currency was real decolonisation”.53 Considerable political propaganda was included: in replacing the “insulting” colonial escudo, “colonial aggression” was over.54 New official parities were announced for the new currency on 18 June with a depreciation of about 35% for the Portuguese escudo (1 Portuguese escudo = 0.6533 and 0.6663 meticais, for buying and selling operations, respectively). The maximum exchange amounted to 2500 escudos per person plus 3000 per family. All remaining amounts were to be deposited in

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banks, and withdrawal could amount to 5000 escudos per family after 27 June, 100,000 after 2 of July, and higher values after 18 September. Citizens abroad could exchange their BNU banknotes upon returning home. The effective accomplishment of the banknotes exchange process was finished within one year, and popular celebrations of the first anniversary of the creation of the metical included a funeral ceremony of the escudo in a white coffin.55 A Mozambican numismatist, Guilherme Cabaço, designed coinage for minting.56 By this time the staff of Banco de Moçambique was 100% Mozambican.57 In what respects co-operation, some disagreements with Portugal have existed. According to Prakash Ratilal, Banco de Moçambique’s Governor (from 1981 to 1986) and Vice-Governor in the years before (1977–79), the payment of consolidated delayed transfers of Moçambique was a question of disagreement, because Portugal intended to see them accounted and registered as Mozambican debt. However, such a disagreement “after many years, was cancelled by Francisco Sá Carneiro, Prime Minister of Portugal” in 1980.58 Fearing that future Portuguese governments might ask for the payment of consolidated delayed transfers, Banco de Moçambique cancelled the role of the Banco de Portugal as guardian of Mozambican means of payments. This role was transferred to the Union of Swiss Banks, the global asset manager. It is well-known that “Swiss financiers have (…) elevated secrecy and discretion to the rank of a fundamental value, more so than anyone else”.59 Sérgio Vieira, Governor of Banco de Moçambique from 1975 to 1981 attributes credit for this transfer to the intervention of geostrategist Pierre Schewed and political accusations against Portugal, in the context of the Portuguese application to join the European Economic Community.60 When the 1980 co-operation agreement with Portugal was extended for three years it was increased to USD 200 million.61 The economic co-­ operation with Portugal included contracts for a Portuguese loan of 1 billion escudos at a 4 percent interest rate to fund previous credit repayment,62 flights, projects for water provision, equipment for Pequenos Libombos and Corumana dams amounting to USD 1,303,600, and the Nacala railway. Contracts had different time maturities: • 3 years, for contracts with values equal to or below USD 500,000 • 5  years, for contracts with values from USD 500,000 to USD 2,000,000 • 7 years, for contracts with values above USD 2,000,000

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After extending the credit regime used for Guiné-Bissau to the other Portuguese-speaking countries in Africa on June 1982, additional developments for financial co-operation and Portuguese co-operators to work in Moçambique were added in 1983, as explained before.63 Long lists of Mozambican versus Portuguese exports strengthened the productive specialisation and international co-operation between the two partners.64 According to the resolutions of FRELIMO’s fourth congress of 26–30 April 1983, Banco de Moçambique and the government budget had a role in controlling the government deficit, price and wage policies, the balance of payments problems, which included foreign donations from the international community, and foreign public debt.65 Banco de Moçambique designed principles for a foreign exchange management system, and Law nr. 4/84 of 18 August 1984 recognised the importance of foreign direct investment (FDI), particularly for exporting sectors and import-­ substitution policies.66 Financial difficulties in Moçambique led the Governor of Banco de Moçambique to write a letter to creditor countries asking to reschedule the Mozambican debt.67 The ambition to attract FDI led to joining the International Monetary Fund and the World Bank on 24 September 1984, thanks to a French loan to pay for the entrance fee, and its repayment with a first IMF loan, under a scheduling system for foreign public debt payment to the Club of Paris’ member countries.68 Rescheduling the Mozambican foreign debt (USD 2.34 trillion) was the first financial achievement in this context of the Paris Club, on 25 October 1984.69 In this new political context an international agreement was signed on 2 May 1984 including Portugal, Moçambique, and South Africa, for the purpose of electricity provision from Cahora Bassa to South Africa and other countries. In the next year a consortium of Portuguese banks (CGD, BFN, BP&SM, BPA, BPA, BB&I, BF&B, and UBP) lent USD 40 million to the Mozambican railway company SOMAFEL for construction of the Nacala-Entre Lagos line, under a guarantee by Banco de Moçambique.70 The first financial agreements with the IMF were signed on 18 June 1985 (for SDR USD 59 million), and 8 June 1987, for USD 37 million, as a Structural Adjustment Facility (SAF) to cover the period up to 1990. An IMF mission report of 31 October 1986 on a visit to this country stresses the Mozambican military problems in a civil war with RENAMO (Resistência Nacional Mozambicana), which had ceased the operation of

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the huge hydro-electric Cahora Bassa complex since 1984, because of sabotage on the energy transportation cables and transmission lines to South Africa. With an installed capacity of 2075 MW, after a phase I works by Hidroeléctrica Portuguesa (HP) and a phase 2 works, by SWECO, Consulting Engineers, Architects, and Economists. This was a huge constraint to the Mozambican economy, and Zimbabwe offered military assistance to the pipeline and rail connection between Beira and Harare.71 An agreement signed on 5 September 1986 for a new Portuguese loan to Moçambique, included rescheduling of the Mozambican debt to Portugal and considered the entire amount that was unpaid until 30 June 1986. It was to be settled before 30 November 2006. Amounts lent after 31 May 1987 were to be settled in 20 semester installments until 15 March 2008.72 A side-letter of 16 June 1987 granted a USD 173 million loan, for the contracts signed before 1 February 1984 with BB&I, BESCL, BFN, BF&B, BNU, BP&SM, BPA, BT&A, CGD, CPP, SFP, and UBP.73 According to the terms of the loan, 5% of the capital would be paid in five installments up to 1990, and the remaining 95% in semester installments up to 30 June 1996. The Portuguese government guaranteed 9% of this loan (USD 15,510,947.18).74 This guarantee even increased by more USD 25 million in order to accommodate credit to Portuguese exporters to Moçambique, as well as to Portuguese firms working in Moçambique.75 From 31 January to April 1987, the metical was pegged to the US dollar.76 New agreements followed up covering the period up to 2002, with a partial (USD 3.7 billion) debt pardon on 30 June 1999. Credits from the World Bank International Development Association (IDA) as Administrator of the Special Facility for Sub-Saharan Africa were made available in 1988, 1992, 1994, and 1998. A depreciation of 80% on January 1987 adjusted the exchange rate to 1USD = 200 meticais.77 As part of agreements among 14 creditors, a second rescheduling of the Mozambican debt to Portugal (USD 73.56 million) was reached on 29 September 1989 (signed on  13 December 1990  in Lisbon, after three days of technical meetings). It included the entire amount of debt and accumulated interests to BBI, BESCL, BFB, BFN, BPA, BPSM, BTA, CGD, CPP, UBP, COBA, H.P, at a 4 percent interest rate. It was authorised that credits below USD 20 million could be awarded to Portuguese entities to participate in the equity of Mozambican firms to cancel 25% of the Mozambican debt to Portugal (USD 18.385 million). This amount was effectively settled when the Portuguese creditors were awarded stocks

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of several Mozambican firms, on 26 June 1991.78 The remaining 75 percent was to be paid from 1997 to 2008, with an interest rate of 4 percent.79 Several Portuguese firms were interested in having stocks in Mozambican firms.80 Capital participations could be transformed into new investment.81 A third rescheduling for public debt followed the Paris Club meeting of 14 June 1990 with 12 creditor countries (Italy, UK, Japan, Austria, West Germany, Belgium, Spain, USA, Finland, France, Sweden, and Portugal) and observers (IMF and World Bank).82 Final agreements were signed on 30 June 1991. Table 10.4 shows the Mozambican debt to Portugal on 31 December 1991 reaching USD 53.8 million. Summing up, seven rescheduling agreements of the Mozambican foreign debt between 1984 and the new millennium led to the pardon of about 90 percent of its stock, in the context of the Highly Indebted Poor Countries (HIPC) initiative.83 Internationally, the original metical depreciated from USD1=MZM30 in 1975 to USD1=MZM 24,500 in 2006.84 The peace agreement between FRELIMO and RENAMO in 1992 consolidated the transition to a market economy, benefiting in particular the banking sector: “The banking sector in Moçambique is one of the most dynamic in Africa”, say Costa and Redford (2017), in several indicators: “bank branches doubled between 2005 and 2015; automatic teller machines (ATMs) increased 2.5 times, and point-of-sale (POS) terminals quadrupled”.85 In the meantime, a new step to the assumption of central banking functions by the Banco de Moçambique occurred in 1987, when the bank’s organic structure and statute was revised to separate its functions as central bank from those of commercial bank.86 The philosophy of privatisation of state-owned banks created the separate commercial component of the bank, Banco Comercial de Moçambique, with its own building in Maputo for headquarters, and Banco Popular de Desenvolvimento, as private banks.87 Banco Comercial de Moçambique had a diversified and heterogeneous portfolio of savers and client firms, and employed 2504 people (89% of the previous staff of Banco de Moçambique), to work in the Maputo headquarters and in the 48 branches throughout the country.88 Difficulties to organize, frame and perform central banking functions were many, requiring a new department of legal issues (DAJ), which was created in 1987, and a Department of Economic Studies (DEE) for the production of macroeconomic statistics and periodic information (for domestic monitoring and for reporting to the IMF/World Bank), which

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was created in 1989. They computerised part of the services in the late 1980s-early 1990s, which eased inter-banking communication. Technical training at the Banco de Portugal, the Central Bank of Algeria, and the help of an expert from the Uruguay Central Bank were important features.89 In joining the African Association of Central Banks (AACB) on 21 June 1989, Banco de Moçambique further established its credentials as modern central bank. The Mozambican law n° 1/92 of 3 January 1992 consecrated Banco de Moçambique as the national financial regulatory and supervision authority leading to creation of a Department for banking supervision.90 A Mozambican National Association of Banks (ANB) was born on 26 January 1999, which also confirms the change towards a market oriented economy, as already expressed in the political constitution of the country.91 Banco de Moçambique was confirmed as the Mozambican central bank in the constitutional law of the country of 16 November 2004. To defend and promote the Mozambican banking sector, more banks joined the Mozambican Banking Association (AMB) as a private organisation made up of Banco Austral SARL, Banco Comercial de Moçambique SARL, Banco Comercial de Investimento SARL, Banco de Fomento SARL, Banco Internacional de Comércio SARL, Banco Internacional de Moçambique SARL, Banco Santander Totta de Moçambique SARL, BIM de Investimentos SARL, Credicoop SARL, and ULC Moçambique SARL.92 The financial system became more comprehensive by the end of the millennium with the creation of the Mozambican Stock Exchange in Maputo.93 One may read a clear explanation from the Ministry of Finance on the initiative of establishing the Maputo Stock Exchange: …we give a signal to market, that the government of the Republic of Moçambique supports the dynamisation of the financial sector, not only through the creation of new products and services, but also through the diffusion of useful information that allows citizens to take decisions on the kind of investment to make, in light of information we provide to them.94

Initially, Maputo Stock Exchange was founded as a public institute benefiting from administrative, financial, and patrimonial autonomy, organised as a free market, a truly open institution, for financial trading, thanks to financial resources from the government and the World Bank.95 It trades mainly on public debt (Treasury bonds and bills) and stocks. Its supervision is carried out by Banco de Moçambique.96 Brokerage and financial

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brokerage societies, as well as banks and financial societies, are the main actors for financial intermediation.97 Primary and secondary markets are at work for treasury bills, debentures, and securities.98 The financial co-operation between Portugal and Moçambique continued, and included the 2 November 2005 agreement on the change of corporate control of the Cahora Bassa dam to Mozambican hands. The estimated debts of the company to Portugal amounted to €1.7 billion at the time (US$2.2 billion).99 On 31 October 2006 Portugal sold part of the Portuguese stake at the price of 760 million euros (the disboursement was accomplished on 27 November 2007) keeping only a small participation of 15 percent in the equity of this hydroelectric plant. Therefore, the Mozambican government assumed the control of 85 percent of the equity. On 20 November 2012, as Hidroeléctrica de Cahora-Bassa (HCB) also sold 7.5 percent of its participation, the Mozambican government’s share and control increased to 92.5 percent.

Notes 1. The negotiators were, from the Portuguese side, the attorney Miguel Galvão Teles, the Deputy Minister of the Foreign Affairs (Jorge Sampaio), a representative of the Portuguese Central Bank (Walter Marques), a representative of BNU (José de Oliveira Marques), and a representative of the Minister of Inter-territorial Coordination (José Falcão e Cunha). As for the Mozambican side, we had two representatives of the Zambeze Planning Office (António Augusto de Figueiredo da Silva Martins, and Vicente de Carvalho), three representatives of the local BNU (Mário Peres da Silva, Guilherme Nunes Calado, and José Figueira Guerreiro), and two representatives of the Banco de Moçambique (Álvaro A. Fornazi, and Natália J. C. Leão). Banco de Moçambique 2015, p. 31. 2. Banco de Moçambique 2012, pp. 32, 33. 3. Points 4.1.a) and 11.3. Vieira 2012: 41–54, p. 42. 4. Vieira 2012, p. 44. 5. Diário do Governo of 31 December 1975, I Série, nr. 300, 2° Suplemento. 6. Informação, D.S.O.C., of 14.1.1976. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 7. As reminded to Banco de Portugal in a letter of 14 July 1975 by the vice-­ Governor of Bank of Moçambique. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990.

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Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 8. Information nr. 18 of 10 December 1975, from the Banco de Portugal to the Portuguese Ministry of Finance. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. Also available at Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs.Moçambique. 1975–1990. 9. Informação n° 18, Moçambique “Atrasados consolidados, Cativação efectuada pelo Banco de Portugal em 24 de Junho de 1975. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 10. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 11. Ofício n° 2508- 2ª Secção B – Proc° 2/46-G/1 – Repartição do Tesouro. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 12. According to a resolution of the Board of Ministers published in Diário do Governo, I Série, 2° Suplemento, of 31 December 1974. 13. Resolução do Conselho de Ministros, Diário do Governo, 25 de Fevereiro de 1976, I Série, n° 47. 14. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 15. According to a letter of 29 June 1977 from Banco Português do Atlântico to Banco de Portugal. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência Oficial sobre pagamentos atrasados de Angola e Moçambique. 1975–1976. 16. Pateguana 2016, p. 47. Mandlate 2012. 17. Aragão 2012, p. 60. 18. Authorised by Decree-law nr. 48,997 of 8 May 1969, adapted by Decree-­ law nr 234/72 of 9 July 1972. Jornal do Comércio of 9 July 1972. According to Decree 561/72 of 27 December 1972, Caixa de Crédito Agrícola de Moçambique was integrated in the Instituto de Crédito de Moçambique. 19. Mozambican decree 2/75, published in Boletim Oficial n° 59, of 17 May 1975. See also Aragão 2012, p. 59. 20. For the opening of new BNU branches in the overseas territories in the 1960s–1974 see Valério 2006, p. 181.

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21. Jornal do Comércio, 29 May 1975. 22. This is the date mentioned in a telegram of 3 December 1975 from Banco de Portugal to Bank of Moçambique. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. The agreement of 16 June 1975 is also available here. 23. Communicated by letter to the Portuguese Foreign Office Minister on 14 March 1997, after telegram of 10 March 1977. Proc. 10.1.3. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 24. Law 5/77 of 31 December 1977. Comiche 2012, p. 71 prefers to say that there was no nationalisation but a reorganisation of the Mozambican banking system. 25. 30 December 1977. They were formally communicated to the Governor of Banco de Portugal by letter of 16 January 1978. Doc. Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 26. On Casa Bancária de Moçambique see Portugal. Arquivo Histórico do Banco de Portugal. Actas do Conselho Nacional de Crédito. 1960–1972. 27. Portuguese law of 14 March 1975. Gaspar 2002, p. 16. 28. Banco Standard Totta, based on British capital, survived. On the role of these banks in Moçambique see Gaspar 2002. 29. Law 6/77 of 31 December 1977. See also Portaria 129/78. Calú 2012, p. 85. 30. Resolution nr. 11/80, a joint order of the Ministry of Finance and the Bank of Moçambique, of 30 December 1980. Banco de Moçambique 2015, p. 60. 31. According to the 1980 Missão do Banco de Portugal ao Banco de Moçambique, PALOPs, Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. See also Mosca 2005, p. 263 for the next years. 32. Portuguese loans awarded through BNU included: 22, 500 million escudos, 110 million escudos, 155,881 million escudos, and state guarantee of 1/8 percent to foreign loan interests, according to base XI of law 1/73 of 2 January 1973. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. Correspondência com o Ministério das Finanças. 1978–1979. 33. Government resolution nr. 11/80 of 1 January 1980. Banco de Moçambique 2015, p. 58. 34. Mosca 2005, 263–265. 35. Pateguana 2016, p. 56. 36. Araújo 1983: p. 110.

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37. Documentos Diversos. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. Mosca 2005, 266, 267. 38. According to the report of the 1980 Missão do Banco de Portugal ao Banco de Moçambique. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 39. Report of the 1980 Missão do Banco de Portugal ao Banco de Moçambique, Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 40. Administrative Order nr. 3/81. 41. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 42. A Cahora-Bassa agreement including South Africa is expressed in the Portuguese Decree nr. 38/84 of 18 July 1984, Diário do Governo, I Série, N° 165, p. 2195. 43. Informação n° 214/82/DESFE on “Acordo de crédito entre o Banco de Portugal e o Banco Nacional de Angola”, Documentação Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Angola. 1975–1990. 44. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 45. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. The specification of professional and living conditions to be offered to the Portuguese experts was published in Decree 14/83 of 24 February 1983, Diário do Governo, I Serie, N° 45, p. 620. 46. The Mozambican President, Samora Machel, in visiting the Bank. Banco de Moçambique 2015, p. 60, 63. 47. Of 30 October 1980, and 11 September 1981. 48. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 49. Law nr. 2/80. Notícias, 2ª feira, 16 de Junho de 1980. On the metica see Diário de Notícias of 7 July 1976. 50. As the preamble of law 2/80 explains, and with the same value (1 metical = 1 Mozambican escudo). Vieira 2012: 41–54, p. 51. 51. Vieira 2012. 52. Decree 13/75 of 21 June 1979 authorised the entrance in circulation of new BNU banknotes of 500 and 100 escudos. Banco de Moçambique 2015, p. 53, 56–57. 53. Notícias 16 June 1980, Monday. 54. A Tribuna, 19 June 1980, p. 13. 55. Banco de Moçambique 2015, p. 61.

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M. E. MATA

56. Pateguana 2016, p. 104. 57. Comiche 2012, p. 80. 58. Ratilal 2012, p. 94. 59. Guex 2009, p. 230. 60. Vieira 2012, p. 53. 61. On 9 September 1981, with Yasmin Patel, from Banco de Moçambique. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 62. Authorised by Law 32/82 of 30 December 1982, Diário da República, I Série, Nr. 300. Copy of the signed contracts is available. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. Law 23/89 extended the payment of this loan. 63. Portuguese Decree-law nr. 14/83 of 24 February 1983, Diário da República, I Série, Nr. 45. See also Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 64. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 65. Banco de Moçambique 2015, p. 64–65. 66. Banco de Moçambique 2015, p. 66. 67. Letter of Prakash Ratilal of 8 February 1984 to the Governor of Banco de Portugal. Doc. Diversa. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 68. Rescheduling agreements took place on 16 June 1988, 14 June 1990, 21 November 1996, 25 May 1998, and 17 November 2001. Banco de Moçambique 2015, pp. 68, 74, 80, 101, 105, 124. 69. For details on the decision to join the IMF and the payment of the entry fee, see Ratilal 2012, p. 112, 114. Patel 2012, p. 126. 70. Carta da CGDA ao Secretário de Estado do Tesouro, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, AHMF, pp.  234999–235,007. As interests were not paid, BP&SM cancelled its participation on 22 July 1987 when 192 km were built. More guarantees for interest payment on USD 15 million were asked for. 71. Portugal. Arquivo Histórico do Banco de Portugal. Departamento de Estrangeiro. PALOPs. Moçambique. 1975–1990. 72. Portugal. Arquivo Contemporâneo do Ministério das Finanças. SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, ACMF, pp. 23441–235,045. 73. Portugal. Arquivo Contemporâneo do Ministério das Finanças. SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, ACMF, p. 235026.

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74. With agency cost of 1/16 percent and a flat management cost of 3/8 percent. Portugal. Arquivo Contemporâneo do Ministério das Finanças. SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, ACMF, pp.  235061–235,063 e 235,075–235,144., 235,164–23,522, 235,236–235245ª, 235,255–235,333, ou 235,341–46. 75. This last reason did not apply. Portugal. Arquivo Contemporâneo do Ministério das Finanças. Letter of 14-7-1987 de Construções Técnicas SARLto the Minister of Finance, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, ACMF, pp. 234993–4. 76. Banco de Moçambique 2015, pp. 72, 98, 110. 77. Patel 2012, p. 128. 78. Law 21/89 of 28 July 1989. 79. Ministério dos Negócios Estrangeiros, Instituto para a cooperação económica, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, AHMF. 80. Instituto para a Cooperação Económica, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, AHMF, pp.  234743–234,757, e pp. 234890–234,963 para as autorizações concedidas. 81. Cartas ao Secretário de Estado das Finanças e à Direcção Geral do Tesouro, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, AHMF, pp. 234881–234,889. 82. Direcção Geral do Tesouro, informação, n° 559/90 de 27-6.1990, SETF, Sub-fundo GSETF, Série 33, código 331, Organismos Diversos, AHMF, p. 234861–234,869. 83. Patel, p. 128. 84. Valério 2019, p. 308. 85. P. 177. 86. Administrative order nr. 6/87 of 23 May 1987. Banco de Moçambique 2015, p. 72. 87. Decree nr. 3/92 of 25 February 1992. Maputo headquarters moved to the John building. Cândida 2012, p. 180. 88. Cândida 2012, p. 180, 183. 89. Viola 2012, p. 133, 134. Domingos 2012, p. 172. Cruz 2016, p. 55. 90. Maleiane 2012, p. 151. Santos 2012. 91. Constitutional law of 30 November 1990. Banco de Moçambique 2015, pp. 82–134. 92. On 26 January 1999. 93. On 14 October 1999, with a regime approved on 17 October 2000. 94. BVM, Bolsa de Valores de Moçambique, “Relatório de Desempenho do Mercado Bolsista”, Maputo (Aug), 2012, p. 3. 95. Mozambican Decrees 48 and 49/98 of 22 September 1999. 96. According to art. 4, local Decree nr. 48/98 of 22 September 1999.

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M. E. MATA

97. Mozambican law 15/99 of 1 November 1999. 98. From corporations such as CDM (Cevejas de Moçambique), CMH (Companhia Mozambicana de Hidrocarbonetos), CETA (Serviços de Construção), and Petromoc (Petróleos de Moçambique), in 2012. BVM, Bolsa de Valores de Moçambique, “Relatório de Desempenho do Mercado Bolsista, Maputo (Ago), 2012. 99. Pateguana 2016.

Bibliography Aragão, Maria Luzia, “Criação do Banco de Moçambique e do metical incluindo o processo de troca”, Histórias Vividas 1975–2010, Depoimentos, Banco de Moçambique, 2012. Araújo, Gustavo de Lima, “As Antigas Colónias Portuguesas e a Convenção de Lomé”, Assuntos Europeus, vol. 2, n 1, Feb 1983: 107–116. Banco de Moçambique, Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012. Banco de Moçambique, Banco de Moçambique 1975–2015, Cronologia/Chronology, Maputo, Centro de Documentação e Informação do Banco de Moçambique, 2015. Calú, Hamida, “O processo de integração da banca”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012:67–80. Cândida, Augusto Joaquim, “A separação das funções central e comercial do Banco de Moçambique”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 179–185. Comiche, Eneidas da Conceição, “O processo de reestruturação e integração da banca”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 67–80. Cruz, António Hilário, “BCV determinante para sobrevivência de Cabo Verde”, in Banco de Cabo Verde, 40 Anos de História, Praia: Alfa-Comunicações, 2016: 53–61. Domingos, Joaquim, “Reforma do sistema financeiro Mozambicano na vertente legislativa, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 171–175. Gaspar, Napoleão, “A evolução da banca Mozambicana e o contexto de transição, 1975–1983”, Arquivo, 22, 2002. Guex, Sebastien, “L’historiography of Swiss Banks”, in Feiertag, Olivier and Minoglou, European Banking Historiography, Past and Present, Athens, 2009: 211–255. Maleiane, Adriano Afonso, “Reforma do sistema financeiro”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012:139–153.

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Mandlate, José Cláudio, “Açúcar nem sempre doce”: dinâmicas e contradições da política portuguesa de povoamento, c.1890–1974, Cadernos de História de Moçambique, 1, 2012: 53–64. Mosca, Economia de Moçambique no século XX, Lisboa, Instituto Piaget, 2005. Pateguana, Carmélia Ernesto Langa, The Bank of Moçambique: Historical Review from 1975 to 2010, Masters Thesis, University of South Africa, 2016. Patel, Yasmin, “Adesão às instituições de Bretton Woods e início da implementação das reformas”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 123–135. Ratilal, Prakash, “Adesão às Instituições de Bretton Woods e início da implementação de reformas”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 119. Santos, Firmino Silva, “Supervisão do sistema financeiro”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012. Valério, Nuno, “Monetary decolonisation of the Portuguese Colonial Empire”, in Alice Cunha, Cristina Rodrigues, Ivo Veiga (eds), Economia e História, Estudos em Homenagem a Brandão de Brito, Colibri, 2019: 301–310. Valério, Nuno, History of the Portuguese Banking System, 2 volumes, Lisbon, Banco de Portugal, Portuguesa, 2006. Vieira, Sérgio, “A Mozambicanização da Banca e a criação da moeda nacional”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 41–54. Viola, José Frederico da Cruz, “Desafios na implementação do programa de reformas acordadas com as instituições de Bretton Woods”, in Banco de Moçambique, Histórias Vividas, 1975–2010, Maputo, Banco de Moçambique, 2012: 133–135.

CHAPTER 14

Final Remarks: Conclusions

After joining EFTA in 1959 and accepting the free-trade commitments consecrated in the General Agreement on Tariffs and Trade in 1962, Portugal launched the Escudo Zone Monetary Union (EZMU) in 1961. After detailed regulations and instructions on capital operations amongst the partners, and their operations with foreign countries, it went into effect on 1 March 1963. The small size of Mainland Portugal and the adjacent islands of Madeira and Açores was compensated for by the extension of its empire, which was an element of the political propaganda at the time.1 The EZMU embraced 23 million people, living in 2,180,000 km2. It included Portugal and the overseas territories of the Portuguese empire: two Atlantic archipelagoes (Cabo Verde and S.  Tomé e Príncipe), two west-African territories (Guiné and Angola), one east-African territory (Moçambique), and two small Asian territories (Macau and Timor). There were different escudo currencies in the territories, but they had a fixed exchange rate at parity (1:1 exchange rate) to stimulate capital mobility.2 The EZMU began on 1 March 1963, and statistical information on these flows is available for the eight partners. The central bank of the EZMU, the Banco de Portugal, was in charge of the accounting, on the basis of clearing operations to match all payments among all partners.3 This resulted in the creation of a fund for the EZMU to award credit to partners who were struggling in settling payments. Automatic loans were awarded on the basis of current needs, but the concession of special loans required detailed justification to the Board of Directors of the Fund. Based © The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2_14

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on the net positions of the accounts in the territories’ exchange funds, a clearing system was used to account the net positions for each of the partners, which were presented as net debt or net credit positions for settlement, depending on the existence of deficits or surpluses.4 Monthly computations were undertaken until December 1971 and did not continue in the wake of the monetary reform introduced in November of that year.5 Delegating the task of executing the monetary policy for the entire set of Portuguese territories, including Mainland Portugal, to the Banco de Portugal depended on the other two issuing banks, Banco de Angola, which issued the Angolan escudo currency, and BNU, which issued all other escudo currencies.6 This is a feature that makes the Escudo Zone quite different from standard monetary unions. The EZMU system of payments led to great entropy in the settlement of payments to the Mainland. Exchange Funds in the overseas territories could settle their payments among them, but they had no capacity to settle the enormous amount of payments to Mainland Portugal. To face this problem, they turned to automatic loans from the EZMU Fund,7 but some territories needed to also secure special loans from the Fund, and could never repay them. The EMZ was at work for 11 years, from 1 March 1963 until the military revolution of 25 April 1974, which announced decolonisation, although it formally persisted until the independence of the territories. For every one of the characteristics conventionally stressed in the OCA literature, the EMZ exhibits non-optimality. The conclusion is that the EMZ was some distance from being an OCA: both before its adoption, and subsequently. The importance of divergent production structure, limited degrees of intra-group trade other than with the Mainland, and frictions and flight in capital flows were the main problem for the settlement framework. Decentralized decision-making was in the effective operation of the system. Scientific efforts to focus on economic variables alone would miss the key determining factors that drive the success or failure of currency unions. Because of terrorism and guerrilla actions in some territories of the EMZ, saving-investment imbalances became increasingly significant in those territories. The wish of moving capital and transfer any revenues, as much as possible to the Mainland, simply meant that this region was considered to be safer and preferred, and that trust in the survival of the colonial system was declining. The worsening security situation was feeding into the lack of cohesion in the system of payment settlements. It is clear that this was a period in which national priorities and interests were

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strained, and differences in ideology and political style in the Mainland and the overseas territories were emerging, putting at risk the commitment to economic union. It is not surprising that OCA dynamics were to become central to the EMZ durability in less than a decade. Indeed, currency unification did nothing to beget the conditions of optimality. Deliberate policy and the unintended effects of the EMZ, are shown to have driven divergence. Arrears in payments were the signal of entropy in the EMZ settlement system as demonstrated in Mata and Machado (2017). Owing to the historical background, the Mundell’s conditions required for an optimal currency (OCA) area were far from being fulfilled by the EMZ. The members of the system enjoyed few of the benefits of OCA such as the elimination of speculative capital movements or reductions in transaction costs, while having to endure many of the costs. The EMZ illustrates that monetary unions, which do not fulfil the optimality conditions are unsustainable undertakings. They are fragile and tend to be reversible. Negative cumulative financial positions in some of the partners mean indebtedness and unsustainability, unless the surplus economy or economies will support the debtor territories with substantial transfers. The two largest partners, Angola and Moçambique, had large cumulative deficit positions, offset by the large cumulative surpluses of the Mainland. The 1971 reform reinforced more constraints to free trade in order to correct asymmetric flows in the EMZ, but could not solve the problems. The EMZ failure throughout the 1960s to early 1970s that contributed to the Portuguese decolonisation was not unique. The innovative idea for Monetary Zones is the assumption that currency areas are politically instrumental for economic and geopolitical dominance. They have been political tools that may be understood in the context of the economic history of Europe, the old Continent that has been the cradle of the Western Civilisation through the maritime discoveries and colonisation. At the time, the idea of the EMZ was presented as promoting the Portuguese national interest, economic growth, and geopolitical presence in Africa. All European colonial empires have failed. The EMZ was set within the period of increasing tension between the core and periphery, and even conflict in the peripheries. The political backdrop was one of agitation for decolonisation in the periphery and a concern for European integration in the core. The pertinent political and organizational factors that might help explain the system’s operation and failure are related with the colonial condition of seven territories, and colonial wars in three of them. The willingness and ability of Portugal to use its influence to keep the

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arrangement going on in acceptable terms was being tested and undermined. At the same time, the sense of political community required for constituent parts to agree on sustainable economic goals and adjustments was absent, at last. Legal provisions concerning currency issue and monetary management in the system fully explain the costs and benefits of compliance for member states, and the scope for shirking or exiting from the system. The conditions for a monetary integration to reasonably succeed are special and restrictive. Those conditions are similar to those for the establishment of a successful common market. The major and perhaps only, real condition for the success of both is the existence of political will to integrate on the part of all the members. The EMZ enables to understand the importance of these factors to the financial variables that were studied. After all, it is clear from the outset that non-economic factors are dominant in processes of OCAs and monetary unification. Following decolonisation, the nationalisation of means of production in the Portuguese-speaking African countries, newly-independent, strongly hurt the economic relationships with Portugal until the late 1980s. These years were traumatic for Portuguese entrepreneurship and investment because of the generalized disrespect of property rights. Only later, and thanks to political changes in those countries, did a new more business friendly climate arise, benefiting from Portuguese credit lines for exports. The development of local more market-oriented economies and reconstruction after the end of civil wars in Angola and Moçambique, with increasing openness to international partners, created new attractiveness for doing business with those countries. Moreover, privatisations gave birth to joint-ventures, namely in banking. However, and in spite of political stabilisation in these African countries, the economic relationships no longer had the same relative importance as they did during colonial times, as the progressive integration of the Portuguese economy with European partners was much more effective. The cooperation continues in spite of much smaller trade relationships. (Nevertheless, Angola is one of the most important Portuguese commercial partners). In analysing the monetary transition experiences in the territories of the former empire, it is easy to conclude that Portuguese-speaking African countries could pursue the creation of their own national monetary and financial systems. The replacement of old banknotes by new currency was easy and efficient, although it may have taken some time to implement and complete, according to the issuing capacity and local organisational resources.

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Banking and central banking are pillars of developed market economies in the global world that are usually accompanied by a boost for creating large corporations, and national and supra-national stock markets. The foundation of national central banks was a step-by-step process. It went hand in hand with the creation of banking systems and international trade co-operation. Technical expertise in monetary economics and personal integrity are decisive features for credibility in the performance of central bank Governors. In reaching the top of financial hierarchies, Governors of central banks are a select group all over the world. Giving central banks new powers in regulation and supervision of commercial and investments banks was the last step in the financial transition in all the Portuguese-speaking African countries, as well as the foundation of national stock exchanges.8 Shared knowledge and co-operation have been main elements in Portuguese-speaking central banking practice. Historical advantages of central-banking good practices and co-operation have been evident and available since the 1930s.9 Technical capabilities, transparency, professionalism, and independence are main values for central banking co-operation in order to promote global monetary and financial stability. Information technologies and instantaneous access to information have become critical instruments for joint projects and institutional improvement in the global world we now live in. Statistical information, communication and publications, accountability, technical assistance and consulting, seminars, and training have promoted mutual synergies and flexible relationships in the Portuguese-speaking world. Portugal, the old colonizer, has had a central performance in the process of post-independence relationships with all African partners which were Portuguese colonies. The Portuguese-speaking African countries have developed increasingly mature financial systems since the proclamation of their independences to the new millennium. Traditionally, the European countries were the leaders of stock exchange capital markets. The Lisbon Stock Exchange has remote origins in financial networks with the organisation of commercial fleets for new maritime trade routes to Africa, Asia, and Americas during the Age of Discoveries.10 As it happened with other stock markets in Europe, the need to foster trade drove these capital market organisations spontaneously, to match capital supply from savers with the capital demand of entrepreneurs.11 Government intervention and regulation in most cases

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have been aimed at improving transparency, honourability of the proceedings, and trustworthy conditions for business-friendly environments. Financial services are decisive instruments for economic development and modernisation anywhere, and especially in Africa, the most recent continent seeking to achieve high standards of living for its people, preferentially under democratic political regimes.12 In the case of the Portuguese-­ speaking African countries the same perspective may be adopted.

Notes 1. “Quando se trata dos interesses nacionais não contam os interesses ou as ambições de ninguém”, Diário de Notícias, 23 September 1962. “O Governo anuncia novas providências para a unificação e o desenvolvimento da economia do espaço português, Diário de Notícias, 26 August 1962. 2. “Entram hoje em vigor as primeiras reduções aduaneiras relacionadas com a integração do espaço económico Português”, Diário de Notícias, 15 August 1962. “Mais um passo decisivo para a integração do espaço Português: A estrutura da Zona Monetária do escudo”, Diário de Notícias 3 Sptember 1962. 3. New statutes for the bank were issued for a contract with central state. Decree-law 44,814 of 28 December 1962, Diário do Governo, nr. 297 of the same date. 4. To match a net debt position of a territory, the agent of the system (Banco of Portugal) used gold and foreign currencies of the reserve account of this territory in Banco de Portugal, according to articles 28, 29 and 34 of decree-­law 44,703 of 17 November 1962. 5. By decree-law nr. 478/71 of 6 November 1971. 6. New contracts were signed with these two banks for their role in the EZMU, approved by Decrees-law 44,891 and 44,892 of 20 February 1963, respectively. Banco de Portugal, Espeécie 7,201,002, 1. II, Designação 10, Espaço Económico Português, Contratos entre o Estado, Banco de Portugal, BNU, Banco de Angola, Comunicações ao Governador, AHBP. 7. According to articles 29 and 35 of decree-law 44,703 of 17 November 1962. 8. Cassis 2013, p. 757. 9. Azevedo 2015. 10. Bettencourt, F., Curto, Diogo R. 2007. 11. Mata Costa, and Justino 2017: pp. 175–255. 12. Redford 2017.

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Index1

A António Manuel Pinto Barbosa, 95, 114 Arrears, 37, 38, 40–41, 52, 57, 77, 85, 90, 94, 106, 109, 112, 141, 194, 200, 214, 237 Automatic loans, 13–15, 17, 18, 27, 41, 51, 54–59, 124, 235, 236 B Balance of payments, 30, 31, 36, 56, 74, 88, 90, 102, 129, 168, 181, 183, 200, 202, 218, 219, 222 Banco de Angola, 12–13, 15, 18–20, 33–36, 38, 54, 57, 58, 62n18, 62n21, 67n57, 78, 79, 92, 104, 105, 110, 125, 126, 128, 129, 130n9, 137, 151–153, 158n3, 194–197, 217, 236

Banco de Cabo Verde (BCV), 137, 138, 164, 165, 167–169 Banco de Moçambique, 137, 138, 145n24, 214–222, 224, 225, 226n1, 228n31, 229n38, 229n39, 230n61, 230n68 Banco Nacional da Guiné-Bissau (BNGB), 137, 138, 170, 175, 177 Banco Nacional de S. Tomé e Príncipe, 137, 138, 145n24 Banco Nacional Ultramarino (BNU), 12, 13, 18–20, 20n4, 22n33, 22n35, 23n41, 26, 30, 33–36, 38, 39, 41n6, 46n63, 46n68, 51, 54, 57, 58, 73, 78, 79, 89, 91, 96, 98n31, 98n33, 105, 111–113, 125, 126, 128, 129, 137, 138, 151–153, 164–166, 170–174, 178–180, 182, 189n101, 194, 213–216, 220, 221, 223, 226n1, 236

 Note: Page numbers followed by ‘n’ refer to notes.

1

© The Author(s) 2020 M. E. Mata, The Portuguese Escudo Monetary Zone, Palgrave Studies in Economic History, https://doi.org/10.1007/978-3-030-33857-2

263

264 

INDEX

Banking system, ix, 75, 76, 93, 111, 123–129, 133–144, 175, 180, 195, 197, 215, 217, 219, 239 Board of Directors of the Escudo Monetary Zone, 16, 41n7, 42n9, 43n23, 45n58, 46n64, 46n66, 60n3, 61n8, 61n9, 61n11, 61n13, 61n14, 64n40, 65n43, 67n55, 82n32 C Caetano, Marcelo, 71–80, 85, 90 Cahora Bassa, 90, 91, 105, 106, 213, 218, 219, 222, 223, 226 Colonial war, viii, 3, 39, 51, 76, 112, 237 Cooperation, 17, 18, 139–141, 157, 158, 163, 166, 169, 172, 200, 204, 238 Credit lines, 126, 127, 139, 155, 166–168, 172–176, 181, 182, 188n81, 197, 198, 200, 202, 203, 215, 238 D Decolonization, ix, 163 Development plans, 75, 90, 92 Dobra, vii, 138, 178–183 E The end of the Escudo Zone Monetary Fund, 152 Escudo Monetary Zone (EMZ), viii, ix, 1–5, 11–20, 25–41, 41n7, 51–60, 71, 72, 74–76, 79, 80, 85, 87, 92, 93, 99n47, 101–104, 106–108, 110, 111, 124, 125, 135–137, 142, 151, 153, 163, 236–238

Escudo Monetary Zone Fund, EMZ Fund, 19, 26, 31, 36–38, 40, 41, 51, 53, 54, 56–60, 64n35, 64n36, 64n37, 64n38, 64n39, 64n40, 65n43, 66n47, 66n48, 72–74, 76, 78–80, 82n32, 94, 96, 104, 112, 113, 115, 124, 125, 151–158, 159n9 F Foreign Exchange Management Funds, 11–13, 16–20, 25, 26, 30, 36, 37, 51, 52, 54–57, 59, 72, 73, 75, 79, 85, 88, 90–94, 96, 104–106, 108, 109, 111, 112, 115, 136, 151–153, 155, 164 Frente de Libertação de Moçambique (FRELIMO), 133, 157, 213, 214, 217–220, 222, 224 Frente Nacional de Libertação de Angola (FNLA), 134, 193 G GDP, 30, 113, 114, 153, 155, 159n13, 173, 174, 197, 218 General governor of Angola, 47n76 Governors of Banco de Cabo Verde, 169 Governors of Banco de Moçambique, 140, 220–222 Governors of Banco de Portugal, 16, 28, 81n10, 81n11, 81n12, 85, 95, 185n52, 211n71 Governors of BNA, 201, 208n38, 210n53 Governors of the colonial Banco de Angola, 15, 62n18, 62n21, 67n57, 110

 INDEX 

I Independence agreements, 123–129, 193, 213 Interest rates, 27, 36, 37, 54, 55, 58–60, 62n19, 63n28, 64n41, 65n46, 73, 78, 87, 91–94, 106, 109, 115, 127, 128, 142, 153, 156, 167, 168, 173–176, 181, 183, 196, 197, 200, 201, 209n44, 215, 217, 219, 221, 223, 224 K Kwanza, vii, 138, 193–206 L Loans, 12, 14–16, 27, 31, 32, 34–37, 41n6, 42n12, 55, 57, 59, 60, 65n41, 65n46, 67n56, 74, 77, 78, 91, 92, 94, 96, 106, 109, 112, 113, 115, 117n24, 128, 129, 139, 152, 156, 169, 170, 172, 174–176, 181, 183, 186n60, 204, 213, 218, 221–223, 228n32, 230n62 M Metical, vii, 138, 213–226 Movimento para a Libertação de Angola (MPLA), 134, 157, 193, 203 Movimento para a Libertação de São Tomé e Príncipe (MLSTP), 133, 178

265

N Net cumulative positions, 71, 72, 77 New currencies, 5, 133–144, 157, 163–183, 220, 238 Nunes, Manuel Jacinto, 15, 16, 67n60, 114, 158n2 P Partido para a Independência da Guiné e Cabo Verde (PAIGC), 39, 112, 133, 165, 166, 170 Peso, 138, 169–178, 220 R Rafael da Silva Marques Duque, 28 Rebocho Vaz, Camilo, 58 Reform of the Escudo Monetary Zone, 101–115 Retornados, 123–129 S Salazar, António de Oliveira, 2, 58, 60, 71, 74, 90 Special loans, 13, 16, 17, 27, 38, 41, 51, 53, 55, 57–59, 62n19, 65n41, 65n46, 72, 74, 79, 91, 96, 106, 115, 124, 151, 153, 235, 236 Stock Exchanges, 111, 134, 138, 169, 178, 183, 198, 239 U União Nacional para a Independência Total de Angola (UNITA), 134, 193, 203, 205