NAIROBI, May 16 (Xinhua) -- Kenyan President Uhuru Kenyatta has authorized the Treasury to pay 16.1 million U.S. dollars controversial Anglo Leasing debt, which officials and Kenyans believe was a corruption scandal.
In a statement issued on Thursday evening, Kenyatta said the government's decision to settle the judgment debt is premised on protecting Kenya's economy on account of rising interest rates occasioned by domestic borrowing due to constrained access to international borrowing.
He said settling the debt will also protect Kenya's reputation as a country that meets its contractual obligations and adheres to the rule of law; protecting assets abroad, and maintaining and improving the country's credit rating currently at B+.
"The government has exhausted all judicial options to forestall payment of the judgment debts and the way forward is for the government to settle to minimize further loss as the outstanding awards continue to accrue interest," Kenyatta said.
The statement however stated that by making the "painful decision" to settle the debt, the president is not legitimizing what he and many Kenyans believe to have been a series of fraudulent transactions.
The Anglo Leasing scandal, which started before the 2002 election of former President Mwai Kibaki, involved state contracts worth hundreds of millions of dollars being awarded to nonexistent firms.
The start of the scandal was the contracting of a loan in December 2003 by the Department of Immigration to enhance security by modernizing the issuance of secure passports and purchase of security equipment for use at Kenya's borders.
The procurement process was however abused and a company, Anglo Leasing and Finance Company Ltd, was awarded the tender and 1.1 million dollars paid up-front.
This became public on May 4, 2004 when the matter was raised in Parliament. Subsequent review revealed that in the external public debt database, there were a total of 18 contracts similar to the one arranged by the Anglo Leasing and Finance Company Ltd and from then on these loan contracts were labelled "Anglo-Leasing."
Investigations revealed that the contracting of loans similar to Anglo Leasing had been going on in the government for a long time.
In his statement, Kenyatta said it's important that the government honors the court awards to forestall attachment of government assets abroad.
The claimant has applied to international courts seeking to enforce the judgment in both cases and attach government assets abroad.
The president said the Attorney General as well as an independent international legal firm Dentons of Britain, has advised that there is no legal avenue left for the government apart from settling the payments.
This period, Kenyatta said, also coincides with the proposed issuance of the first international sovereign bond to finance the Fiscal Year 2013/2014 budget.
"The issuance cannot take place unless all obligations related to the court awards are paid. The claimants have threatened to have international courts attach the bond proceeds until the judgment debts are settled," he said.
The president said the stalled bond process means the 2013/2014 budget cannot be implemented and expenditures and services will have to be drastically scaled down.
"It is estimated that the annual costs of non-settlement would be 241 million dollars, being the cost of higher interest rates on domestic borrowing both for the public and private sectors," Kenyatta said.
"Therefore, given that the cost of paying the judgment debts is 16.1 million dollars, this means that the benefits of settling them outweigh the costs of nonpayment by 15 times. In addition, by paying the 16.1 million dollars, the government unlocks the 1.5 billion dollars from the sovereign bond," he said.
According to Kenyatta, a rise in domestic interest rates would lead to credit crunch to the private sector resulting to stymied investment, lower economic growth, increase unemployment and poverty.
"This would not help us achieve our Vision 2030 which is predicated on a stable macroeconomic environment," he said.
He noted that the negative impact on the Kenyan economy would also adversely affect rating by such international rating institutions as Standard and Poor's, Moody's and Fitch Rating.
It would also negatively impact the government's access to financing by other creditors including the traditional concessional lenders.
The president said stoppage of the bond process will cause a major setback and embarrassment to the government and transaction advisers and irreparably injure Kenya's reputation as it prepares to launch its debut bond.
"This bad reputation will be difficult to cure in the medium to long term and will affect every Kenyan-based business trying to engage in international commerce. A high premium will always be factored in the prices for such transactions," Kenyatta said.