James Alix Michel sham Elected President Wants Us to Think that We are no longer Bankrupt As A Country and That their Is no need to Implement Democratic Changes!!

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SIPDIS 

AF/E FOR MARIA BEYZEROV 
JOHANNESBURG AND CAPE TOWN FOR FCS 
 
E.O. 12958: DECL: 11/06/2018 
TAGS
:           
SUBJECT: PARADISE LOST: HOW CORRUPTION BANKRUPTED SEYCHELLES 
 

365 Classified By: Amb

REF: A. A) PORT LOUIS 267 
      B. B) PORT LOUIS 316 
      C. C) PORT LOUI
Sassador Cesar B. Cabrera for reasons 1.4 b and d. 
 

corruption throughout the ranks are behind the Seyche

1. SUMMARY: (SBU) An overall lack of transparency an
dlles' 
recent international appeal for help after a chronic lack of 

debt burden of 175 percent of GDP effectively left the cou

foreign exchange, loan defaults, drastic inflation, and an 
excessive
 ntry bankrupt.  After defaulting twice on government 
debt payments, Seychelles will be forced to accept economic 

aque economic system. END SUMMARY. ----------------- CUR

reforms they have so long rejected and possibly confront and 
correct a seemingly corrupt, government controlled, o
pRENT SITUATION 
----------------- 
 
 2. (U) According to studies conducted by various 
International Monetary Institutions (IMI) as well as the 

foreign exchange shortages, and excessive state con

Seychelles Chamber of Commerce and Industry (SCCI), 
Seychelles has been flirting with bankruptcy for years due to 
poor economic policies, severe
 trol of the economy.  Despite having a 
per capita GDP of 10,000 USD and being classified as an 
"upper-middle income" country by the World Bank, the 

of foreign exchange led to Seychelles defaulting on a prin

Seychelles recently was forced to the breaking point due to 
rising inflation and perennial shortages of foreign exchange. 
 
 3. (U) In July 2008, lac
kcipal and interest repayment 
of a 85 million USD private placement note causing 
international credit rating agency Standard and Poors (S&P) 
to downgrade the country's foreign currency sovereign credit 

from CCC, in anticipation of the government also defaulting

rating to Selective Default (SD) from the already low rating 
of CCC/C.  The July default prompted S&P to lower the credit 
rating on Seychelles 230 million USD global bond, which 
matures in 2011, to CCC-
 on this loan, which indeed did 
happen in early October 2008. 
 
 4. (U) According to an October 29 Reuters Africa report, the 
government is asking 12 percent of its civil service, the 
largest employer in the nation, to "voluntarily" resign in 

accordance with the new IMF program, the Rupee depreciated

order to cut costs on the national economy, which has a debt 
burden that, according to government statistics, equals about 
175 percent of GDP.  On November 3, international press 
reported that after exchange controls on the Rupee were 
lifted i
n78 percent to the U.S. Dollar moving the exchange 
rate from USD 1 = SRs 8 to USD 1 = SRs 14.29.  This coupled 
with the global credit crisis is sure to peak already high 
inflation rates in Seychelles. 
 
 5. (C) The credit downgrades and continued defaults coupled 

reschedule Seychelles' debt until they worked with the I

with an all time high year-on-year inflation rate of 31.6 
percent driven by rising food and oil prices suggest that 
Seychelles will have a difficult time securing foreign loans 
to continue to finance their debt.  The Paris Club lenders 
stance to reject a request t
oMF on a comprehensive program 
made Seychelles' desperation more apparent. 
 
----------------------------------- 
REASONS GIVEN FOR THE CURRENT CRISIS 
----------------------------------- 
 
 6. (C) A quick glance at international headlines on the 
Seychelles economy will suggest that this small, 

global economic situation has exacerbated the problem

net-importing island nation is a victim of the global 
financial crisis, or rising commodity prices.  The Seychelles 
Government (GOS) offers vague official statements that cite 
"irregularities" or "errors" as a reason for recent defaults 
on debt payments.  Even though it is clear that the current
 , 
history, local contacts, and recent occurrences suggest 
instead that Seychelles faces this situation due to internal 
culprits -- especially the lack of transparency, government 
 
PORT LOUIS 00000381  002 OF 005 
 
 
cronyism, and corruption. 
 
 7. (C) International bodies, including USG advisors, have 

uded devaluing the currency, privatizing state-owned enter

warned Seychelles for many years that their economy was in 
need of drastic reform.  For example, in 2005, a visiting 
World Bank team urged them to prepare an 'Economic 
Restructuring and Debt Workout' plan and provided them with a 
proposed timetable for its implementation.  Key first steps 
in this plan inc
lprises, and meeting with donors to address 
debt in arrears.  Even before the World Bank suggestions, 
Paris Club lenders urged Seychelles to adopt an IMF program 
and devalue their currency.  Seychelles remained defiant to 
these suggestions.  In 2006, the Permanent Secretary at the 
Ministry of Finance (MOF) explicitly told a USG-funded debt 

tic debt only, even though at the time GOS had just tak

management advisor that GOS would not consider currency 
devaluation in the immediate future.  Furthermore, despite 
the exasperating effects that overvaluing the rupee had on 
foreign exchange and GOS' ability to pay off foreign debt, 
the Central Bank of Seychelles (CBS) and MOF Debt Management 
Team encouraged the USG advisor to focus on dome
sen out a 200 
million dollar global loan (approximately 1/3 of GDP) with a 
2011 maturity date. 
 
 8. (C) Although government officials cited concerns for 
short-term social unrest as the reason they avoided 
implementing economic reform, opposition leaders, private 
sector representatives, and others -- in private meetings 
with EMBOFFS -- all pointed to fraud and corruption as the 

helles Trading Company (STC)), and use budget sur

real reason.  Continued pressure from the IMF and 
multilateral lenders to undertake reform measures caused GOS 
to finally accept the need to introduce modest reform in late 
2006 to allow the rupee to fall from USD 1= SRs 5.50 to USD 1 
= SRs 8, announce moderate privatization of the Seychelles 
Savings Bank and several units of the former Seychelles 
Marketing Board (renamed the Sey
cpluses to pay down domestic debt. 
 
 9. (C) GOS acceptance to undertake these reforms seems 
positive until one considers that shortly after initiating 
reforms, GOS halted the depreciation of the rupee leaving it 
overvalued, as witnessed by its persistent trading on the 
black market.  The STC does not have any buffer stock of 
commodities, so price inflation was immediate at the onset of 

e sector, there is still reason to suspect that budget s

economic reform, which wreaked havoc on foreign exchange 
reserves, so the GOS remained hesitant to restart 
depreciation measures (Note: On November 3, GOS lifted 
exchange controls due to a mandate by the new IMF program. 
End Note.)  In addition, even the moderate privatization 
announced concerning the Savings Bank and STC has yet to take 
place, and according to Post contacts in the priva
turpluses will 
continue to be spent on government projects instead of 
financing domestic debt. 
 
 10. (C) In a September 2008 conversation, local businessmen 
and SCCI members told ECONOFF that they have little faith in 
the government paying down its domestic debt (currently 2/3 
of GDP) with budget surpluses because throughout the years, 
the government has consistently put any reported surplus into 

. In another example, local businessman Marc Hoareau, m

heavily lauded but ineffective government projects.  One 
businessman noted the 25 million USD desalination project, 
championed by the head of the ruling Seychelles People's 
Progressive Front (SPPF) and, by most accounts, real ruler of 
Seychelles, Albert Rene as the project that would make water 
shortages something of the past.  To date, Seychelles has 
water shortages and the plant still does not wor
kentioned 
the prawn farm in Coetivy Island as another lionized 
initiative that has not lived up to its billing, left the 
country indebted some 75 million USD, and could not be sold 
to any private management company because it was deemed 
non-competitive on the world market. 
 
------------------------------------------- 
SHADY LINKS BETWEEN BUSINESS AND GOVERNMENT 
------------------------------------------- 
 

s call him, Siva. Reportedly, Siva will use the island to

11. (C) According to the Indian Ocean Newsletter, a weekly 
periodical sponsored by Indigo Publications, the government 
 
PORT LOUIS 00000381  003 OF 005 
 
 
could not find a buyer for the prawn project on Coetivy 
Island, so it decided to cut its losses and sell the island 
for 117 million USD to Indian businessman and recently 
president-appointed Ambassador-At-Large, Chinnakannan 
Sivasankaran, or as the loca
lcreate a tourist complex of ten 
250 room hotels.  Although this seems like it could be a 
regular business deal, many local contacts tell EMBOFFS that 
business deals like these, that hint at corruption and are 
motivated by political gains with little regard to the local 
economy, are destroying Seychelles' economic future. 
 
 12. (C) SCCI Chairman Albert Payet recently told POLOFF that 
in 2004, when the SCCI met with MOF, the SCCI recommended 

ers reported with disappointment that many tourist resorts (s

amending the Tourism Incentive Act (TIA) so that once tourism 
was operating at almost full capacity, investors and hotels 
would receive fewer concessions, but to their chagrin, the 
new TIA released earlier this year granted even more 
concessions.  Official MOF documents dated November 26, 2007, 
show concessions given to the Ephelia Resort which exempts 
the resort from 75 percent of the regular taxes imposed on an 
investor.  Moreover, SCCI mem
bpecifically citing 
North Island, Le Marriott, The Banyan Tree, and the 
Silhouette) that do their business primarily in foreign 
currencies effectively bring little foreign exchange (FOREX) 
through Seychelles banks because of retention rates that 
allow some to retain up to 100 percent in foreign coffers. 
 
 13. (C) In an October 30 meeting, Ralph Vocere, editor of a 
local paper and member of an opposition party, illustrated 
the situation further with an anecdote about the Barbaron 

d be able to keep 100 percent of their earnings. This is al

Hotel, the hotel with reportedly the most revenue earned in 
FY 2008.  According to Vocere, the foreign owners of Barbaron 
Hotel also have a commanding stake in Aitel Phone Services, 
which is a big local phone service provider that does 95 
percent of its business in rupees.  The owners could not 
repatriate the funds from Aitel given the current status of 
the rupee, so GOS reportedly made a deal with the owners that 
they could invest in a local hotel to earn foreign exchange 
and wou
llegedly how the owners bought the Barbaron Hotel and now 
are able to retain 100 percent of the FOREX.  Contrastingly, 
according to post contacts, local Seychellois hoteliers are 
allowed to keep only 15 percent of the foreign exchange they 
earn. 
 
 14. (C) Vocere reports that corruption, coupled with the 
selling off of lands to what he calls the "business mafia," 
is what is holding back the Seychelles economy.  He believes 
that until this problem is tackled, the IMF and World Bank 

ident Michel after only being in Seychelles for about a year.

can keep attempting to help the Seychelles, but it will be to 
no avail. Vocere added that the "mafia" consists of key 
Seychellois figures such as SPPF chief Albert Rene and other 
SPPF cronies, Indian businessman Siva, local businessmen the 
Savy brothers, and "Arab investors."  "Mafia" member or not, 
no one can deny that Siva has profited from his time in 
Seychelles.  He now owns many business, three islands in the 
Seychelles archipelago, and was nominated Ambassador-at-Large 
by Pre
s This nomination was supposedly a reward for 
bankrolling Seychelles debt and providing money to government 
officials.  Soon after awarding him the position, the 
Government of Seychelles requested a U.S. diplomatic visa for 
Ambassador-at-Large Siva.  When Post requested information as 
to the plans and nature of the diplomatic trips planned by 
Siva, the GOS withdrew the application. 
 
 15. (C)  According to Vocere, the current IMF team has 
uncovered 3 billion USD in overseas Seychellois bank 

use of a tip from the Seychelles authorities that he was sm

accounts. The day after Vocere made this information public 
during a delivered speech in downtown Victoria on November 4, 
he was arrested on charges of "unlawful assembly" and remains 
detained.  This is not the first time Vocere has been 
detained for criticizing the government.  In October 2008, 
Vocere's printing press was shut down by the Seychelles 
government and he traveled to Mauritius to print his 
opposition paper.  According to the GOM, the Mauritians 
detained Vocere at the airport bec
auggling heroine into 
Mauritius.   No heroin was found and the GOM released him 
 
PORT LOUIS 00000381  004 OF 005 
 
 
without any charge. 
 
 16. (C)  When asked about possible corruption on a local 
television program on September 4, Guy Adams, the head of 
Seychelles Petroleum Company -- one of the largest and most 
profitable companies in the nation --  said that his company 
had not been properly audited in 20 years.  This would have 
made it easy, he declared, to siphon off millions of dollars 
if had wanted to do so. 
 

lles gossip. Among the many allega

----------------------------------- 
CHANG-LENG: CHARACTER OF CORRUPTION 
----------------------------------- 
 
 17. (SBU) While corruption allegations surround many SPPF 
partisans and associates, no figure has received as much 
negative attention for the current crisis as former Central 
Bank Governor, Francis Chang-Leng.  Admittedly, there were 
many reports in local press accusing Chang-Leng of corruption 
before the recent loan defaults, but even if there were truth 
to the claims none was substantiated beyond normal Seych
etions against Chang-Leng, one 
promulgated by many sources is that he spent 8 million SRs of 
Seychellois taxpayer rupees to treat a select group of female 
employees that he calls his "Strategic Team" to overseas 
trips with him. 
 
 18. (C) While in recent meetings with ECONOFF, Chang-Leng 
dismissed the Seychelles load default as an "irregularity," 
local press reported that Chang-Leng unilaterally issued the 
government debt that caused the default and that it was 
months before the Ministry of Finance or President knew about 

Michel's hand to investigate the claims. Even with hard f

it.  Press reports also suggested that the Lehman Brothers' 
representative who bought the risky debt had close ties with 
Chang-Leng and alleged that some money issued had been 
pocketed by Chang-Leng.  In an October 30 meeting, Ralph 
Vocere said that he has been accumulating corruption evidence 
against Chang-Leng, but was waiting for the right time to 
release it.  Vocere believes Chang-Leng's recent streak of 
independence and his recent vacating of his CBS post leaves 
him vulnerable for the attack, which will force President
 acts of corruption, the general take from many Post contacts 
is that a conviction of Chang-Leng will be difficult due to 
"a weak judiciary." 
 
--------- 
JUDICIARY 
--------- 
 
 19. (C) Another suspicious situation is the liquidation and 
subsequent sell-off of The Plantation Club, formerly the 
second largest hotel in Seychelles.  On August 5, Judge 
Andrew Ranjan Perera ordered the liquidation and helped the 
GOS -- who only held an eight percent share -- shutdown the 
hotel.  The next day, Perera was made Chief Justice.  Local 

previous owner, threatened to force the former owner, a U.S

media reported that Perera was appointed Chief Justice as a 
reward for his judgment in SPPF's favor.  This raised 
concerns of the local private sector community and the 
opposition press.  The perception and allegations of 
government corruption grew when the hotel was eventually sold 
off to the lowest bidder out of three, European Hotels and 
Resorts Limited, a newly formed group of hotel investors with 
ties to the SPPF establishment and a Saudi businessman, 
Sheikh Abdul Mohsin bin Abdulmalik Al-Shaikh, who has, 
according to the
 . Citizen, out of business since 2006. 
European Hotels and Resorts Limited's directors, lawyers, and 
bankers have direct links to the Saudi businessman. 
 
 20. (C) According to many sources, including the former 
Plantation Club owner and SCCI members, the Plantation Club 
ruling is only one of many corrupt rulings by the weak 
Seychelles judiciary.  The constitution states that the 
judiciary is independent; Embassy contacts, such as 
Seychellois lawyer Frank Elizabeth, say that this is not the 
case.  For example, most court judges are either naturalized 

system to yield influence over the judiciary. For example,

citizens or citizens of other Commonwealth countries, such as 
Tanzania, Uganda, and Sri Lanka.  There is only one Supreme 
Court judge, one appeals court judge, and two magistrate 
court judges who are citizens by birth.  Initially, 
 
PORT LOUIS 00000381  005 OF 005 
 
 
recruiting foreign judges and magistrates made up for the 
lack of professionals in the years following independence, 
but today Post contacts report that the foreigners are put in 
these positions  because they are more malleable. 
Allegations abound that the government also uses a patronage
 Former Chief Justice Vivekanand Alleaar, a Mauritian citizen 
who resigned in January 2008 after numerous allegations of 
corruption, is rumored to have received prime real estate for 
a development project from the SPPF and funding for his son's 
education in England for his loyalty to the party. 
 
------- 
Comment 
------- 
 
 21. (C) For all of the speculation and shadowy figures in 
Seychelles, it is hard to get any concrete evidence to point 
at any one person.  The plethora of circumstantial evidence, 
however, does support that there is significant corruption in 
the system.  Post believes that corruption is the critical 
reason why a country as wealthy as Seychelles (900 million 
USD GDP) has suffered so many persistent economic problems. 
The current IMF economic reforms coupled with the global 
financial crisis are sure to have drastic social implications 
in the Seychelles.  Although sharp inflation, and job loss 
may cause social unrest, it could also lead to Seychellois 
finally confronting the corruption behind the system that put 
them in this mess. 
CABRERA

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