1. (U) SUMMARY: The IMF's February 22-29 visit resulted in
the beginning of a Staff Monitored Program (SMP) to assess
the Government of Djibouti's (GODJ) commitment to the
carrying out the required reforms that went unmet in the
1999-2003 Enhanced Structural Adjustment Facility (ESAF)
program. Following the successful completion of the year
long SMP, the IMF and GODJ will re-evaluate the possibility
of a new ESAF. END SUMMARY.

IMF'S RECENT HISTORY IN DJIBOUTI


--------------------------




2. (U) The IMF approved a three-year US$26.5 million loan
for the GODJ under the ESAF programin October 1999 to
assist GODJ's three-year Poverty Reduction and Growth
Facility (PRGF) program. The ESAF was scheduled to end
October 2002, but, by request of the GODJ was extended
until January 2003. Despite this extension, GODJ did
not complete all the reforms required by the IMF. The
IMF has now returned to begin a new partnership, called
a Staff Monitored Program. The SMP, which does not
involve any financing, is an informal agreement between
GODJ and the IMF staff to monitor the implementation of
the GODJ's economic program. The secondary purpose of
the IMF visit was to finalize GODJ's Poverty Reduction
Strategy Paper.

SUMMARY OF DONOR'S MEETING: 29 FEBRUARY 2004


--------------------------




3. (U) As a conclusion to the IMF team's visit, the
donors from the international community present in Djibouti
met to hear the findings of the recent evaluation. The
participants included two visiting IMF representatives,
the resident IMF representative and representatives from
the French Cooperation, Russian Embassy, the European Union,
Saudi Arabia, the World Bank, Japan, UNDP, UNHCR, UNICEF,
WFP and the U.S. Embassy.



4. (U) According to the IMF, the SMP will last one year
(2004) and will mainly monitor the completion of the
reforms required by the IMF in the first ESAF. There will
also be some additional measures, such as the Code of
Commerce and the publication of the "Chambre des Comptes"
2002 report. The SMP will start after the signing of the
Memorandum of Economic and Financial Policies (MEFP),
which reportedly should be done in the coming days.
The MEFP contains a detailed list of reforms to be
completed and requires regular progress reporting on a
quarterly or bi-yearly basis. The SMP is expected to
restore GODJ's credibility with the donors.



5. (U) The IMF delegation is also assisting GODJ in the
final review of the Poverty Reduction Strategy Paper
draft in the area of micro-economic framework. The IMF
delegation indicated that the PRSP is in good shape with
more realistic figures. It will be officially discussed
for approval in the regular IMF Council meeting April


2004. GODJ would like to present the approved document
to a round table donors' meeting in Djibouti this summer.
The funding for the first three years of the PRSP is
estimated at US$ 261 million.



6. (U) The IMF also touched on the Program of Public
Investment (PIP), which concerns all the major public
projects; infrastructure, education, health, etc. The
IMF indicated that 80 percent of the fund should come
from the international community. The PIP will not be
feasible without the assistance of the donors.

CONCLUSION


--------------------------




7. (U) The IMF staff indicated that GODJ has shown a
change in attitude and is now more receptive to their
recommendations. The IMF delegation added that GODJ is
realizing that they have to show transparency in order
to gain the international community's confidence. The
representatives from the French Cooperation and the
European Union did not seem convinced of GODJ's new
behavior. If the SMP is successfully completed, the
IMF and GODJ will negotiate the terms of a new ESAF.
RAGSDALE