C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 002100

SIPDIS

SENSITIVE

E.O. 12958: DECL: 11/16/2014
TAGS: EFIN ECON EINV PREL CG
SUBJECT: MINISTER OF BUDGET ON BUDGET AND EXPENDITURE

REFORMS

REF: A. KINSHASA 478

B. KINSHASA 1866


1. (C) Summary: Minister of Budget Francois Muamba stressed
GDRC compliance with the IMF program and progress on
government reforms during a recent call with the Ambassador.
Muamba emphasized the good faith of the GDRC to comply with
IMF parameters in spite of some minor slippage. Budgeting for
elections, pro-poor programs, and military integration are
all being considered by the GDRC. Though increased internal
revenue may help pay for a small portion of these programs,
significant financing gaps will still exist in the 2005
budget, and external budget support will be needed.
Improvements of internal expenditure controls are proceeding
slowly due to technical difficulties. Advances in
transparency and self-suffiency will take time, but the GDRC
appears to be cognizant of the challenges it faces and is
working on remedies. End summary.

IMPROVED BUDGET PLANNING AND COMPLIANCE WITH THE IMF PROGRAM


2. (SBU) Minister of Budget Francois Muamba stressed on
November 4 that the GDRC was doing well to stay within the
parameters of the IMF program, and that it is working on
improving internal expenditure controls. Although there has
been some slippage due to exchange rate changes and to a lack
of spending discipline, the GDRC is on track to have its 2005
budget prepared on time and within IMF parameters. Of key
importance will be funding for social programs and reduction
of internal debt.


3. (C) Muamba also made clear that some funding for military
integration and elections will be included in the 2005
budget. In particular, he noted that USD 75 million is being
considered for military and police integration. He pointed
out that in spite of increased internal revenue, a
substantial financial gap remains that can only be covered by
external assistance, .

BALANCING INCREASING INTERNAL FINANCES AND TAX REFORM


4. (C) Muamba told the Ambassador there has been a 32 percent

increase in government revenue from 2003 to 2004, and the
GDRC and IMF expect a similar increase in 2005. The GDRC
acknowledges, however, that it would need to significantly
increase government revenues to be self-sustainable.


5. (C) Stressing the importance of private sector investment,
the Ambassador said that some formal sector businesses have
complained about numerous fees and taxes that apparently are
being arbitrarily imposed. In order to promote economic
development, he added, there must be a clear and open
dialogue between the GDRC and the private business community.
Muamba stated that such problems are being discussed at the
level of the Economic and Financial Commission (EcoFin) and
will result in a new and consolidated tax structure,
detailing which taxes and fees are required. A
decentralization law is also planned to give greater local
taxation authority to the provinces. Muamba did not give any
indication of when these reforms may occur.

INCREASING PRO-POOR SPENDING


6. (C) The Minister assured the Ambassador the GDRC will
increase pro-poor spending in its 2005 budget. Although he
stated that pro-poor spending is at the heart of budget
planning, Muamba outlined three factors that inhibit pro-poor
spending:

--Pro-poor spending is underreported due to technical
difficulties in the current disbursement system and
electronic accounting program used by the Ministry of
Finance.

--Public tenders are required for most pro-poor programs per
World Bank regulations, and it has taken some time to
familiarize government ministries and agencies with such
procedures.

--Congolese enterprises are not equipped to submit bids in
open tenders due to a lack of capital. Though many could
tender competitive bids, they would require partial advance
payments to begin work on a project.

LOW PUBLIC SALARIES POORLY DISTRIBUTED


7. (C) The Ambassador noted that payment of public sector
salaries is crucial to the budget process and to the
Transition in general. For example, when soldiers are not
paid, they become a security problem which could put
elections at risk. Muamba replied that soldiers are paid
regularly, however, they are poorly paid. The Ministry of
Finance delivers monthly sacks of cash to distribution points
throughout the country, but Muamba acknowledged that funds
sometimes disappear en route. The Ministry of Budget is
trying to end the use of sacks of cash and move to an
electronic transfer system to reduce the number of people
through whose hands cash passes.

PROMOTING FOREIGN INVESTMENT


8. (SBU) The Ambassador returned to the importance foreign
investment must play in future growth of the DRC economy. The
Ambassador cited the DRC's near last placement on the World
Bank's business start-up index. While the USG realizes that
resolving many of the bureaucratic hurdles is an ongoing
process and takes time, necessary changes need to be made
more quickly to expand the formal economy. The Ambassador
suggested that the successful completion of an agreement with
Phelps-Dodge (currently negotiating with the GDRC to form a
joint-venture with Gecamines for a copper and cobalt mine in
Katanga province, per reftels) would send a strong positive
signal to international investors.

NO BUDGETARY SUPPORT BUT TRY FOR HIPC FULFILLMENT


9. (C) Muamba twice requested bilateral budgetary support
during the course of the meeting. The Ambassador answered
that the USG's substantial bilateral assistance program does
not provide direct budgetary support. He noted, however, that
the U.S. Administration is committed to working with Congress
to obtain funding for HIPC debt relief as soon as possible in
accordance with HIPC terms. This would serve to alleviate
some significant budgetary obligations for the GDRC.

COMMENT


10. (C) Comment: Muamba demonstrated that the GDRC
acknowledges the significant challenges it faces to improve
government operations and promote economic growth. These
challenges will take time to resolve, and international
pressure and support are key to continued progress. U.S.
fulfillment of its HIPC obligations to the DRC would help
support ongoing reform efforts, while the GDRC is
simultaneously staying within IMF program parameters and
continuing to service its bilateral debt. End comment.
MEECE