CONGO/B: MEETINGS WITH THE FINANCE MINISTER AND

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 000769

SIPDIS

DEPT FOR AF/C AND EB
PARIS FOR AFRICA WATCHER
FROM BRAZZAVILLE EMBASSY OFFICE

E.O. 12958: DECL: 05/06/2010
TAGS: ECON CF CU IMF
SUBJECT: CONGO/B: MEETINGS WITH THE FINANCE MINISTER AND
IMF TEAM, NOT SEEING EYE-TO-EYE

REF: A) KINSHASA 00541 B) KINSHASA 00610

Classified By: Ambassador Robin R. Sanders for reasons 1.5 (b) and (d).

1.(C) Summary: Over the last week Ambassador held meetings
with Congo/B's current and former Finance Ministers and the
visiting IMF team to hear readouts on the recent Washington
visits, and status reports on the ROC's Poverty Reduction
Growth Facility (PRGF) program. The IMF team is in ROC for a
two-week review of Congo's first 6 months on the PRGF as well
as to determine whether the country is still on track for a
HIPC decision point in September 2005. Current Finance
Minister Issoibeka requested to see Ambassador on May 5 to
provide his take on his Washington meetings and IMF issues.
Issoibeka views problems with the banking sector, costs
overrun with the state-owned refinery CORAF, and unexplained
budget expenditures as "minor details" that should not
affected PRGF or HIPC timelines. The IMF team, however, sees
it differently. Former Finance Minister Andely was recently
brought back by President Sassou to consult and provide
advice on IMF concerns. End Summary

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IMF Team Views:
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2.(C) IMF team members asked to meet with Ambassador May 4 to
provide a status report on what it found during its first
week review of Congo's PRGF performance. Team leader Dan
Ghura expressed some initial concerns about previously
mentioned problems in the banking sector; with the
state-owned refinery, water and electric companies; and
certain unexplained budget expenditures (ref A). He noted
that the team still had a week left to examine documents and
have more discussions, but that it did not appear that Congo
could stay on the proposed HIPC timeline for September 2005.
He also commented that it was hard to get the new Finance
Minister to focus and provide detail steps and measures as to
how Congo would address the current concerns on the budget,
CORAF, with the water and electric companies, and private
banks.

3.(C) Ghura said that he also needed to have more information
as to how Congo was working with its creditors, given that
current reports from Washington were not good. Not only are
vulture funds trying to get repaid, but Congo's legal counsel
and consultants in D.C. are complaining that they also have
not been paid. Ambassador shared with Ghura that she had
also received information that one of the vulture funds had
submitted its case to the International Chamber of Commerce
(ICC) in Paris for arbitration, and that if the company was
successful, then other vulture funds also would seek to use
the ICC since governments tend to honor its decisions.
Ghura worried about vulture fund actions and whether Congo
really had a plan in place to reach agreement with these
creditors. He added that the IMF would be opening an office
in Brazzaville by August 2005, posting a full-time resident
representative, YaYa Moussa a Cameroonian, in country.


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Meeting with the Finance Minister:
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4.(C) On May 5, Finance Minister Issoibeka requested to see
the Ambassador to give his take on the current IMF talks.
Issoibeka began the meeting by thanking the Ambassador for
her efforts to encourage Congo to be more transparent. He
apologized for the recent Cuba votes (ref B),and added that
"sometimes one hand in the ROC does not know what the other
is doing," noting that this should never have happened.
Ambassador reiterated the points on the Cuba votes at the
UNCHR, and said that it was not a good performance week for
Congo when an abstention on the resolution was what the USG
was seeking. Moving on to other bilateral issues and World
Bank/IMF programs, Issoibeka said that during meetings at the
State Department he noted that his government was looking
forward to having the new Embassy built and that they hoped
also to have a cultural center, more educational programs,
and Peace Corps. He requested a PL 480 program now, and more
encouragement to get U.S. investors in the banking and
insurance sectors. Ambassador was frank in her response on
these issues, by noting that Congo needed to improve
transparency and have better structures in place for
oversight over a PL 480 program. In addition, she said that
if Congo reached the HIPC decision point, it might encourage
the U.S. private sector to seriously look at Congo as an
investment opportunity.


5. (C) Turning to the IMF Mission, Issoibeka began by
restating the sectors where the team had concerns: banking,
state refinery, and 42.6 billion CFA (approximately USD$84
million) in unexplained budget expenditures. He said that
during the last week the ROC had been able to "prove" and
"explain" the use of all but 27 billion CFA (approximately
USD $53 million). He added he was confident that the IMF
would be satisfied with the full use of the entire 42.6
billion CFA by the end of its visit. On banking, he said
there was not much Congo could do because the country could
not survive any more failed banks. Despite the IMF team's
desire for Congo to take measures to stop subsidizing the
private Moroccan bank, and operating the already failed
COFIPA bank, the Finance Minister stressed that the
government had no alternative given the consequences of
social unrest if the banks closed. (End note: Just before and
during the 1997-2000 wars, Congolese lost substantial amounts
of money because of failed banks and looting of banks during
the war. End note).


6. (C) With state operations such as the refinery, and the
water and electric companies, the Finance Minister said, the
ROC had similar concerns that raising prices in any of these
areas would upset the delicate social balance in the country.
The Ambassador stressed that the ROC would have to develop
some measures to address IMF concerns in these sectors in
order to move forward. She said that she had understood in a
previous meeting with the Prime Minister in March (Ref B)
that the ROC had accepted a World Bank proposal regarding the
water and electric companies, including raising, even
incrementally, prices. Issoibeka said that no decision had
been reached yet on raising prices in any sector, including
the production prices of the oil operators. He added that all
of this is under review because President Sassou had
instructed his economic team to stay on course on both the
PRGF and HIPC timelines.


7. (C) Meanwhile, President Sassou asked former Finance
Minister Andely to return for 2 days of consultations on
Congo's IMF issues. Ambassador later met with Andely to get a
readout of his meeting with President Sassou. Andely told the
Ambassador that Sassou is very unhappy with his current
economic team, and concerned that everything is not being
coordinated to remain on track with the IMF. Andely added
that Sassou had others in the room during his discussion with
him such as National Security Advisor Okemba and Planning
Minister Moussa -- all who were instrumental in removing
Andely from his position. Andely claimed that Sassou told
them that they had given him bad advice on changing Finance
Ministers. Andely said he would continue to provide guidance
and assistance to his country on these issues, but he was
worried that there were "too many hands in the pot--such as
the Prime and Planning Minsters, etc.," trying to control and
influence the ROC's work with the IMF. "The new Finance
Minister's authority is being diffused" Andely added, "hence
no coherent fiscal policy decisions are being made."

8.(C) Comment: The IMF team promised to give the Ambassador
an out brief before it departs on May 13, which will include
fuller conclusions on where things stand on the PRGF's
6-month review and whether the September 2005 HIPC timeline
remains realistic. The ROC feels like the IMF is not
listening and taking into account social ramifications if
downstream oil, water or electricity prices rise. The IMF
feels that the ROC is not seriously developing measures to
keep the program and timelines on there current course. It
will be necessary for the ROC to begin to stop seeing these
issues as "minor details," and really develop strategies and
measures to address the IMF team's concern.

9.(U) Brazzaville Office - Sanders
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