BUDGET SUPPORT DONORS OBJECT TO DEDICATED MCC

UNCLAS SECTION 01 OF 02 MAPUTO 000829

SIPDIS
STATE FOR AF/S, AF/EPS, AND EB/IFD/ODF
STATE PASS TO USAID FOR PPC/SBRENT, AFR/DP/WWARREN,
AFR/SA/DMENDELSON
STATE PASS TO USAID FOR PPC/SBRENT
E.O. 12958: N/A
TAGS: EAID KMCA ECON MZ MCC
SUBJECT: BUDGET SUPPORT DONORS OBJECT TO DEDICATED MCC
UNIT IN PLANNING MINISTRY


1. (U) On June 30, the Dutch Ambassador and the
Finnish Charge, the incoming and outgoing heads of the
Group of 17 donors who provide budget support to the
Mozambican government (GRM),called on Charge to
deliver a letter expressing concern over the GRM's
decision to set up a unit in the Planning Ministry to
work with the Millennium Challenge Corporation (MCC).
They stated that the establishment of the unit, by
taking qualified staff from other duties, will damage
the quality of the GRM's upcoming Poverty Reduction
Strategy, upon which much of Mozambique's external
financing is based. They also indicated that
establishment of a specific project unit went against
the principles of the 2005 Paris Declaration on Aid
Effectiveness, signed by the USG and other governments.
The letter asks that the MCC review the establishment
of the unit along with the GRM and adopt a different
approach. Text of the letter follows in para 4.


2. (U) Charge explained the importance to the USG of
a successful Mozambican compact with the MCC and noted
our belief that the GRM's establishment of the unit
will help move forward Mozambique's MCA proposal.
Charge agreed to convey the letter to Washington
agencies as requested.


3. (U) Action Request: We understand that MCC
officials are planning to discuss this issue in a video
conference with G-17 members next week. Post asks that
after the conference, Washington agencies evaluate the
need for a response to the letter and provide one if
necessary. End Action Request.


4. (U) Begin text of letter:
Paris Declaration Observance by the MCA in Mozambique
Excellency,
We have been observing with interest the approach of
the Millennium Challenge Account to Mozambique over the
last two years. As you know, the country receives a
large amount of foreign aid every year. This year
about 900 million USD have been pledged, that is
approximately 50 USD per capita or nearly a fifth of
per capita income. A large proportion of this,
possibly over 300 million USD, is provided by our group
of 17 donors (G17-Belgium, Canada, Denmark, European
Commission, Finland, France, Germany, Ireland, Italy,
Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, United Kingdom, World Bank),including 15
bilaterals, the World Bank and the European Commission,
in the form of direct budget support oriented towards
the country's Poverty Reduction Strategy (in its local
abbreviation, the PARPA). We may add that USAID is a
constant official observer to the activities of G17.
The G17 is doing its best to implement the principles,
subscribed to by most of the international donor and
financiers of the world, including the USA, which are
contained in the Declaration of Paris signed on 3rd
March this year. We seek to increase harmonisation and
alignment, not for our own sakes but for the sake of
Mozambique. We can already see that the close
collaboration on aid delivery and administration by G17
is reducing transaction costs substantially, giving
Government more time to think and plan strategically,
is increasing transparency substantially and helping to
accelerate the introduction of better systems of
financial management.
We G17 have of course no mandate from the Government of
Mozambique to push other donors into line against their
will. Nor have we any ambition to exclude non-aligned
donors from Mozambique, and indeed we can only be
pleased when the country achieves recognition and
support by other donors. We would however like to
address our strong concerns to you and ask you to
forward our concerns to the MCA, as regards one of its
latest demands on the Government of Mozambique.
Mozambique is known, due to its very undercapitalised
colonial history and its history of armed conflict then
and thereafter, to be one of the poorest, least
developed countries in the world, and not least, one of
the countries most thinly provided with qualified human
resources.
We understand that the MCA has not been satisfied with
Mozambique's efforts to develop a full and complete
portfolio of activities for its financing. This has
resulted in pressure being placed on the Government to
set up a special unit in the Ministry of Planning and
Development, to take care full-time over the coming six
to ten months of MCA's needs and demands. We
understand also that the MCA will finance the costs of
this unit.
The Government has responded by appointing four of its
qualified public servants to this unit, including some
who were seminal in the elaboration of the country's
first PRS and its follow-up, and who should be
performing the same function in relation to the second-
generation PRS, to be elaborated during the coming six
to ten months. The others could also be performing
more priority and more productive functions of
Government. Putting them in this unit cannot be other
than a direct blow to the quality of the PRS (PARPA),
on which much of the country's external financing is
based, and even to other important aspects of the
Government's priority work.
Excellency
In the view of G17, we consider that the support of the
MCA should be handled by and within the normal channels
of Government instead, and in harmonisation and
collaboration with the other donors. Project
Implementation Units set up for individual donors'
purposes go directly against these principles. We
would thus like to appeal to the MCA to review this
step, in consultation with Mozambique, and to adopt a
more sensitive and aligned approach to assisting the
country to develop and reduce its poverty levels.
We would be very grateful if you could convey these
sentiments, offered in a strongly constructive spirit,
to the MCA and any other relevant organizations
affected.
Yours very sincerely,
(signed)
Liki Remmelzwall
Ambassador, the Netherlands
Anton Johnston
Charge Sweden
Members of the G17 troika
For and on behalf of the G17 donors
End text.
JDUDLEY