IMF BRIEFS KENYA'S "LIKE MINDED" POLITICAL

UNCLAS SECTION 01 OF 02 NAIROBI 003129

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR AFR/DP WADE WARREN, AFR/EA JEFF BORNS AND
JULIA ESCALONA
TREASURY FOR ANN ALIKONIS
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON PGOV EAID EFIN KCOR KE
SUBJECT: IMF BRIEFS KENYA'S "LIKE MINDED" POLITICAL
OFFICERS

Ref: Nairobi 2651 and previous

Sensitive-but-unclassified. Not for release outside USG
channels.


1. (SBU) Summary: Kenya IMF Resident Representative
Jurgen Reitmeier briefed a small gathering of "Like-Minded
Donors/Political" (LiMiD/P) on July 12. In addition to
outlining Kenya's progress on its PRGF, as reported in
reftel, Reitmeier offered a guardedly optimistic assessment
of Kenya's current economic performance, but noted that
infrastructure problems must be addressed. Donors pressed
him on corruption and governance concerns and Reitmeier
explained that the GOK was making progress on the
governance criteria built into this second review. End
summary.


2. (SBU) USAID/Democracy and Governance Officer and Acting
Econ/C attended a July 12 briefing by Kenya IMF Resident
Representative Jurgen Reitmeier to a small gathering of
"Like-Minded Donors/Political" (LiMiD/P) at the residence
of Swiss Deputy COM Arthur Mattli. Also attending were
representatives from the U.K., Canada, Germany, France,
Sweden, Australia, and Japan. Sticking mostly to the
information he shared previously with donors (reftel),
Reitmeier provided a summary of current thinking on Kenya's
progress on criteria for the second review of Kenya's three
year, $240 million Poverty Reduction and Growth Facility
(PRGF). In response to participants' questions, Reitmeier
touched on a few other themes as well.

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KENYA'S ECONOMY IS SATISFACTORY
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3. (SBU) Reitmeier noted that Kenya's revised FY2004 GDP
of 4.3 percent is still provisional, but, of greater
importance, the IMF is comfortable with Kenya's revised GDP
growth figures and the GOK's updated methodology for its
growth estimates. Estimates of 4.8 percent in FY05 and 4.9
percent in FY06 seem reasonable, but beyond that even these
growth rates will not be sustainable without significant
new investment in Kenya's deteriorating infrastructure.
Reitmeier opined that Kenya's available budget allocations
will not be sufficient for needed infrastructure
improvements and the GOK should begin a concerted strategy
to pursue additional donor support. In particular, he
noted the usefulness of possible future budget support from
the European Union and the World Bank.

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GOVERNANCE - IMF IS PAYING ATTENTION
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4. (SBU) LiMiD/P co-chairs Canada and Switzerland both
pressed Reitmeier on the on-going concerns about governance
and corruption. Reitmeier acknowledged that it is a
problem, and that the IMF would continue to assess the
situation critically. He also pointed out some positive
momentum, namely that the Public Officers' Ethics Act was
likely to be amended this year, which would permit greater
scrutiny of senior officials' asset declarations by the
Kenya Anti-Corruption Commission (KACC). However,
participants noted that the amended draft might not include
the desired provision for public disclosure of the
declarations, which is not a requirement under existing
law. The current draft does outline specific codes of
conduct for the President, Ministers, and MPs. By
Reitmeier`s estimation it also includes a good catalog of
prohibited conflict of interest behavior.

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TOO SOON FOR AN EXIT STRATEGY
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5. (SBU) When asked if the IMF was considering a possible
exit strategy from Kenya, Reitmeier responded that the
current program has not even completed its second review.
After this program's completion, however, the IMF will
consult closely with the GOK, IMF members, and donors on
the need for a second program. That could possibly take
the form of a "signaling program," developed through
Article 4 consultations with donors, that would permit
continued assessment of Kenyan progress in meeting program
targets but without new disbursements. Reitmeier also
noted the Tanzanian model where a second PRGF was developed
with only a "symbolic" contribution ($US7 million over
three years) that allowed further IMF engagement with
policy makers. Reitmeier added that it is too soon to tell
if this could be a useful model for Kenya.

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Comment
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6. (SBU) Reitmeier was effective in summarizing for this
small gathering of mostly political officers where Kenya
stands on its PRGF. He clearly outlined that the GOK is
making progress on meeting program conditionality, but that
his staff is closely watching both economic and political
developments. At the same time, there could be no doubt in
his mind that, at least for the majority of the LiMiD
members, reiterating concerns about corruption and
governance continue to be a priority message that the IMF
needs to share with senior Kenyan officials.
BELLAMY