DONORS: NO BUSINESS AS USUAL FOR KENYA'S

UNCLAS SECTION 01 OF 04 NAIROBI 000660

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, AF/PD, EB/IFD, AND EB/ODF
USAID FOR AFR/EA
TREASURY FOR ANNE ALIKONIS

E.O. 12958: N/A
TAGS: EAID ECON KCOR KMCA PGOV KPAO KE
SUBJECT: DONORS: NO BUSINESS AS USUAL FOR KENYA'S
CONSULTATIVE GROUP MEETING

REF: A. NAIROBI 539 (NOTAL)


B. NAIROBI 504 (NOTAL)

C. NAIROBI 195 (NOTAL)

D. NAIROBI 514 (NOTAL)

E. NAIROBI 616 (NOTAL)


1. (SBU) Summary: On February 8, World Bank Kenya hosted
the quarterly meeting of the Donor Coordination Group (DCG)
at which near consensus was expressed that the planning for
the April 11-12 annual Consultative Group Meeting (CG) for
Kenya could not be "business as usual" in light of the
resignation of the GOK's "Anti-Corruption Czar" John
Githongo and the Government's lack of commitment to ending
corruption. While no decision was reached on whether to
postpone the CG, the donors will deliver a strong message
to the GOK. Sweden will draft a memo from the DCG COMs to
President Kibaki and Finance Minister Mwiraria. Following
the delivery of the memo the signatories will release a
press statement based on that text. Donors are also
concerned over a local news article that Kenya is looking
for new partners to provide budget support without
attaching governance conditionality. A number of donors
expressed dissatisfaction over the proposed return to Kenya
of Dr. Jeffery Sachs February 22-25, citing concern the
visit will provide additional comfort to the GOK that
donors' continued assistance can be taken for granted. End
Summary.


2. (SBU) On February 8, World Bank Kenya hosted the
quarterly meeting of the Donor Coordination Group (DCG).
Following shortly after the resignation of the GOK's "Anti-
Corruption Czar" John Githongo (Ref A),the discussion
focused on governance issues and the response from donors
in light of the planned April 11-12, 2005 annual
Consultative Group Meeting for Kenya (CG). The donors were
unanimous in noting that a strong message must be passed
quickly to inform the GOK that there can be no "business as
usual" in preparing for the CG or on the agenda. A number
of donors expressed the opinion that the CG should be
postponed. Others highlighted this as an opportunity to
express publicly our joint concern that the Kibaki
administration is not serious about fighting corruption and
that the donor community cannot be expected to turn a blind
eye to this reality when considering what levels of
assistance to provide Kenya in the coming year. It was
also agreed that should the CG go forward as scheduled, the
interventions from donors should not be limited to progress
reports on the various sectors, but should be an assessment
of the GOK's performance as viewed through the governance
prism.


3. (SBU) Attending the February 8 DCG were representatives
from the U.S. Embassy and USAID/Kenya, World Bank, IMF,
UNDP, U.K and DfID, France and ADF, Sweden, Norway,
Denmark, Finland, Switzerland, The Netherlands, Germany,
Canada, and Japan.

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UK Kicks off Governance Discussion
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4. (SBU) UK High Commissioner Edward Clay, whose speech on
February 2 ramped up the current, very public, debate about
the GOK's anti-corruption efforts (Ref B),opened up the
discussion on governance by noting that the Kibaki
government does not appear to understand how seriously the
donors are reacting to its lack of tangible anti-corruption
results, nor recognize that the administration itself is in
peril from growing public dissatisfaction with the
government's performance. Clay noted that in addition to
the CG, an IMF mission is scheduled for early May to
conduct a program appraisal. He concluded that the donors
should inform the government that a significant change is
needed in the coming weeks, if not days, if this calendar
is to be met.


5. (SBU) The Dutch Ambassador said the GOK needs to
demonstrate that it merits continued international
assistance. She added that it is not true that the GOK is
lacking resources. The donor-coordinating group on
Governance, Justice, Law and Order Sector (GJLOS) reform
program has provided tremendous support, but still the
government has nothing to show from its side in terms of
actually prosecuting cases of corruption. The Dutch
Ambassador also struck a chord when noting that it is
worrisome that President Kibaki has not personally made a
statement about Githongo's resignation and apparently does
not see the need to defend his administration against the
growing chorus of critics.


6. (SBU) The German Ambassador expressed the opinion that
it would not be credible for the DCG co-chair, Finance
Minister Mwiraria, to preside over the CG. He asserted the
DCG needs to present a unanimous message to the government
that, as things currently stand, it would be difficult for
donors to attend. The Canadian High Commissioner added
that it is "surreal" for the CG to discuss further budget
support when senior Kenyan officials are skimming budget
allocations for their personal enrichment.

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What's Next?
--------------


7. (SBU) While it was agreed that a strong message needs
to be delivered from the group to President Kibaki and his
ministers, no consensus was reached on the future of the
April CG. Most donors will be going to capitals for
further consultations. Sweden agreed to take the lead in
drafting a memo from the DCG COMs to President Kibaki and
Finance Minister Mwiraria. Following the delivery of the
memo, the signatories will release a press statement based
on that text. As noted in Ref E, as part of this
coordinated strategy, individual donors and other DCG
groupings will continue to speak out on corruption issues.
Later the same day, eight "Like Minded" Donors (Canada, UK,
U.S., Germany, Japan, Switzerland, Norway, and Sweden)
released a statement on corruption that called on Kibaki to
review the GOK's anti-corruption efforts and asked corrupt
officials to step down. On February 9, the EU delegation
in Kenya released a statement expressing concern about the
GOK's commitment to fight corruption, and announcing that
future EU funding would be dependent on the GOK's
"seriousness and sense of urgency in addressing these
issues." The same day, the Japanese Ambassador stated his
country's concern about Kenya as an effective partner due
to corruption.

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No Agreement Yet on the CG
--------------


8. (SBU) The Japanese Ambassador, along with the World
Bank, while agreeing with the seriousness of the message to
be delivered, pointed out the difficulty in scheduling and
planning for the CG, and noted that much administrative
work had already been undertaken. The Swedish Ambassador
added that the Harmonization, Alignment, and Coordination
(HAC) subgroup of the DCG had already discussed possibly
postponing the CG, but was concerned about losing this
opportunity to deliver a strong message to Kenya. He also
noted that the GOK would likely be happy to have the
meeting postponed so that it does not have to answer
difficult questions in this forum. Further, the GOK might
be able to spin the decision to postpone as an "example" of
donors not willing to support Kenya and its Economic
Recovery Strategy.


9. (SBU) USAID Country Director added that in 1991 donors
faced a similar situation but decided to go ahead with the
CG at which the donor community announced their suspension
of budget support out of concern for poor governance by the
Moi government. In his opinion, this was a successful
outcome for the CG. (USAID/K also noted that to date the
USG has not recommitted to budget support for Kenya.)


10. (SBU) France offered the only dissenting view, statingthat this situation
calls for a "closer engagement" and a
"real dialogue" with the GOK before considering any impact
on the CG.


11. (SBU) The EU/EC representative indicated that a second
tranche of budget support before the end of Kenya's fiscal
year (June 30) is in no way assured given the GOK's
apparent lack of seriousness about corruption. He noted
that one EU program in Kenya is to improve public
procurement procedures (which have been at the heart of the
most public corruption cases) and that a team of technical
experts are scheduled to do an audit of previous tenders to
assess how the process can be improved. The EU may request
that the auditors be allowed to examine one or more of the
irregular procurements originating from the Office of the
President.

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Kenya Turns to Arab Donors?
--------------


12. (SBU) A number of participants referenced to a news
article in that day's Daily Nation newspaper reporting the
GOK is pursuing new budget assistance from Arab donors,
citing OPEC, Kuwait, Saudi Arabia, and Arab Bank for
Economic Development in Africa (BADEA). Of particular
interest was the line, "Unlike other multilateral donors,
Arab funding is free of conditions." It was noted that the
GOK will lose additional credibility if it looks for
additional budget assistance that does not require any
performance benchmarks. The World Bank confirmed that most
Arab donors, including OPEC, are members of the DCG, but
generally do not attend.

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Jeffery Sachs Will Return
--------------


13. (SBU) UNDP announced that Special Advisor to the UN
Secretary General for the Millennium Development Project

SIPDIS
Jeffery Sachs plans to return to Kenya February 21-24. He
will again wear two hats (Refs C and D),first in his
capacity as the Director of Columbia University's Earth
Institute and Millennium Village Project, in which he hopes
to have donors and GOK officials join him in a visit to
Sauri, his model village in Nyanza province. Second, he
again hopes to meet with the DCG to discuss the Millennium
Development Goals (MDG) and Kenya's status as a "fast-
track" country for receiving massive amounts of additional
budget and project assistance. There was little enthusiasm
in the room for additional discussions with Sachs at a time
when the pressing issue for most donors is whether or not
to suspend or cut assistance to Kenya. There is a concern
that Sachs' message will reassure the government that
donors will continue to provide vital budget support even
while they complain about corruption.


14. (SBU) A number of donors also expressed concern that
Sachs and the MDG project are too focused on benchmarks
culminating in a specific result in 2015, when it is clear
that Kenya, and other developing countries, can not achieve
a sustainable level of growth and development by that date.

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Comment
--------------


15. (SBU) Rather than governing effectively, the GOK,
through its official spokesman and a number of Ministers,
is spending much of its time justifying the government's
inaction on corruption and attacking those who speak out on
the issue. This disconnect is clear to all of Kenya's
partners, both donors and Kenyan civil society. The
(almost) total consensus in DCG was remarkable, not only
for the desire to use the planning of the CG as an
opportunity to reiterate common concerns about the
direction the Kibaki government is headed, but also in the
shared indignation that the President and his close
advisors appear to be taking the donors' goodwill (and
checkbooks) for granted. We would expect all countries
represented (with the possible exception of France) to sign
a strongly-worded communiqu to Kibaki highlighting that
the Consultative Group Meeting, if it happens, will reflect
the group's assessment of Kenya's willingness to be an
honest and effective partner. End Comment.

Rowe