COTE D'IVOIRE: WORLD BANK'S CHIEF OF MISSION

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 001099

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KINSHASA PASS TO BRAZZAVILLE

E.O. 12958: DECL: 09/29/2016
TAGS: EFIN PREL ECON IV ASEC
SUBJECT: COTE D'IVOIRE: WORLD BANK'S CHIEF OF MISSION
DISCUSSES ONGOING ARREARS AND DDR

Classified By: Ervin Massinga EconChief, reasons 1.4 (b, d)


1. (C) Summary. The World Bank's Chief of Mission Doffonsou
told EconChief September 28 that the Ivorian Government has
failed to make headway on its $348 million (m) in arrears to
the Bank, and that without action, that sum continues to
steadily mount. While the government has been offered the
opportunity to make a substantial partial payment of the
total, it has not to date done so, despite having to pay
interest on the funds it has raised for that purpose, nor
does it appear to have any concrete plans to find a mechanism
to fully pay the amount owed. The WB is ready to bring a
decision to the Board to release its $104m grant for
Disarmament, Demobilization and Reintegration (DDR) as soon
as arrears are fully paid, despite the obvious blockages in
the peace and disarmament processes. End Summary.


2. (SBU) During a meeting September 28 hosted by Chief of
Mission Richard Doffonsou (a Beninois national) at the World
Bank's Abidjan HQ, the WB rep discussed with EconChief the
ongoing struggle by the Ivorian Government to clear its
existing arrears with the Bank as well as the lack of
progress in the disarmament process.

Arrears
=======

3. (C) On September 5th, the World Bank reversed previous
policy and informed the government via letter that it would
accept partial payment of outstanding arrears (currently some
$348m, or 179bn CFA). Prior to this point, the Bank had
insisted upon full payment. Cote d'Ivoire had raised some 84
billion CFA ($225m) by floating government bonds in the West
African regional market at 6.5 percent in May and June of
2006, but had not made headway in finding the means to raise
the rest. The funds raised remain in an escrow account at
the West African Central Bank (BCEAO),but earn no interest.
Since the arrears continue to mount at a steady clip (the
total arrears are projected to grow to $391m by the end of
2006 if no payments are made),the Bank acceded to the
Ivoirian Government's request and agreed to accept a partial
payment as a means of helping to make some headway in closing
the gap.


4. (C) Doffonsou noted that Junior Ivorian Finance Minister
Diby had told him just before the September IMF and WB
meetings in Singapore that Cote d'Ivoire would avail itself
of the opportunity to make a partial payment, but Diby had
also indicated that the government expected the Fund meetings
to somehow "solve" Cote d'Ivoire's overall arrears problem.
Since the Bank/Fund meetings (which clearly did not produce
any sudden policy shifts vis a vis Cote d'Ivoire's arrears),
the government has still not made a payment, despite the
Bank's clear eagerness for such an interim step.


5. (C) Doffonsou referenced frequently-mentioned plans by
the government to raise the remaining money required to fully
pay WB arrears by floating bonds to be backed by next year's
receipts of revenues from the cocoa, coffee, and oil and gas
sectors. Under this scheme, cocoa-purchasing companies would
have to act in some unspecified capacity to guarantee the
cocoa-related bonds. At least one major cocoa purchasing
company has told the WB (and Emboffs separately) that their
financial management arms find the concept dubious, and the
WB itself has serious reservations about the idea. Doffonsou
said that the latest iteration of the scheme apparently drops
the idea of cocoa industry backing. This latest plan and
would raise two thirds of the remaining arrears through bonds
backed by Cote d'Ivoire's oil revenues, and one third from a
combination of new loans from private banks and the West
African Development Bank (BOAD). To date however, there is
no indication that the government has been able to pull
together this supplementary financing package.


6. (C) Doffonsou stated that most recently, the government
has proposed making a partial payment of what it has in
escrow in exchange for the immediate disbursement of the
Bank's $104 million grant to help fund DDR. He made clear
that the Bank considers this proposal a non-starter.

DDR
===

7. (C) Once arrears are satisfactorily addressed, the Bank
Staff is willing to go forward with a proposal to the Board
to approve the DDR disbursement, despite frank acknowledgment
that the current political situation is blocked and the
disarmament process, both of the government and rebel armies
and of the pro-Gbagbo militias, is moribund. Doffonsou said

ABIDJAN 00001099 002 OF 002


that the DDR funds would be rigorously overseen and regularly
audited, but he readily conceded that it is unclear how a DDR
program at this point would be able to make use of the funds.

Bank In An Uncomfortable Position, Wants to Change Cash Flow
============================================= ======

8. (C) the Bank Staff is clearly eager to see progress on
arrears and move the DDR monies. As the Bank Chief of
Mission remarked, Cote d'Ivoire currently has a negative cash
flow with the IFIs, which would only begin to turn positive
with the DDR disbursement, the stalled IMF Emergency Post
Conflict Assistance ($120m to restart structural reforms and
provide immediate fiscal and macroeconomic support),and a
2007 Emergency Economic Recovery Credit (EERC) of $120-140
million, to be provided after elections, to support
structural reforms in governance and the cocoa, coffee and
petroleum sectors. An EERC bridge towards an eventual
decision point under the Heavily Indebted Poor Countries
(HIPC) initiative (stalled since 2002) would bring Cote
d'Ivoire into a positive cash flow with multilateral
institutions by late 2007, according to Doffonsou, but in the
current situation, with the government paying interest on
approximately $225m in bonds in addition to ongoing debt
servicing, the country's position continues to deteriorate.
Valle