AMBASSADOR'S TOUR D'HORIZON ON ECONOMIC ISSUES

C O N F I D E N T I A L SECTION 01 OF 03 ACCRA 000833 SIPDIS SIPDIS STATE PASS USAID, USTR E.O. 12958: DECL: 04/09/2011 TAGS: EFIN ETRD PREL ELAB ENRG KTFN GH SUBJECT: AMBASSADOR'S TOUR D'HORIZON ON ECONOMIC ISSUES WITH FINANCE MINISTER REF: A. STATE 50397 ¶B. ACCRA 636 Classified By: EconChief Chris Landberg for Reasons 1.5 (B and D) Summary -------------- ¶1. (SBU) Ambassador Bridgewater met March 24 with Finance Minister Kwadwo Baah-Wiredu to press for action on a number of pending issues: 1) the Minister's participation in USAID's March 30 remittance conference; 2) terrorism finance prenotifications (Ref A); 3) status of the money laundering law; 4) GoG support for CMS Energy (Ref B); 5) the need for a permanent Ghana IRS Commissioner, as support for U.S. Treasury tax advisors; 6) GoG support for a Ghanaian Customs Internal Affairs Unit; and 7) GoG support for a child labor monitoring system in the cocoa sector. Although the Minister did not appear fully informed on many of the issues, he promised action on all items. He also requested U.S. assistance for both Customs and the Ghana Statistical Service. End Summary. USAID Remittances Conference -------------- ¶2. (SBU) USAID, ECOWAS, and the GoG sponsored the "Accra Regional Forum on Remittances and Trade in West Africa" on March 30-31 (septel). Its purpose was to engage the private sector, policy makers, and donors in discussing the issues and opportunities for increased remittances and trade settlement flows in West Africa. The Ambassador invited Baah-Wiredu to participate in the conference, but also questioned him on recent press reports that he favors taxing remittances. ¶3. (SBU) The Minister said the press had misinterpreted his remarks. He commented that remittances of $4.77 billion in 2005 had not impacted the economy as government had hoped, and he suggested applying a small "transfer fee" on the portion of remittances directed to projects for which the government would have to provide services (e.g., water, electricity, and roads for new housing developments). He said he was open to further discussion as he realized the quotes had caused a stir. ¶4. (SBU) The Ambassador sympathized with his concerns, but said taxing remittances was not the way to pay for services, rather property taxes and appropriate utility tariffs should be the means to cover such costs. She also commented that such a tax would discourage remittances and encourage corruption and use of informal channels. The Ambassador also expressed concern that the Minister's idea would result in double taxation on persons remitting from U.S. (and elsewhere),a seemingly unfair burden. Terrorism Finance Prenotifications -------------- ¶5. (SBU) The Ambassador delivered Ref A points and explained that now that Ghana was on the UN Security Council, the U.S. would prenotify Ghana of USG intentions to freeze assets of individuals and organizations involved or suspected of involvement in terrorism financing. She noted that in the past we notified the GoG after the fact. She commented that the prenotifications, which Post would deliver in person to the Foreign Affairs and Finance Ministries, as well as to the Central Bank (Bank of Ghana),were extremely sensitive. Financial Crimes and Anti-Money Laundering Bill -------------- -- ¶6. (SBU) The Ambassador noted Baah-Wiredu's recent statements to the press that the GoG will address financial crimes, and inquired about the status of anti-money laundering legislation, which had been pending for over two years. Baah-Wiredu said the GoG had decided to merge the draft money laundering bill with legislation creating the Financial Investigations Unit (which will implement the money laundering law). He promised to submit it to Cabinet soon. (Note: Post has requested INL funds to support money laundering/financial crimes training for GoG law enforcement agencies and the private sector. End Note). ¶7. (SBU) Baah-Wiredu also stated that he would soon pass the Credit Reporting Bill (which will provide a legal and regulatory framework for credit reporting in Ghana) and the Foreign Exchange Bill (which will liberalize the financial sector) to Cabinet. These two laws, in addition to the Central Securities Depositary Bill (already in Cabinet),will form the legal framework for the GoG to pursue its goal of ACCRA 00000833 002 OF 003 transforming Ghana into a regional Financial Services Center. GoG Support for CMS Energy Expansion Project -------------- ¶8. (SBU) The Ambassador urged the Minister to support the $215 million CMS Energy thermal power plant expansion project (reported Ref B). She argued that it is critical to Ghana's energy needs and the quickest and cheapest available option to increase power generation. The Minister did not dispute that Ghana needs additional power, but argued that the deal needed to be improved, especially aspects related to total project cost, the current take-or-pay power purchase agreement with CMS, and the government guarantee of the loan from the IFC-led lenders group. Nevertheless, he said he remained open to working with CMS and IFC to find a win-win solution. (Note: The Ambassador spoke at a Post-hosted single company promotion event for CMS April 6 to bring all stakeholders Q) including Baah-Wiredu -- together to discuss the deal and agree on a way forward. End Note). Ghana IRS Commissioner -------------- ¶9. (SBU) The Ambassador noted that U.S. Treasury Tax Advisors have helped Ghana's revenue agencies make significant progress in increasing revenue collection, but the continued absence of a permanent IRS Commissioner is blocking further progress. The Minister said the naming of a new commissioner was imminent. He expressed appreciation for the Treasury advisors' work, and agreed with them that IRS has had trouble recently meeting revenue targets. (Note: Treasury spent over $1 million in technical assistance to Ghana's IRS and VAT agencies since 2002, which directly contributed to record level tax revenues. However, the IRS has been without a permanent Commissioner for over a year, and the Acting Commissioner does not have authority to implement much needed reforms. End Note). Customs Internal Affairs (IA) Unit -------------- ¶10. (SBU) The Ambassador said the Embassy had tried unsuccessfully for over a year to establish an IA unit in Ghana Customs, with INL and DHS funding. However, despite the support of the Customs Commissioner, we have not provided the assistance because Ghana Customs has not been able to secure a location for the unit. The Ambassador urged the Minister to work with Customs to make this happen (Note: The Finance Ministry oversees Ghana Customs, so Baah-Wiredu's support is key. End Note). ¶11. (SBU) The Minister agreed that the IA unit was necessary, commenting that he was concerned about leakages and corruption in the Tema and Takoradi ports. He instructed Customs staff to contact the Embassy to discuss arrangements to get the unit established. (Comment: corruption is particularly bad at Tema port, where the GoG collects 80% of total customs revenue. End Comment). Baah-Wiredu noted that the GoG was interested in installing closed circuit TVs to monitor the sea and airports, and requested USG assistance with this project. (Note: On April 3, U.S. Customs began a training course on anti-narcotics, trafficking in persons, and document fraud (all World Customs Organization requirements) for Ghana Customs. They have two more training sessions in the pipeline, but it will be difficult to justify these additional trainings if Ghana Customs does not establish the IA unit. End Note). Child Labor Monitoring System in Cocoa Sector -------------- ¶12. (SBU) The Ambassador stated that the U.S. cocoa industry was ready to help Ghana develop a child labor certification system, and urged the Minister to coordinate with industry reps Q) led by the World Cocoa Foundation -- in order to meet the 2008 goal of 50% coverage of all farms in Ghana and Cote d'Ivoire. The Minister responded that the U.S. must be careful to distinguish between children who work on family cocoa farms, like he did, and those who work on large plantations and are exploited. He and other Ghanaian children worked with their families on small farms as a routine way of life, not like on the large plantations in Cote d'Ivoire. (Comment: While we agree forced child labor is not common in Ghana's cocoa sector, the GoG must engage in this initiative to allay the perception of a problem. Despite cocoa industry lobbying, GoG leaders still seem reluctant to recognize the damage they could inflict on the sector by failing to implement an adequate monitoring system. End Comment). ACCRA 00000833 003 OF 003 Minister's Request for TA on Data Collection -------------- ¶13. (SBU) The Minister complained that one of the GoG's main weaknesses is statistical collection, which complicates efforts to calculate the size of the economy and implement appropriate policies. He requested U.S. technical support for the Ghana Statistical Service (GSS),which the Ambassador agreed to explore. Donors including the IMF and USAID already provide technical support to GSS, and DfID has established a pooled fund to which other donors can contribute. It will support an Evidence-Based Policy Making (EBPM) project, with GSS, Finance Ministry, National Development Policy Commission, and Office of the President each receiving about $400,000 per year. USAID also funds the GSS to conduct demographic and health surveys every 4-5 years. There is no question that the GoG's data quality is poor, especially with regards to regional trade and agriculture. Post will explore ways the U.S. might assist with capacity building so the GoG can collect data more effectively. Comment -------------- ¶14. (C) We hope this meeting will result in action on issues we have been pushing at lower levels for months, particularly CMS Energy, the IRS Commissioner, and the Customs IA unit. However, the meeting also served to highlight Baah-Wiredu's idiosyncratic and unpredictable behavior. He often comes across as uniformed on critical issues, and the remittance tax issue is just the latest of a series of poorly thought out statements to the press, often on second tier, low-priority issues. This signals that Baah-Wiredu may not fully comprehend the key role of Finance Minister in reassuring capital markets and explaining and representing GoG economic policy to the public. The IMF, other donors, and even Finance Ministry staff generally consider him weak and lacking influence, and there is a feeling that no one is directing Ghanaian economic policy. Nevertheless, he reportedly has the trust of the President, and the rumor is he will escape the expected, upcoming cabinet reshuffle. Fortunately for Ghana, the Central Bank is strong and effective, and by itself is reassuring the public and investors that GoG macroeconomic policies will stay on course. End Comment. LANIER