Identifier
Created
Classification
Origin
06ADDISABABA1970
2006-07-19 08:26:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Addis Ababa
Cable title:  

WORLD BANK PRESIDENT'S VISIT HIGHLIGHTS POSITIVE

Tags:  ECON EAID EFIN KHUM PGOV ET 
pdf how-to read a cable
VZCZCXRO3005
PP RUEHROV
DE RUEHDS #1970/01 2000826
ZNR UUUUU ZZH
P 190826Z JUL 06
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC PRIORITY 1631
INFO RUCNIAD/IGAD COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
UNCLAS SECTION 01 OF 03 ADDIS ABABA 001970 

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/E AND EB/FID
DEPARTMENT PASS TO TREASURY
DEPARTMENT PASS TO USAID

E.O. 12958: N/A
TAGS: ECON EAID EFIN KHUM PGOV ET
SUBJECT: WORLD BANK PRESIDENT'S VISIT HIGHLIGHTS POSITIVE
DEVELOPMENTS, NEED FOR POLITICAL HARMONY


SENSITIVE BUT UNCLASSIFIED-- PROTECT ACCORDINGLY
UNCLAS SECTION 01 OF 03 ADDIS ABABA 001970

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/E AND EB/FID
DEPARTMENT PASS TO TREASURY
DEPARTMENT PASS TO USAID

E.O. 12958: N/A
TAGS: ECON EAID EFIN KHUM PGOV ET
SUBJECT: WORLD BANK PRESIDENT'S VISIT HIGHLIGHTS POSITIVE
DEVELOPMENTS, NEED FOR POLITICAL HARMONY


SENSITIVE BUT UNCLASSIFIED-- PROTECT ACCORDINGLY

1.(SBU) SUMMARY: World Bank Country Director for Ethiopia
reported to the Ambassadors Donors Group (ADG) that World
Bank President Paul Wolfowitz's July 11-12 visit to Ethiopia
had resulted in Wolfowitz's full support for the new
Protection of Basic Services (PBS) program and a positive,
though cautious, view of recent economic and political
developments. The visit included stops in both Addis Ababa
and the Amhara Region, where he met with representatives from
government, the donor community, the private sector, and
civil society. Annual World Bank support for Ethiopia now
totals $500 million, with the potential for significant
scaling-up if the Government of Ethiopia (GOE) fulfills its
commitments on increased transparency, accountability, and
good governance. Key to these commitments is what Wolfowitz
described as the need for "political harmony." In briefings
with the press, Wolfowitz was generally positive about
prospects for Ethiopia's development, emphasizing the need
for sustained growth and political harmony to truly transform
Ethiopia. Wolfowitz's meeting with Prime Minister Meles was
described as "comforting," with the Prime Minister supportive
of the PBS program and committed to political reconciliation.
Recent positive developments, both economic and political,
are seen by the World Bank as creating a number of openings
in key areas such as infrastructure development and the
strengthening of basic services. World Bank and GOE
relations according to Wolfowitz are "normalized on a new
basis." END SUMMARY.

WOLFOWITZ VISIT "A-CLASS"
--------------


2. (SBU) During a briefing to the Ambassadors Donors Group on
July 13, World Bank Country Director for Ethiopia and Sudan
Ishac Diwan, described Wolfowitz's recent July 11-12 trip to
Ethiopia as an important visit that resulted in a more
complete understanding, buy-in, and ownership by Wolfowitz of
the new Protection of Basic Services (PBS) program. During

the two day-visit, Wolfowitz met in Addis Ababa with Prime
Minister Meles and key members of the cabinet, members of
parliament, donors, civil society, and the private sector.
Wolfowitz also traveled to the Amhara Region, where he was
able to talk first-hand with members of civil society and
review basic services, such as education. Diwan stated that
the trip also provided an opportunity for Wolfowitz to gain a
better understanding of the role of the Diaspora, including
how to manage the Diaspora in the United States. The
attitude of the private sector was described as radically
improved over just two years ago: today they are more
positive, citing improved dialogue with the government. What
remains needed for business development, however, is to
create a culture of innovation and competition. For donors,
the PBS concept has now been internalized, Diwan said.


3. (SBU) During a 90-minute meeting with Wolfowitz, Prime
Minister Meles outlined his vision for the country: private
sector development based on small and medium-sized business
(SMEs) and the export sector, and greater transparency and
space for civil society at the local level. According to
Diwan, Meles also acknowledged a change of heart about the
private sector, whereby he now understood that profits should
be considered a positive result of business. Though Meles
and Wolfowitz did not directly discuss the Eritrean-Ethiopian
border, Meles reiterated his oft-used phrase that poverty,
not war, was Ethiopia's real enemy. Wolfowitz was described
as being "comforted" by Meles' presentation on the country's
direction, as well as Meles' shared commitment to political
harmony and support for the PBS program. Wolfowitz
acknowledged that now is an opportune time to consolidate
programs, and keep a focus on governance and transparency.

BASIC SERVICES THE FOUNDATION, POLITICAL HARMONY THE KEY
-------------- --------------


4. (SBU) Wolfowitz's vision for transforming Ethiopia was
described as ten years of growth and stability. For
Wolfowitz, basic services are the foundation of the pyramid
and therefore must be preserved. World Bank-GOE relations
were described as "normalized on a new basis." Key to
continued World Bank support will be GOE action on various
commitments in the areas of political harmony, governance,
accountability, and transparency. While the World Bank has
committed to providing $500 million over the next year,
including $215 for PBS, progress in key areas such as
political reconciliation, transparency, and accountability

ADDIS ABAB 00001970 002 OF 003


could result in significantly scaled-up funding. The trial
of detained CUD leaders and members of civil society is
another area that the World Bank will be watching in terms of
future assistance levels. Diwan reported that the Prime
Minister had told Wolfowitz that progress on the political
process could lead to greater leniency for the detainees.

BUILDING ON THE MOMENTUM
--------------


5. (SBU) Diwan described a number of areas where donor
assistance could build on recent political and economic
momentum and openings. These include: enhancing basic
services, strengthening the GOE's Productive Safety-Net
Program (PSNP),creating a culture of innovation and
competition within the private sector, consolidating the Nile
Basin Initiative, strengthening regional governments, and
building key infrastructure such as secondary roads and dams.
On basic services, Diwan said it will be key for the GOE to
deliver on its promise of increased transparency and
accountability, and, particularly, allow an increased role
for civil society. Donors present at the briefing stressed
that there needed to be a broad definition of civil society
that included local civil society organizations (CSOs),
non-governmental organizations (NGOs),and rural
associations, as well as improved dialogue between the GOE
and CSOs. There currently is some confusion among donors
about a GOE proposal that seemed to place greater emphasis on
rural associations, which are often party-affliated, and only
later engage CSOs and NGOs. For the PSNP, the focus will be
on strengthening the program so that beneficiaries eventually
"graduate," as well as ensuring that the program will not be
used as a political tool. (COMMENT. Following the May 2005
elections, there was evidence that some beneficiaries had
been removed from the program for political reasons. END
COMMENT.) To support greater transparency in the PSNP, for
example, there will be the introduction of public
dissemination of the names of beneficiaries, with a
particular emphasis on ensuring disclosure to civil society
and parliamentary members.


6. (SBU) Even larger openings are seen by the World Bank in
building key infrastructure, including secondary roads to
develop market linkages for rural populations, and developing
hydro-electric potential, increased irrigation, and private
sector development. Diwan noted that there had been process
on information technology (IT) policy reform, though at a
slower pace than donors would like. He also noted that
Minister of Trade and Industry Girma Birru had expressed
support for the creation of an equity market, though not in
the banking sector.

MACROECONOMIC STABILITY, ECONOMIC REFORM,
AND IMF ENGAGEMENT
--------------


7. (SBU) While the objective of Wolfowitz's visit was not
focused on recent economic developments or reforms, these
issues were discussed with both the government and private
sector. On telecommunications, a sector where donors have
pushed for greater liberalization, Meles acknowledged that
the GOE and donors do not agree on how best to develop the
sector, but that it was acceptable to agree to disagree.
Ethiopia's banking sector was described by the World Bank as
moving in the right direction, with the GOE's strategy of
gradual liberalization (as opposed to, for example, opening
the sector to full foreign investment) as an appropriate
approach. There also appeared to be an opening for
International Finance Corporation (IFC) engagement, for
example, with IFC potentially providing partial guarantees to
local banks. Ethiopia's macroeconomic fragility was
acknowledged, noting that there were certain red-lines that
should not be crossed. (COMMENT: One such red-line, relating
to levels of foreign reserves, may have already been crossed
with reserves dipping below 3 months export coverage. END
COMMENT.) Another concern on the macroeconomic side is
rising inflation, which hit 5 per cent for June. Though
analytical reports tend to be contradictory, there is concern
about rising petty corruption. The IMF Resident
Representative told the ADG that the IMF is trying to engage
the GOE outside of a formal program. Specifically, it
appears that the GOE may be open to the IMF conducting
macroeconomic assessments, although formal GOE agreement for
such work would still be needed. It was noted that Wolfowitz
will be speaking with the IMF Managing Director about a
Preparation Strategy Report (PSR).

ADDIS ABAB 00001970 003 OF 003




8. (SBU) COMMENT. The World Bank Country Director made clear
that Wolfowitz's positive views and public comments did not
imply that challenges, both economic and political, do not
exist. Rather, the visit was seen as highly successful in
that Wolfowitz has a fuller understanding and appreciation of
the PBS program and the environment in which it will be
implemented. For the World Bank, the PBS program represents
an opportunity to build on recent positive momentum in the
political and economic spheres in terms of increasing
accountability, transparency, and good governance Enhancing
civil society's role in the development process will be a
critical aspect of the program's success, and a leading
challenge. The fact that the Ministers of Capacity Building,
Finance/Economic Development, and Agricultural/Rural
Development plan to visit various woredas (districts) during
August and September to advocate and educate local
administrators about PBS is an indication that, at the policy
level, the GOE has also bought-in to the PBS concept. END
COMMENT.
HUDDLESTON