IMF Insists GOM Cut Spending to Get New Program

UNCLAS ANTANANARIVO 000595

SIPDIS

SIPDIS

SENSITIVE

PARIS FOR D'ELIA
DEPT FOR AF/E
DEPT FOR EB/IFD/OMA - ABESMER
TREASURY FOR FBOYE

E.O. 12958: N/A
TAGS: ECON EFIN PREL MA
SUBJECT: IMF Insists GOM Cut Spending to Get New Program

Ref: ANTAN 58 AND PREVIOUS


1. (SBU) Summary: The International Monetary Fund (IMF)
and Government of Madagascar (GOM) are on the cusp of
completing a new program IF spending cuts can be achieved to
bring the 2006 Budget into balance. If approved, the IMF
would provide USD 80 million over three years. Fund "seal
of approval" would also clear the way for donor budget
support. Finance Minister Radavidson and Prime Minister
Sylla are now responsible for sharply reducing expenditures,
amending the Budget in the National Assembly, and reining in
a spendthrift President Ravalomanana six months before the
election. END SUMMARY.


2. (SBU) On his fourth visit to Madagascar in six months,
IMF Mission Director Brian Ames remained optimistic the GOM
would soon complete negotiations for a new program because
most conditions have been met (reftels). However, the IMF
insists the GOM must show "real commitment" to cutting
spending and amending the 2006 budget in the ongoing
legislative session. The IMF Mission and GOM agreed in
principle to finalize a new Poverty Reduction and Growth
Facility (PRGF),and Finance Minister Radavidson is leading
an ongoing debate at the Council of Ministers to amend the
Budget by early July.


3. (SBU) According to IMF ResRep Van Den Boogaerde, the
proposed PRGF of USD 80 million over three years would be
submitted to the IMF Board for approval in July. In a June
6 press conference, the ResRep reported that GOM fiscal
revenue for the first six months of 2006 was far below
target and spending must be reduced to bring the budget into
balance. Separately, Van Den Boogaerde told a donors'
meeting that budget cuts in "non-priority" areas will be
sufficient to restore fiscal stability. The IMF recommended
the GOM halt the rehabilitation and construction of
government buildings, and postpone new vehicle acquisitions.
Given the IMF's willingness to complete a new PRGF, the
European Union is expected to soon disburse 20 million euro
(about USD 24 million) in budget support to the GOM. The
African Development Bank also has about USD 25 million in
budget support on hold until its Board takes a decision
based on the IMF talks.


4. (U) Addressing the National Assembly June 6, Prime
Minister Sylla revised downward the GOM's 2006 growth
forecast from 6 percent to between 4.5 and 5 percent. PM
Sylla also revised the 2006 inflation forecast upward from 8
to 12 percent. Explaining the projections, which are
consistent with IMF analysis, PM Sylla noted high petroleum
prices as well as declining revenue from apparel and vanilla
exports.


5. (SBU) COMMENT: Slowly but surely, the GOM has met IMF
conditions to qualify for a new program, agreeing to
eliminate exonerations, curb extra-budgetary spending, and
resolve the crisis at the national electric utility.
Madagascar's "outsider" status as a non-Program poor
country, and the holds on much-needed budget support, have
provided motivation to take difficult steps. Now the real
test comes when the Ravalomanana government is expected to
cut spending while he runs for re-election. Even with the
best of intentions if will be difficult to enforce any kind
of austerity budget over the next six months. END COMMENT.

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