UNCLAS SECTION 01 OF 02 DAKAR 002758

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EB/IFD, AF/EPS AND AF/W

E.O. 12958: N/A
TAGS: EAID ECON EFIN PGOV PREL SG
SUBJECT: IMF MISSION DISAPPOINTS SENEGAL'S DONORS

REF: DAKAR 2614

DAKAR 00002758 001.2 OF 002



1. (SBU) SUMMARY: On November 8, an IMF Mission to Senegal for
Article 4 consultations briefed the Ambassador and other members of
Senegal's donor community on its impressions of Senegal's economic
situation and performance and policy outlook for 2007. The team did
not provide any new insights. The Chief of Mission downplayed the
importance of renewing an IMF program with Senegal. Donors were
largely unconvinced and unsatisfied by the IMF brief. It appears
that many donors are looking to the U.S. to take the lead in
pressing the Wade government to improve governance and transparency.
A representative from China's mission to Senegal attended the
session, a very infrequent occurrence for donor gatherings in
Senegal. END SUMMARY.

REVIEWING OBVIOUS PROBLEMS
--------------

2. (SBU) The IMF Chief of Mission, Mr. Reza Vaez-Zadeh, presented a
pat list of economic difficulties facing Senegal, most of which he
had been noted during his "pre-consultations" meeting with donors on
October 26 (Reftel). Vaez-Zadeh noted that Senegal would likely not
register GPG growth above 3.5 percent in 2006, and that the
country's budget deficit is an increasingly worrisome problem. He
added that in the near term, the GOS needs to reach an agreement
with its Indian partners on recapitalizing and restarting Industries
Chimiques du Senegal (ICS), and to continue improvements in the
electricity supply. Governance and public procurement reform
continues to be a pressing issue; the IMF team was not able to meet
with the "project manager" (that is, President Wade's son, Karim) to
discuss two of the country's largest public works programs: the
road construction for Dakar's Corniche, and the proposed new
international airport. Vaez-Zadeh appeared to accept that the
current "charged" political situation in the run-up to Presidential
and National Assembly elections on February 25 precluded significant
progress on budget tightening and transparence.

2007 SHOULD BE BETTER
--

------------

3. (SBU) The IMF team provided a fairly positive assessment of
Senegal's potential for significantly enhanced economic performance
in 2007. Assuming that the political situation re-stabilizes,
energy costs drop, and the ICS becomes largely operational, 2007 GDP
could again surpass five percent. Of course, there is no certainty
of realizing these assumptions, and the country's ever-expanding
wage bill, particularly at the highest levels of government will
continue to put a drag on economic performance. [Note: President
Wade recently pushed through an expansion of the National Assembly
to 150 members from 120, and there is speculation that he will also
attempt to create a new Senate. End note.]

NO IMF PROGRAM REMAINS A PROBLEM
--------------

4. (SBU) As in their earlier meeting with this IMF team, a number
of donors highlighted the desirability for Senegal to have an active
program with the IMF. [Note: Senegal completed its previous
Poverty Reduction and Growth Facility (PRGF) in April. End note.]
The EU, Canadian, and German representatives noted that an IMF
programs provides a measure of legitimacy to requests for direct
budget support. In addition, a policy monitoring program provides
clear actions and goals for the government to achieve, providing a
counterweight to abuses in budget resources which appear to be
increasingly common in Senegal. The donors were skeptical that
"Comfort Letters" from the IMF could provide sufficient legitimacy
for consideration of budget support.


5. (SBU) The IMF Chief of Mission reiterated his point from the
previous meeting that Senegal had not yet requested negotiations on
the possibility of a new PRGF or a non-financial Policy Support
Instrument (PSI). He also asserted that IMF "engagement" with
Senegal would be almost equivalent with or without a program,
through regular dialog with GOS officials. Vaez-Zadeh suggested
that donors could organize themselves to present policy goals to the
Finance Minister and other officials, to the same effect as having
an IMF program. The donors were unconvinced.

COMMENT
--------------

6. (SBU) The IMF has an important role to play in Senegal, a
country that is an increasingly ineffective partner for many donors.
However, the IMF presentation was unsatisfactory, given the serious
structural/economic problems facing Senegal and President Wade's
apparent increasing willingness to put political expediency ahead of
sound policy. While we accept that this IMF team did not have the
remit to enter into discussions with the GOS about a new policy
program, Mr. Vaez-Zadeh's assertion that the IMF can maintain the
same level of engagement with Senegal, or that other donors can be

DAKAR 00002758 002.2 OF 002


just as effective without the IMF in pushing for economic reform,
came across as disingenuous.


7. (SBU) There appeared to be an expectation that the U.S. might be
able to take the lead in pushing the GOS to get back on track with
economic reform. We will continue to press for policies that
promote pro-growth and good governance. However, since we do not
disburse direct budget support our options are limited. If the IMF
does not take the lead in keeping the Wade administration focused,
we hope the EU and other financial donors will also step up. We
encourage State and Treasury to engage the IMF on the possibility of
negotiating a new program for Senegal, whether it is a new PRGF or a
Policy Support Instrument.

(U) Visit Embassy Dakar's classified website at
http://www.state.sgov/gov/p/af/dakar/.

JACOBS