IMF MISSION DISAPPOINTS SENEGAL'S DONORS

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