Identifier
Created
Classification
Origin
06KINSHASA1396
2006-09-06 11:28:00
CONFIDENTIAL//NOFORN
Embassy Kinshasa
Cable title:  

IMF AND WORLD BANK PROGRAMS IN HOLDING PATTERN

Tags:  EFIN EAID ECOR PGOV CG 
pdf how-to read a cable
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RR RUEHMR RUEHRN
DE RUEHKI #1396/01 2491128
ZNY CCCCC ZZH
R 061128Z SEP 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4729
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001396 

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO OPIC (JEDWARDS)

E.O. 12958: DECL: 09/06/2016
TAGS: EFIN EAID ECOR PGOV CG
SUBJECT: IMF AND WORLD BANK PROGRAMS IN HOLDING PATTERN

REF: A. KINSHASA 968


B. KINSHASA 216

Classified By: EconOff W.Brafman for reasons 1.4 b/d.

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001396

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO OPIC (JEDWARDS)

E.O. 12958: DECL: 09/06/2016
TAGS: EFIN EAID ECOR PGOV CG
SUBJECT: IMF AND WORLD BANK PROGRAMS IN HOLDING PATTERN

REF: A. KINSHASA 968


B. KINSHASA 216

Classified By: EconOff W.Brafman for reasons 1.4 b/d.


1. (SBU) Summary. Representatives of the IMF and World Bank
(WB) say their institutions' programs in the DRC are
essentially in a holding pattern. IMF Resident
Representative Xavier Maret said the fund's current focus is
on helping the DRC maintain macroeconomic stability, while WB
Resident Representative Jean-Michel Happi said the WB is
concentrating on more closely monitoring programs and
projects already launched. End summary.

IMF - TRYING TO KEEP DRC'S ECONOMIC STATUS QUO
-------------- -


2. (SBU) The visiting DRC Desk Officer and EconOffs met with
the IMF and World Bank resident representatives in Kinshasa
August 10. IMF resident representative Xavier Maret discussed
the Staff-Monitored Program, the GDRC's 2006 budget and
monetary policy, and the impact of these policies and current
events on exchange and inflation rates. Maret said that the
SMP, which became effective April 1 (reftel A),focuses on
maintaining economic stability rather than implementing
structural reforms or other new measures. He said it will
give the GDRC a chance to "clean the slate," that is, to
complete conditionalities left unmet during the Poverty
Reduction and Growth Facility Program that was suspended
March 31. Specific goals include helping the GDRC to keep
spending within budgetary limits and to avoid recourse to
domestic bank funding of expenditures. No Fund disbursements
will occur during the SMP, which will continue until at least
the end of 2006. Some progress has already occurred; the
GDRC presented its final Poverty Reduction Strategy Paper
(PRSP) to the IMF and WB in July.

BUDGET
--------------


3. (SBU) Maret said the GDRC kept within its budget in May
and June, following spending overruns in March and April. He
expects that heavy election spending will lead to July and
August budget overruns. He also noted that the GDRC has not
yet given the IMF an itemized explanation of overspent budget

lines, such as military expenditures. To curb both the
overspending and its parallel problem, corruption, Maret said
the GDRC needs to develop administrative reform legislation,
such as adopting a transparent military procurement process.

MONETARY POLICY, EXCHANGE AND INFLATION RATES
--------------


4. (SBU) Maret was optimistic about the GDRC's inflation rate
for 2006. According to the IMF's calculation, inflation is
currently at 6.9 percent cumulative for the year, and at 8
percent annualized, below the IMF's June 2006 projection of
9.5 percent. These figures currently only reflect Kinshasa
prices, but the IMF is trying to obtain price index figures
from other provinces. However, Maret expressed some
frustration that the Congolese Central Bank (BCC) has not
made a decision about adopting a more restrictive monetary
policy to keep inflation in check, noting that in the past
few months the monetary base has increased. The BCC has a low
level of less than three weeks of foreign exchange reserves,
but Maret said that this amount has held steady since the
IMF's last disbursement at the end of 2005.


5. (SBU) Maret also said that the Congolese franc's (CF)
recent devaluation is likely due in part to the high demand
for dollars surrounding heavy spending in the election period
(comment: a view that Post shares). Over the past weeks, the
CF has gone from less than 440/USD to about 470/USD. (Note:
Despite this demand, local banks have been able to meet their
USD needs, which are currently about USD 5 million per day on
the local foreign exchange market rather than through the
BCC. End note.)

WORLD BANK - NO NEW FUNDING
--------------


6. (SBU) World Bank (WB) Resident Representative Jean-Michel
Happi discussed the current status of WB projects and funding

KINSHASA 00001396 002 OF 003


in the DRC, obstacles to sectoral reform, post-election
plans, and a recent internal investigation. He said that
from his perspective (comment: contrary to other WB
information) the WB did not decide to suspend funding during
the transition and election period but rather intentionally
committed all available funds by early 2006 to avoid giving
the GDRC the opportunity to engage in ill-considered spending
around the election period. He said the WB has increased
financial controls on ongoing projects as another check on
spending.

SECTORAL REFORM SLOW
--------------


7. (SBU) Happi explained that sectoral reforms have moved
slowly for legislative, political and internal reasons. One
cause for delay, he said, is that Parliament did not pass
draft legislation to implement good governance measures. He
noted that, while the WB has been emphasizing good
governance, the GDRC has resisted extensive involvement of
the international community in this issue. Happi also said
that he expects that vested interests in specific sectors
will try to block reform, although he did not provide
specific examples.


8. (SBU) A pending internal WB investigation has also slowed
sectoral reform, Happi said. For example, the WB postponed
support for the GDRC's program to reduce or eliminate school
fees, a project that Happi described as "ambitious" because
of the investigation of BCECO, the GDRC's main implementer of
WB-funded projects. WB internal affairs investigators were
in Kinshasa in March 2006 conducting the investigation. Happi
said he expects the results of the investigation soon, but is
not yet party to the exact subjects investigated or the
findings. (Note: Within the diplomatic community in the DRC,
the BCECO is widely considered to be mismanaged and corrupt.
End note.)


9. (C) Happi responded rather vaguely in response to EmbOffs'
inquiry about the WB's plans to provide additional support
for the DRC's Disarmament, Demobilization, and Re-integration
program (DDR). Although nearly USD 50 million remains
available for the program, these funds are not currently
being disbursed. As a partial explanation for the delay,
Happi claimed the WB is more concerned about evaluating
whether DDR, particularly reintegration, has been effective
in light of the limited capacity of some areas to support new
economic activities that the program helped many demobilized
soldiers launch. (Note: At a separate, later meeting, Happi
admitted to USAID that overspending has occurred in the
disarmament and demobilization portions of DDR and that
substantial fraud and funding misuse is occurring, such as in
the field of air transport contracting. End note.)

MINING AND TELECOMMUNICATIONS SECTORS
--------------


10. (SBU) Reform in extractive industries and
telecommunications sectors has stalled, primarily because
these are lucrative fields over which Congolese officials are
loathe to cede control. The telecommunications sector has
received over half of total foreign direct investment in the
DRC during the last four years, according to Maret, and
accordingly generates substantial regulatory fees and other
income for the GDRC. Hence, the GDRC and the
telecommunications parastatal, OCPT, resist reform that would
ultimately reduce their revenue. Nevertheless, Happi and
Maret both seemed to think that, despite the challenges (such
as the expense of paying for employees' severance packages),
OCPT should be disbanded. Maret noted that OCPT provides
little actual service, in a country where landlines
essentially no longer exist. The regulatory fees that the
major companies pay only serve to subsidize OCPT.


11. (SBU) Some reform has already occurred in the mining
sector, but it has been slow. COPIREP, the World Bank-funded
GDRC agency developed post-transition to reform parastatals,
delayed for many months the installation of a new, expatriate
management in Gecamines (the DRC's copper/cobalt mining
parastatal),permitting many mining agreements to be signed
during the delay. One of the WB's goals in installing the
new Gecamines management was to freeze the signing of
contracts to allow for a review and analysis of prior mining

KINSHASA 00001396 003 OF 003


agreements. (Note: The WB did manage, however, to commission
financial and legal assessments of Gecamines' existing
contracts, and it is reviewing, but has not publicly
released, that recently completed report. End note.)


12. (C) Happi tried to put in a positive light the difference
between the WB's reform goals for Gecamines and those of
Gecamines' current CEO, Paul Fortin, who assumed his duties
in January 2005 (reftel B). The WB's intent - and that of
much of the international community - was for Gecamines to
transform from a mining company to a holding company for
Gecamines' assets and liabilities, including the transfer of
its "social infrastructure" (e.g. ceding control of its
hospital to the City of Lubumbashi). However, Fortin
continues to say publicly that his (comment: unrealistic)
goal is for Gecamines to increase its mining operations
rather than terminate them. Happi claimed that Fortin's
goals are merely part of a medium-term strategy to utilize
Gecamines' existing assets, such as its equipment. (Comment:
However, Happi's comment seemed to be a revisionist attempt
to harmonize the clear difference between Gecamines'
management goals and the WB's. End comment.)

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


13. (SBU) Despite ongoing problems with GDRC overspending and
the possible misuse of Bank funds, both resident
representatives were hopeful that when a newly-elected
government is in place, the DRC will be in a position to
negotiate a new PRGF and to once again use WB funds to
implement the GDRC's recently completed Poverty Reduction
Strategy Paper. In the meantime, the GDRC must adhere to its
budget, while the WB should resolve its internal problems,
ensure better program management, and focus on sectoral
reform. End comment.
MEECE