Identifier | Created | Classification | Origin |
---|---|---|---|
06KINSHASA1608 | 2006-10-18 15:40:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Kinshasa |
VZCZCXYZ0021 RR RUEHWEB DE RUEHKI #1608/01 2911540 ZNR UUUUU ZZH R 181540Z OCT 06 FM AMEMBASSY KINSHASA TO RUEHC/SECSTATE WASHDC 4984 INFO RUEHXR/RWANDA COLLECTIVE RUCNSAD/SOUTHERN AFRICAN DEVELOP COLLECTIVE RHEFDIA/DIA WASHDC RUEAIIA/CIA WASHDC RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK RHMFISS/HQ USEUCOM VAIHINGEN GE RUEATRS/DEPT OF TREASURY WASHDC |
UNCLAS KINSHASA 001608 |
1. (SBU) Summary. A visiting IMF team characterized the DRC economic situation as "difficult" and expressed concern over a worsening macroeconomic outlook. The Fund laid the blame for rising exchange and inflation rates squarely on GDRC overspending, fueled in part by Central Bank credit to the government. In talks with GDRC authorities, the Fund's experts suggested ways to stabilize the exchange rate and inflation and to bring GDRC spending under control before the end of the year. The IMF expects to return in January 2007 to conduct a more formal review of the Staff-Monitored Program. End summary. 2. (U) International Monetary Fund (IMF) Africa Bureau chief Cyrile Briancon outbriefed the diplomatic and donor community on October 12, following a 5-day IMF team visit to Kinshasa, their first since June (ref A). Briancon said the visit had not been a formal review of the current Staff-Monitored Program (SMP), but rather a close look at the macroeconomic situation in the DRC and a chance to discuss matters with GDRC officials. -------------------------- Macroeconomic Deterioration -------------------------- 3. (U) Briancon said that the worsening macroeconomic situation is of great concern to the Fund. He noted that the Congolese franc has depreciated by more than 10 percent (from 450 to now over 500 CF/USD) since June, with the bulk of that occurring since late August. Briancon stated that cumulative inflation for 2006, through end September, is already at 20 percent (Note: Original projections for 2006, as used in the Poverty Reduction Strategy Paper issued in July, were for under 10 percent annually. End note.) He added that if fourth quarter inflation continued at the same level as September, inflation could total 30% for the year. -------------------------- GDRC Overspending, Redux -------------------------- 4. (U) Briancon said that, despite higher than expected government revenues, GDRC expenditures for the month of September had exceeded the month's budget by some 50 billion Congolese francs (CF), or about USD 100 million. He stated that 20 billion CF (USD 40 million) of this total was in the form of Congolese Central Bank (BCC) credit to the GDRC. The remaining 30 billion CF (USD 60 million) was the amount that the Fund felt should have been saved due to prior GDRC expenditures on items originally budgeted for September. (Note: IMF resident representative Xavier Maret indicated weeks ago (ref B) to Econcouns that the Fund expected to see underspending against the 2006 budget during the last four months of the year. This apparently did not occur. End note.) This overspending for the month of September alone equaled the entire amount overspent for the first eight months of 2006. -------------------------- What Can the GDRC Do? -------------------------- 5. (U) Briancon said that the IMF has suggested an immediate halt to all new, non-recurring expenditures, and a much tighter inspection of anything currently in the "chain of expenses." He called these "difficult" choices and noted that high inflation, once begun, would be slow to correct. He emphasized that tight BCC monetary policy would need to precede and accompany tighter GDRC budget policy. He noted, though, that increased transparency in the budget and spending plan through Ministries of Finance and Budget website postings would make tracking GDRC expenditures easier. Briancon characterized ongoing structural reform under the SMP as "not very satisfactory" and placed particular emphasis on the need to rein in total salary payments to the military, teachers, and civil servants through completion of the required census process. -------------------------- Next Steps -------------------------- 6. (U) Without commenting on whether the GDRC could get its house in order before the end of the year, Briancon suggested that the next IMF visit would be in early January 2007 to conduct a final SMP review, after the elected government is in place. He stated that only then could the new government negotiate another IMF Poverty Reduction and Growth Facility (PRGF) program, which it might be possible to approve and have in place by the end of the first quarter of 2007. This new PRGF, Briancon said, would have to be implemented for six months and reviewed successfully in October 2007, a best case scenario, before HIPC completion point could be achieved sometime during the last quarter of 2007. (Note: this is dependent also upon one year of successful Poverty Reduction Strategy Paper (PRSP) implementation, begun in July 2006. End note.) 7. (SBU) Comment. Neither putting a brave face on the situation nor sounding the death knell of the Congolese economic program, the IMF made it clear that the GDRC is in serious trouble as it attempts to maintain the macroeconomic advances made over the last few years under the PRGF and now the SMP. The recent installation of another group of lameduck ministry and public enterprise officials (septel) for the final two months of the transition does not inspire confidence that there will be a quick return to fiscal discipline before year's end. 8. (SBU) Comment (cont.) Whatever the reasons behind massive government overspending during the electoral campaign and final months of the transition government (election expenses, security concerns, public sector salary pressures, etc.), the elected government scheduled to take office at the end of the year will face a daunting task: turn the economic situation around and get a new IMF program in place quickly. Otherwise, the DRC will suffer the same fate as in 2006: suspension of outside budget assistance and multilateral/bilateral debt forgiveness programs. Either of these consequences would be enough to make 2007 another very difficult year for the DRC, and for its elected government. Worse still, the new government would find it next to impossible - even under the best of circumstances - to meet the pent-up expecations of the Congolese people. End comment. MEECE |