Identifier
Created
Classification
Origin
06KINSHASA968
2006-06-20 10:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kinshasa
Cable title:  

IMF REVIEWS PROGRESS, SETS UP DRC STAFF-MONITORED

Tags:  EFIN ECON PGOV CG 
pdf how-to read a cable
VZCZCXRO4614
RR RUEHDU RUEHGI RUEHJO RUEHMR
DE RUEHKI #0968/01 1711052
ZNR UUUUU ZZH
R 201052Z JUN 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4152
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
UNCLAS SECTION 01 OF 02 KINSHASA 000968 

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR LKOHLER

E.O. 12958: N/A
TAGS: EFIN ECON PGOV CG
SUBJECT: IMF REVIEWS PROGRESS, SETS UP DRC STAFF-MONITORED
PROGRAM

REF: KINSHASA 292

UNCLAS SECTION 01 OF 02 KINSHASA 000968

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR LKOHLER

E.O. 12958: N/A
TAGS: EFIN ECON PGOV CG
SUBJECT: IMF REVIEWS PROGRESS, SETS UP DRC STAFF-MONITORED
PROGRAM

REF: KINSHASA 292


1. (SBU) Summary: An IMF team was in Kinshasa for five days
May 27 to June 1 to look at the DRC's performance since
February 2006 and to finish setting up a Staff-Monitored
Program (SMP). The SMP will provide a bridge between the
PRGF program that lapsed on March 31 and the new PRGF the
GDRC hopes to negotiate before the end of 2006. The Fund
delivered a strong message to the GDRC against government
overspending and on the need to complete structural reforms
sought under the lapsed PRGF program. End summary.


2. (U) An IMF team from Washington led by African Department
Division Chief Cyril Briancon began a five-day visit to the
DRC on May 27. An IMF mission led by Briancon was last in
Kinshasa in early February, shortly before the demise of the
DRC Poverty Reduction and Growth Facility (PRGF) program on
March 31 (reftel). The team met with GDRC ministers and
officials, as well as with Congolese Central Bank (BCC),
World Bank (WB),and donor country officials. Briancon and
IMF country representative Xavier Maret briefed the
Ambassador, DCM, and Econcouns at a June 1 breakfast at the
EMR. Briancon and Maret gave a public one-hour outbrief on
the IMF mission to an assembled group of donor country, WB,
and UNDP representatives later that afternoon.

--------------
Situation: "Difficult"
--------------


3. (SBU) Briancon described the DRC's economic and financial
situation at end May as "difficult" and said that he had
delivered strongly-worded messages to GDRC officials
regarding government overspending and incomplete structural
reforms. He said it was clear that despite low levels of GDRC
spending during the first quarter of 2006, when the GDRC was
still operating on the 2005 budget, GDRC expenditures for
April had been well over budget. (Note: The Ministry of
Budget website, www.ministeredubudget.cd, shows total
overspending for April of nearly USD 29 million, including
USD 14 million by the Defense Ministry, USD 4 million by the
presidency, and nearly USD 2 million by the Independent
Electoral Commission. End note.) Briancon did note,
however, that preliminary figures for May indicated that

spending had been more in line with the budget for the month.


4. (SBU) IMF representatives noted that the macroeconomic
stability of late 2005 and early 2006 has begun to slip a bit
and attributed this to Central Bank financing of overspending
in April. Twelve-month inflation, which had dropped to
almost 6.5 percent in April, has now risen to over 7.5
percent and annualized inflation is at nearly 13 percent.
The Fund has raised its projected inflation rate for the year
to 9.5 percent, and the GDP growth rate has been revised
downward from 7.0 to 6.5 percent. Briancon noted that due to
higher crude oil prices, and despite slightly reduced
production, DRC oil revenues were better than expected in the
first quarter of 2006, averaging USD 50 million per month.
He said, however, that these unexpected revenues would be
needed later in the year to offset the probable loss of
direct budgetary support from donors.

--------------
Staff-Monitored Program
--------------


5. (SBU) In addition to looking at DRC's performance since
February, the IMF team worked to finish setting up the
interim Staff-Monitored Program (SMP),which will provide
continued IMF technical support and allow the DRC to
establish a track record that hopefully would lead to a new
PRGF program. (Note: The SMP is an IMF administrative entity
and does not require IMF board approval. Talks on the
establishment of an SMP began during the spring IMF/WB
meetings in April. End note.) Once established, the SMP
will date from April 1, 2006, and the first quarterly review
is expected in early July, with subsequent reviews at
three-month intervals. The SMP, which will be in place for
between six and eighteen months, will be working on the same
conditionalities, including macroeconomic targets and
structural reforms, as the Poverty Reduction and Growth
Facility (PRGF) program that ended on March 31, 2006.

KINSHASA 00000968 002 OF 002



--------------
Teachers and Civil Servants
--------------


6. (SBU) Briancon and Maret noted that nationwide censuses of
public school teachers and civil servants are still not
complete. Not having yet removed ghost workers from the
rolls, the GDRC cannot now afford to increase salaries for
actual employees. Briancon estimated that the ongoing civil
servant census might reduce the rolls by anywhere from five
to ten percent, citing the figure of 30,000 ghost workers
among 450,000 currently being paid. (Note: This figure does
not include public school teachers, estimated at 280,000
nationwide, because under Congolese law they are not
considered civil servants. End note.) Briancon, perhaps
repeating assurances by Finance Minister Banguli, said that
the GDRC expected to have these two censuses completed within
a month or two.

--------------
Civil Service Backdoor?
--------------


7. (SBU) Briancon said that the IMF has learned that public
school teachers can be hired by the Ministry of Education
without approval by the Civil Service Ministry, and that
these teachers can then transfer into civil service
positions, again without the approval of the Civil Service
Ministry. Briancon expressed concern that this could undo
any progress accomplished by the census in reducing civil
servant numbers.

--------------
Military Salaries
--------------


8. (SBU) IMF reps said that the GDRC's plan to raise the
minimum salary for a Congolese soldier to USD 50 per month
would exceed the 2006 budget allotment of USD 59 million for
military salaries. Briancon said that any salary increase
must be within budget and based upon the reduction of the
effective number of soldiers, verified in a completed census.
(Note: Even current best estimates of 150,000 soldiers would
push the salary envelope to nearly USD 90 million at USD 50
per month. End note.) That census, like those for public
school teachers and civil servants, has yet to be completed.

--------------
Poverty Reduction Strategy Paper
--------------


9. (U) Briancon noted that the achievement of Heavily
Indebted Poor Country (HIPC) completion point by the DRC
depends upon having a new PRGF in place for at least six
months, as well as the implementation of the Poverty
Reduction Strategy Paper (PRSP) for twelve months. He said
that he had encouraged the GDRC to deliver the PRSP to the
IMF and World Bank by the end of June so that Completion
Point, and the resulting debt forgiveness, could be achieved
by the third quarter of 2007. (Note: The final GDRC draft of
the PRSP was presented to international partners the week of
June 5, and should be adopted officially by the end of June.
Septel to follow. End note.)


10. (SBU) Comment: The strong IMF message of fiscal
responsibility and increased attention to needed structural
reforms may be falling on deaf ears. The current
preoccupation of most members of the GDRC is the upcoming
July 30 elections. This is despite the possibility that
nearly USD 190 million of outside budget support,
representing nearly 10 percent of the 2006 budget, may not be
forthcoming due to the lack of a new PRGF before year's end.
The first six months of the SMP will almost certainly pass
before a new government is installed, and the new government
will be hard-pressed to negotiate a new PRGF before the end
of 2006. The GDRC, in anticipation of much-reduced revenue,
needs to stick to prudent, "quality" expenditures for the
rest of 2006. End comment.

MEECE