ANGOLAS NEW ECONOMIC DIPLOMACY

UNCLAS SECTION 01 OF 03 LUANDA 000277

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR AF/S, EB/ODF
STATE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD AO
SUBJECT: ANGOLAS NEW ECONOMIC DIPLOMACY

REF: A. LUANDA 00216

B. 05 LUANDA 01591

SUMMARY
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1. (SBU) Since the end of Angolas 27-year civil war
in 2002, the GRAs strategy for international
economic relations has evolved significantly,
particularly with respect to multilateral
institutions like the International Monetary Fund
(IMF) and the Paris Club. While the GRA formerly
viewed the IMF as the gatekeeper to international
financial resources as well as a donors conference
to fund the nations reconstruction, the government
has successfully secured numerous bilateral credit
lines on its own. An oil windfall has allowed the
the
GRA to pursue a monetary policy initially opposed by
the IMF and settle debts with some creditors outside
the context of the Paris Club. Rather than seeking
debt treatment from the Paris Club and grants from a
donors conference, the GRA is focused on attracting
private investment and financing through its own
means by paying off debts and stabilizing the
economy. End summary.

FOCUS SHIFTS TO CREDIT LINES AND PRIVATE INVESTORS
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2. (U) In recent conversations with Emboffs and
through widely disseminated public statements, the
GRA has begun articulating a new economic policy.
Following the end of the civil war, a major
diplomatic and economic objective for the GRA had
been to secure a Staff-Monitored Program (SMP) with
the IMF, which would then have paved the way for a
debt rescheduling with the Paris Club and an
international donors conference to raise funds for
Angolas reconstruction.


3. (SBU) As repeated attempts to reach agreement
nt
with the IMF faltered, the GRA determined that it
could not wait for an IMF program to begin
normalizing financial relations with Paris Club
members. The GRA has since paid arrears to both the
United States and Germany and negotiated a USD 51
million credit line with Hermes, the German export
finance bank. Governments around the world, eager
to help their companies enter the increasingly
lucrative Angolan market, have been using their
export finance banks to guarantee lines of credit
for projects in Angola. The GRA has secured
numerous bilateral credit lines for its
reconstruction projects; of the governments USD 7.1
billion public investment program for 2006, about
USD 5 billion will be funded through credit lines.


4. (U) Now focused on gaining access to the
bilateral export credit agencies of Paris Club
member countries, the GRA appears to be less
concerned with acquiring Paris Club debt
restructuring than it is with normalizing financial
al
relations with the Clubs members (Ref A). The GRA
has also backed away from calls for a donors
conference in favor of investors conferences,
conceding that the appropriate time to hold a
donors conference has passed. Angolan authorities
are discussing possible investors conferences with
the governments of Portugal and Britain and with a
Canadian business association.

DOES ANGOLA NEED THE IMF?
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5. (U) These developments have diminished the
urgency of establishing an SMP with the IMF,
previously seen as a prerequisite to a successful
donors conference and Paris Club negotiations.
According to a March 7 Voice of America (VOA)
report, an Angolan official noted, If a program
with the IMF will not resolve the issue of national
reconstruction (i.e., assure financial support),it

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does not make any sense to pursue it. Angolan
authorities say that they can benefit from the IMFs
technical advice and assistance on economic policy
without a formal accord.

accord.


6. (U) However, in an interview published in the
March 9 edition of the state newspaper, Angolas
Central Bank Governor Amadeu Mauricio asserted that
the GRA is continuing to seek a program with the
IMF. Cooperation between the IMF and GRA continues
(Ref A). On March 14, an IMF team began a two-week
visit to Angola to conduct Article IV consultations
on the countrys economic and financial situation.
The Ministry of Finances Director of Studies and
International Economic Cooperation, Manuel da Costa,
informed us that the government has also invited the
IMF to evaluate Angolas financial system by
conducting a Report on The Observance of Standard
Codes (ROSC) between May and June of this year.

DEFENDING THE HARD KWANZA
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7. (U) A former area of contention between the GRA
and IMF centered on the issue of Angolas hard
kwanza policy (Ref B). The hard kwanza policy
involved using the governments foreign exchange
earnings to purchase kwanzas, the Angolan national
ational
currency, and taking them out of circulation to
reduce liquidity and hold down inflation. The IMF
and some other economists argued that this policy
led to a real appreciation of the kwanza,
disadvantaging local producers by making imports
cheaper relative to locally made goods while
depleting Angolas foreign exchange reserves.


8. (U) GRA authorities note, however, that the oil
windfall has actually increased Angolas reserves
and that their monetary policy has successfully held
end-of-period inflation down to 18 percent in 2005
(as opposed to 31 percent in 2004),thereby enabling
a favorable investment climate. In the Central Bank
Governors interview, Mr. Mauricio conceded that the
kwanza has appreciated, but argued that internal
production in Angola is so low that it would not be
significantly affected by competition with cheap
imports. He contended that the kwanzas
appreciation actually benefits most Angolan
entrepreneurs, who are still in the initial phase of
of
importing prime materials and equipment. Finally,
he said, I realize that this [policy] is valid for
a limited window, for a given period of time,
suggesting that the GRA will eventually allow the
kwanza to depreciate in real terms.

COMMENT: OIL BOON UNDERPINNED POLICY CHANGE
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9. (SBU) Since the 2002 conclusion of the civil war,
Angolas economic policymakers have shifted their
focus from multilateral to bilateral partners and
have increasingly sought private investment over
official assistance to finance the nations
reconstruction. The GRA has endeavored to settle
debts bilaterally outside the Paris Club and has
discarded the idea of an international donors
conference in favor of bilateral investors
conferences and trade missions. With the IMF no
longer seen as the gateway to greater financial
resources, the GRA continues to accept advice and
technical assistance from the IMF but does not view
an SMP as a necessity. Finance Minister Jose Pedro
ro
de Morais has told us and repeated publicly that
Angola does not need an IMF loan, but the government
wants to improve its financial profile to attract
more funding from private and bilateral sources.


10. (SBU) Comment continued: GRA authorities are
taking advantage of high oil prices and increasing
oil production to reposition Angolas economic

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diplomacy. The largest of Angolas bilateral credit
lines USD 2 billion with China and USD 580 million
with Brazil are backed by oil. With oil export
earnings roughly doubling between 2004 and 2006,
Angolas ability to settle debts, negotiate credit
lines, and defend its currency increased while its
willingness to meet the international community and
international lending organizations requirements
for an IMF loan, significant Paris Club debt
restructuring, and a generous donors conference
diminished. Although Angola is now seeking to
jumpstart its reconstruction relying on its own
means rather than the concessions of creditors and
rs and
international donors, the government also recognizes
the need for international lenders approval and a
better business climate to attract foreign
investment. End comment.

Efird