THOUGHTS ON THE DIALOGUE WITH KENYA AT THE

C O N F I D E N T I A L SECTION 01 OF 06 NAIROBI 001635

SIPDIS

SIPDIS

DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR A - DAA/AFR WADE WARREN, AFR/EA JEFF BORNS AND
JULIA ESCALONA
MCC FOR KEVIN SABA AND MALIK CHAKA
TREASURY FOR LUKAS KOHLER
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 4/13/2031
TAGS: ECON PREL EAID EFIN KCOR PGOV PINR KE
SUBJECT: THOUGHTS ON THE DIALOGUE WITH KENYA AT THE
UPCOMING IMF/WORLD BANK MEETINGS

Refs: A. Nairobi 1614, B. Nairobi 1560, C. Nairobi 1439,


D. Nairobi 1114, E. Nairobi 661, F. Nairobi 527, G. Nairobi
395

Classified by Econ Counselor John Hoover for reasons 1.4
(B) and (D).


1. (C) Summary: In light of recent events in Kenya,
Mission Nairobi recommends a tough-but-balanced approach in
bilateral meetings between USG policymakers and the Kenyan
delegation visiting Washington in late-April for the annual
IMF/World Bank meetings. Washington policymakers can
expect an articulate charm offensive from the Kenyan team,
but should put the points raised by the Kenyans in context,
and remind them of our concerns about media freedom and the
need for more concrete actions in dealing with the mega-
scandals of the day. For the sake of optics, Mission
Nairobi recommends that Washington keep Kenya's Millennium
Challenge Corporation (MCC) Threshold Program Concept Paper
informally on hold until June. We would in the meantime
welcome a visit to Kenya by the MCC. Suggested talking
points/themes for use by Washington policymakers in their
meetings with the Kenyan delegation follow below in para

10. This is a joint Embassy-USAID message. End summary.

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Background: Perspective for IMF/World Bank Meetings
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2. (C) In ref G, transmitted in late January, U.S. Mission
Nairobi spelled out its views on the right stance for the
USG to take with regard to Kenya's IMF and MCC Threshold
programs. In a nutshell, we argued that the government's
response to the explosive and credible allegations of grand-
scale graft and cover-up within President Kibaki's inner
circle had been inadequate, illustrating again the lack of
genuine political will at the leadership level to combat
corruption and change the political culture by example. We
therefore urged selective approval only of any upcoming new
assistance programs or credits from multilateral lenders.
We specifically recommended postponing IMF Board
consideration of the 2nd review of Kenya's IMF program, and
putting on "pause" formal consideration and approval of
Kenya's otherwise technically-sound MCC Threshold Program
Concept Paper. We urged these actions not to disengage,
but on the contrary, to send a strong signal to the Kenyan
leadership that we, in close coordination with other key
donors, could not engage in business-as-usual in the
absence of political will and concrete actions in the fight
against graft.

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Recent Developments: Good News, Bad News
--------------


3. (SBU) In view of the upcoming IMF/World Bank meetings
in Washington, to which Kenya will be sending a talented
and high-level delegation (see para 7),Mission Nairobi
thought it would be useful to review what has happened on
the ground in Kenya since late January, put these
developments in perspective, and to suggest some general
points for Washington's use in bilateral meetings with
Kenya's delegation on the margins of the IMF/Bank meetings.
First, the good news, much of which is at least partly the
result of the concerted pressure we and other donors (often
in concert with even more powerful public pressure) have
since exerted. These developments include:

-- The resignation of two ministers in response to the
Anglo-Leasing revelations, and a third following
publication of the Goldenberg Report. This marked a first
for political accountability in the Kibaki administration.
(Ref E).

-- Publication (with only minor GOK resistance) and debate
in Parliament of the Public Accounts Committee (PAC) report
on the Anglo-Leasing and related scandals. (Ref C).

-- Public statements by the new Minister of Justice that
the GOK will fully and thoroughly investigate and prosecute
cases of wrongdoing brought to light in the Githongo
dossier, the Goldenberg Report, and the Ndungu Land Report.


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-- Orders by police to a series of individuals implicated
in the Anglo-Leasing and Goldenberg scandals to surrender
passports and firearms.

-- The reopening of investigations into the Anglo-Leasing
and related scandals and the Goldenberg affair by the Kenya
Anti-Corruption Commission (KACC).

-- The start of prosecution against five former high-level
government officials and businesspeople implicated in the
Goldenberg scandal.

-- The international verification and transparent
destruction of a year-old 1.25 ton cocaine seizure in
response to months of UN, UK, and U.S. pressure. (Ref B).

-- Slow but incremental progress on a series of legal and
institutional reforms, including procurement reforms,
public expenditure management reforms, civil service
reform, and privatization.


4. (SBU) On the downside:

-- Indications that the leadership will go no further in
enforcing political accountability in the Anglo-Leasing and
related cases, despite clear evidence of complicity on the
part of the Vice President and the head of the civil
service.

-- President Kibaki himself, either deliberately or through
default, is disengaged on the question of corruption -- an
absence that fundamentally undermines any efforts within
the GOK to address the problem. He has yet to speak out,
in public or private, on the role he and members of his
inner circle played in the Anglo-Leasing scams.

-- No transparency regarding KACC or other investigations
into senior government leaders. No timetable or deadline
set for the resolution of cases.

-- KACC Chief Ringera has decided that he cannot and will
not pursue high-profile cases. Thus the circles of
corruption immediately surrounding the Presidency appear to
be off limits.

-- No current prosecutions have been launched against
senior members or former senior members of the current
government. No illegally acquired land or assets have been
recovered in any major corruption cases.

-- Illegal midnight raid in March by hooded members of the
security forces on a major media organization. The GOK
continues to offer no apology or explanation beyond a vague
"national security" justification for this egregious
violation of press freedom and clear effort to intimidate
the opposition. (Ref D).

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Is Anyone in Charge?
--------------


5. (C) The police raid against a major media house was
perhaps the clearest indication to the Kenyan public and
donors of the malaise and desperation that characterize the
current administration. Not only did it constitute a
dangerous infringement on freedom of the press, but in the
aftermath, also illustrated that no one seems to be in
charge at the leadership level in Kenya. We cannot
discount similar egregious actions in the future, in large
part because individual ministers and key insiders at State
House appear able (and willing) to use the levers of power
with impunity to further their own personal interests,
without the authorization of the President or broader
coordination with the entire Cabinet. President Kibaki is
indecisive at best, but by most accounts is sound asleep at
the wheel, disengaged from, and oblivious to, the political
realities around him (ref F).

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Hope for the Best, But Anything is Possible
--------------


6. (C) It is precisely in this context - that of an

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unpopular, narrowly-based government increasingly desperate
to maintain its hold on power and in which no one is in
charge - that we fear virtually anything could happen.
Policy drift is a given. Beyond that, we could well see
additional illegal attempts to stifle the press and/or the
political opposition, the stirring up of ethnic
animosities, or worse. As individuals and factions look to
the 2007 elections, there will also be renewed incentives
and pressures to steal money on the part of politicians
desperate either to fund re-election campaigns, or to
simply grab what they can while they still hold office.
We saw an early indication of this dynamic when the GOK
recently hiked allowances for ministers and assistant
ministers by a factor of five, further fueling the image of
extravagance and abuse of power at a time when the GOK is
also asking the international community for $350 million to
combat starvation in drought-stricken parts of the country.
In the meantime, in the absence of political will at the
top, key corrupt figures inside the GOK and in the private
sector have concluded that they have little to fear.

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What the Kenyans Will Say in Washington
--------------


7. (C) However, there is a relatively competent and
relatively untainted leadership group within the recently
re-made 34-member Cabinet, centered around Raphael Tuju
(Foreign Affairs),Martha Karua (Justice),Mutahi Kagwe
(Information and Communications),and Amos Kimunya
(Finance). This group, together with their Permanent
Secretaries, has become the new "acceptable face" of the

SIPDIS
GOK to both the Kenyan public and the international
community. In fact, Kimunya and Karua, joined by their
PS's and KACC Director Aaron Ringera, are expected to
constitute the GOK's delegation to the IMF/World Bank
meetings. Kagwe plans a separate visit to the U.S. in May.
Based on their remarks at a one-day "Stakeholders Forum" on
economic development and governance held in Nairobi April
10, Washington can expect to hear the following messages
from the GOK delegation:

-- Kenya is still in transition; political and economic
conditions now are vastly improved from the previous
regime.

-- In this transition, Kenya needs patience and
understanding from its development partners. There will be
setbacks, but the trend line is positive.

-- The GOK is unequivocally committed to fighting graft.

-- But the war on corruption is a long one, and in this
war, institutions and laws are more important than
individual cases and people.

-- Many of the governance problems plaguing Kenya are
problems of perception, not reality, and this is due to the
greater "political space" and transparency afforded by the
NARC government.

-- The GOK is drafting a new National Action Plan Against
Corruption for this longer-term effort, to complement the
short-term orientation of the year-old Anti-Corruption
Action Plan.

-- The KACC is fully staffed with competent professionals,
and is aggressively pursuing corruption cases, no matter
how high they go.

-- The GOK is moving forward with new legislation and a
series of institutional reforms (procurement, civil
service, public expenditure management, and privatization)
and needs donor support.

-- On media freedom, national security was at stake in the
case of the recent police raid. The means were probably
excessive, but action was necessary.

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How We Should Respond
--------------


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8. (C) We should be mindful of these points, some of which
are valid to some extent, and which thus need to be
factored into our approach to Kenya in the context of IMF,
World Bank, and our own assistance programs. At the same
time, Washington interlocutors should be aware that
everything they will hear from this "acceptable face" are
standard arguments, recycled from similar presentations a
year ago or more. The only novelty is the line-up that
presents them. What they will say has been heard and
rejected already by the Kenyan public, and their hope is
that foreign audiences, perhaps weary from a seemingly
endless struggle to compel the GOK to focus on serious
corruption matters, will with relief grasp this
presentation as something new and promising. In short,
Washington interlocutors should be aware that Kimunya and
his colleagues visiting Washington unfortunately do not
represent the center of gravity within the Kenyan political
elite, and that they earned their travel orders precisely
to put a good face on an ineffective, unpopular
administration increasingly desperate to stay in power at
almost all costs.


9. (C) The oft-delayed 2nd review of Kenya's IMF program
is scheduled for a Board vote in June. The Bank's budget
support credits won't go to the Bank Board until sometime
after June, following the conclusion of in-depth diagnostic
audits of existing Bank programs in Kenya. Indefinitely
delaying either of these processes is neither sustainable
nor desirable. But we should use the leverage afforded by
these programs and by the interval of time between now and
June to press for more action on the corruption front, and
for stronger assurances that the March media raid incident
was an aberration that will not ever be repeated.


10. (SBU) With this in mind, Mission Nairobi recommends a
balanced approach to the GOK delegation, one which gives
credit where credit is due and supports ministers like
Kimunya, but which also raises our concerns about
governance and reform and the need for more action. We
recommend weaving the following points and themes into
talking points for discussions with the GOK delegation in
Washington later this month:

Corruption/Governance
--------------

-- Recent resignations of Cabinet ministers are
unprecedented in Kenya, and reflect an admirable maturation
in the political system towards greater accountability.

-- Kudos also to the GOK for the recent transparent
destruction of the record cocaine shipment.

-- Actions like these are very important. They have done
more to repair Kenya's image than any statement or action
plan issued recently by the government. They are perfect
illustrations of the need for concrete action, as opposed
to rhetoric, in the fight against corruption.

-- We would urge you to take more action now. The
recommendations of the PAC report on Anglo-Leasing, and the
Goldenberg and Ndungu Land Reports, provide perfect
opportunities to show the GOK is sincere in fighting high-
level corruption.

-- To be credible, these actions need to be transparent,
even-handed and non-partisan. They must not spare any "big
fish," and must not focus only on past cases at the expense
of more recent scandals involving the current government.

-- Another opportunity to show you're serious is the GOK's
handling of reports of a mega-money laundering and tax
evasion operation, which includes a recommendation from the
Central Bank to close a local bank. Money laundering is a
serious concern for us. What is the status of this case?
(Note: See ref A for background).

Reforms and Political Will
--------------

-- We understand the GOK receives insufficient credit in
the public eye for the many very important institutional
reforms taking place "below the radar screen."

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-- We are following these reform efforts and appreciate the
efforts being made. We are fully supportive and want to
help in any way possible.

-- But the political will for genuine reform is at times
lacking. We've been trying for several years, for example,
to improve capacity in the Department of Public
Prosecutions, a major bottleneck in the chain of justice.

-- But despite a great deal of rhetoric and appeals for
more resources from donors, the GOK has been unwilling to
make the structural reforms needed to make success
possible.

-- We are continually frustrated by this disconnect between
rhetoric and action on the GOK's part.

Political Space and Media Freedom
--------------

-- We appreciate the political maturation that has occurred
in Kenya during the current democratic transition.

-- However, the "political space" that now exists in Kenya
was created by and belongs to the people of Kenya. It is
not something the GOK can give or take away.

-- In this light, we remain extremely disturbed by the
recent police raid against a major media house in Kenya.

-- There is no place for such measures in a democracy like
Kenya's.

-- Thus far, we are not satisfied with the vague response
from the GOK justifying the raid on national security
grounds. We remain concerned that similar actions could
take place again.

IMF/World Bank Programs
--------------

-- We want to see the 2nd review of the IMF program
approved by the IMF Board in June, and we'd like to see the
World Bank's budget support credits move ahead too, once
the Bank completes its diagnostic audits, and assuming
those audits don't uncover more problems.

-- To win our strong support, and the support of other
shareholders to move these programs forward, however, the
GOK needs to communicate unambiguously to its own people
and to the international community that it is serious in
delivering on the two issues on which it was elected:
economic development and ending corruption.

-- Actions, not rhetoric or action plans, are the best way
to prove your real intentions as a government and to create
an environment conducive to moving the IMF and World Bank
programs forward.

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MCC Threshold: Next Steps
--------------


11. (C) Mission Nairobi recommends that consideration of
Kenya's MCC Threshold Program Concept Paper be kept
informally "on hold" until June, after which we should look
favorably on moving to the next phase of the Threshold
process. On substance, the Concept Paper, which focuses on
national public procurement reform and its application in
the Ministry of Health, is sound, though not without risks
given the deep roots of corruption in the Ministry.
However, we are perhaps seeing a glimmer of hope with the
recent decision by the Ministry to begin to reform its
procurement practices in response to intense pressure from
the U.S. and other donors to the UN's Global Fund Against
AIDS, Tuberculosis and Malaria. If that kind of pressure
is a "stick," programs like the MCC Threshold proposal can
serve usefully as a "carrot," providing real assistance to
the Ministry as it tries to develop tighter procurement
systems as a way to seal the loopholes used to siphon off
funds in the past.


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12. (C) Content and substance not being major issues, we
recommend that Washington consider timing, optics, and
coordination with other major donors. Given the high-
profile nature of the MCA, public approval now would be
construed and played up publicly by the GOK as a USG seal
of approval. This would be premature and might be
perceived as reducing pressure on the GOK to take further
steps on the corruption front in the best case, or in the
worst case, to at least constraining the worst elements in
the leadership from launching media raids or taking similar
dangerous and irresponsible actions in the run-up to the
2007 elections.
Bellamy