CHAD: WORLD BANK PRESIDENT WOLFOWITZ'S VISIT

UNCLAS NDJAMENA 000981 SIPDIS SENSITIVE SIPDIS DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON, TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: N/A TAGS: ECON EFIN ENRG EPET PGOV CD SUBJECT: CHAD: WORLD BANK PRESIDENT WOLFOWITZ'S VISIT REF: NDJAMENA 908 ¶1. (SBU) SUMMARY: In a lightning three hour visit to N'djamena on July 20, World Bank President Paul Wolfowitz agreed that the recent Memorandum of Understanding between the World Bank and the GOC on the country's management of its oil revenues is a positive first step in reaching an overall agreement on oil revenue management. Nevertheless, the development of a comprehensive agreement will require continued dialogue between both parties on a national strategy on poverty reduction. The management of indirect and direct oil revenues through the country's public finance system still requires further clarification from the GOC. END SUMMARY. - - - - - - - - - - - - - - - - - - - - - - - - - - - - WOLFOWITZ: MOU IS A GOOD FIRST STEP, NOW COMES THE HARD PART - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶2. (SBU) During his lightning visit to N'Djamena on July 20, World Bank President Paul Wolfowitz praised the Memorandum of Understanding agreed to by Bank and GOC negotiators on July 13 in his meetings with President Deby, members of the Oil Revenue Management College and civil society representatives. Wolfowitz told members of the College that he planned to enhance the Bank's support to the College's activities through financial and technical assistance. During his meeting with the President, Wolfowitz stated that more work needed to be done to achieve a comprehensive agreement for poverty reduction in the country, and encouraged the GOC to engage Chad's civil society in the management of the country's oil revenues. President Deby was receptive to President Wolfowitz's comments, and stated that he intended to initiate a political dialogue with the country's opposition, and planned to have the first official meeting of the dialogue on July 28. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FINANCE MINISTER SHARES VIEWS, CONFIDENT OF AGREEMENT FOR POVERTY REDUCTION - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶3. (SBU) Minister of Finance Abbas Tolli voiced similar views on the MOU with Ambassador Wall on July 21. According to Tolli, the MOU, while difficult to negotiate, reflected the dual-commitment by the Bank and the GOC to encourage development in Chad. Tolli noted that unlike past negotiations, both parties during his latest visit to Washington appeared keen on reaching a compromise, and were willing to move their negotiating position. The GOC accepted the Bank's view on security spending, and dropped their insistence on maintaining security as a priority sector. The Bank agreed to include justice and demining as sectors for oil revenue use. ¶4. (SBU) Tolli noted that the MOU, and President Wolfowitz's visit, had motivated the GOC to take measures to demonstrate its commitment to poverty reduction and transparent oil revenue management. The National Assembly recently passed the rectified 2006 budget that was developed by a past IMF mission and GOC authorities. The GOC was also in the process of organizing a committee to develop a national strategy on poverty reduction (PRSP),which was critical for a final global agreement on oil revenue management between the GOC and the Bank. This final agreement, according to the Finance Minister, was necessary for Chad to be a beneficiary of other programs, such as the Heavily Indebted Poor Countries (HIPC) Initiative and the IMF's Poverty Reduction and Growth Facility (PRGF). Tolli added that, as he understood it, the implementation of the MOU was critical for the lifting of all restrictive measures on the Citibank offshore account in London. - - - - - - - - - - - - - - - AND IF THERE IS NO AGREEMENT? - - - - - - - - - - - - - - - ¶5. (SBU) The Minister indicated that the PRSP had to be developed in time for the passage and implementation of the 2008 budget, to ensure that the country's budgetary priorities focused on poverty reduction. When asked by the Ambassador about the implications of an agreement not being reached on the PRSP, the Minister said that if a strategy was not developed in time for the 2008 budget, then the MOU would require revision. But the Minister downplayed this possibility, and stated that he was confident that the GOC would develop as national poverty reduction strategy acceptable to the Bank. - - - - - - - - - - - - - - - - - - - - QUESTION ON THE FLOW OF ALL OIL REVENUES - - - - - - - - - - - - - - - - - - - - ¶6. (SBU) The Ambassador asked Minister Tolli if the Citibank transit account would continue to act as the mode of revenue allocation for all revenues (i.e., indirect taxes as well as direct oil royalty payments),or simply direct revenues (the Bank had maintained the principle in past discussions that all revenue streams fall under the revenue management process). Tolli said that while he understood the importance of a transit account that would manage all revenues, other members of the GOC did not. Therefore, while the idea was accepted in principle, all indirect payments had, to date, gone directly into the Public Treasury. He then asserted that the larger problem was the need to reform the Chadian budgetary system to simplify budget formulation and execution. According to Tolli, the development of a single national budget would assist in the management of oil revenues that came from the transit account. - - - - COMMENT - - - - ¶7. (SBU) While the MOU is a positive step in improving dialogue and cooperation between the Bank and GOC, questions on future discussions between the two parties remain. Progress will require firm commitments by the GOC to develop a national strategy on poverty reduction. Any deviation from this track could cause dialogue between the Bank and GOC to deteriorate. Additionally, the Bank and GOC will have to sort out the manner in which oil revenues flow through the transit account, particularly before the tax revenue windfall that is expected in early 2007. WALL