ADB PRESIDENT OPTIMISTIC ABOUT BANK'S FUTURE, WARY

UNCLAS SECTION 01 OF 02 TUNIS 002916 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EAID EFIN ECIN KDEM TS SUBJECT: ADB PRESIDENT OPTIMISTIC ABOUT BANK'S FUTURE, WARY OF POLITICAL INVOLVEMENT ¶1. (U) Summary: During the Ambassador's December 11 courtesy call on African Development Bank (ADB) President Donald Kaberuka, Kaberuka touched on the differing problems and varying situations of African nations and the importance of adapting the services provided by the ADB to meet these challenges. In discussing Bank lending to Tunisia, Kaberuka cautioned that ADB statutes prevented the institution from political involvement but acknowledged that the bank operates in a political environment. End Summary. ¶2. (U) Background: Kaberuka, former Rwandan Minister of Finance and Economic Planning, became President of the African Development Bank in September 2005, inheriting an institution whose financial stability had been restored, but as a small development agency in a field crowded with larger donors that faces questions about its ability to address Africa's low historical growth. The ADB temporarily relocated to Tunis in 2003 from its then headquarters in Ivory Coast. End Background. ¶3. (U) Meeting Participants: -------------- U.S. -------------- Robert F. Godec, Ambassador to Tunisia Amb. Cynthia Perry, U.S. Executive Director to the African Development Bank Victoria Taylor, EconOff, Embassy Tunis (notetaker) -------------- African Development Bank -------------- Donald Kaberuka, President Sushil Khushiram, Senior Advisor to the President Anne Kabagambe, Acting Manager, Office of the President -------------- Africa at the Crossroads -------------- ¶4. (SBU) In his meeting with the Ambassador, President Kaberuka stressed that "Africa is at a turning point" unseen in 30 years. He noted that there are fewer armed conflicts, but emphasized that peace and stability remain major concerns in countries such as Ivory Coast and Sudan. Kaberuka also stressed the problems of legitimacy and corruption faced by many African countries, recognizing that corruption was especially acute in newly rich countries without well-established agents of restraint. Debt also remains a concern in many countries, some of which have received debt relief but are tempted to acquire new debt from countries such as China. Kaberuka highlighted the frustration of many African countries with trade negotiations, which have not moved forward as hoped. Despite all the challenges, Kaberuka praised the small group of countries who have made headway despite being poor in natural resources. Countries such as Cape Verde, said Kaberuka, have managed to achieve growth rates of five percent despite their lack of resources. -------------- Bank to Accelerate Change -------------- ¶5. (SBU) According to Kaberuka, the role of the ADB is to accelerate the process of change occurring in Africa. One of the central questions facing the Bank is how to effectively deliver development products. The ADB must focus on what the bank does best and must adjust the products and services it provides to meet the needs of its recipient countries. He noted that in North Africa the ADB is not a competitive source of financing because those countries have many available sources of lending from which to choose. Kaberuka stressed that the ADB would like to provide more non-lending products, such as policy advice, and would like to promote the integration of African economies. Yet, he also acknowledged that the although the ADB's finances were "sound", its human resource base remained weak. Notably, Kaberuka did not discuss choosing a permanent location for the Bank, which many ADB employees and board members would like to see resolved sooner rather than later. -------------- Tunisia -------------- TUNIS 00002916 002 OF 002 ¶6. (SBU) Kaberuka acknowledged that the Bank had "done a lot for Tunisia," with most projects focused on infrastructure and education. (Note: Tunisia remains among the top recipients of ADB lending, despite its comparatively high level of economic development. Tunisia holds approximately 5.26 billion USD in loans from the ADB. End Note.) In response to the Ambassador's observation that greater political freedoms are needed in Tunisia, Kaberuka merely replied "probably" and later noted that the Tunisians "have their own way of doing things." Kaberuka conceded that the expansion of Tunisia's middle class had created great potential for entrepreneurship which could be recognized with greater freedom and openness. Yet, he stated that Bank statutes prohibit the institution from becoming involved in political issues. At the same time, he recognized that the Bank operates in a political environment. Kaberuka emphasized that the Bank tries to provide "signals and incentives" to help create "agents of restraint" in recipient countries while trying to adhere to this mandate. ¶7. (SBU) Comment: Kaberuka appears committed not only to tackling internal management issues, such as human resources, but also to addressing larger questions about the role of the bank and the services it provides. Although Kaberuka was optimistic about the ADB's ability to overcome these challenges, the bank's temporary location in Tunis -- now entering a fourth year -- remains a major and largely unanswered concern for employees and board members. In addition, the ADB's wariness of political involvement is inimical to Kaberuka's own recognition of the impact of corruption and policy on economic development. It is impossible to separate economics from politics and governance, as Kaberuka acknowledged in discussing the need to use signals and incentives to encourage countries to develop institutional checks and balances against corruption. However, Kaberuka did not elaborate what incentives could be used to encourage good governance and was reluctant to discuss conditioning lending on governance. While the ADB depends on lending to recipients with excellent repayment records to increase net finances, countries like Tunisia that are close to attaining the Millennium Development Goals, yet eschew political reform, are the least in need of assistance. End Comment. GODEC