DOES LACK OF DONOR ASSISTANCE EXPLAIN SLOW

C O N F I D E N T I A L SECTION 01 OF 04 ABIDJAN 001176

SIPDIS

SIPDIS

STATE PASS TO USTR, CHAMILTON
TREASURY FOR DPETERS
USAID FOR CGARRETT, SSWIFT
DAKAR FOR FAS RHANSEN, FSC SMORRISON
ACCRA FOR USAID KMCCOWAN, PRICHARDSON

E.O. 12958: DECL: 11/20/2017
TAGS: EFIN EAID PGOV PREL IBRD IMF IV
SUBJECT: DOES LACK OF DONOR ASSISTANCE EXPLAIN SLOW
PROGRESS ON OPA IMPLEMENTATION?

REF: A. ABIDJAN 1158


B. ABIDJAN 1157

C. ABIDJAN 1036

D. ABIDJAN 765

Classified By: EconChief EMassinga, Reasons 1.4 (b,d)


1. (C) Summary: During a number of recent public events,
President Gbagbo and Prime Minister Soro have blamed slow
implementation of the Ougadougou Peace Agrement (OPA) on a
lack of international donor assistance. The Prime Minister
and President both made this assertion in meetings with the
Deputy Secretary (ref b) and evidently made similar
statements in a November 16 meeting with Louis Michel, the
EU's Commissioner for Development and Humanitarian Affairs.
Embassy reps have spoken with various sources in Abidjan to
determine if the PM's claims are true. Based on our
discussions, there appear to be two fundamental problems: 1)
an inability (or unwillingness) on the part of the GoCDI to
use existing government resources to finance the 'sortie de
crise' (crisis resolution) program and 2) GoCDI failure to
honor the conditions set forth by donors. Sufficient funding
to implement key elements of the OPA appears to be available;
there does not appear to be sufficient funding to implement
the OPA and simultaneosly finance all of the other priorities
and inititiaves the government is hoping for. End Summary


2. (C) In response to criticism from the international
community about slow implementation of the Ougagdougou Peace
Agreement (OPA),government leaders from President Gbagbo and
Prime Minister Soro on down have asserted that donors'
unwillingness to provide funding is the problem. As reported
in ref a, PM Soro recently convoked the diplomatic community
to address the same issue, stressing that deployment to date
of only 25 of 111 planned audiences foraines teams was due to
insufficient finances. The reality is otherwise, and this
fact was noted publicly by visiting EU Commissioner Louis
Michel. The Ministry of Finance has indeed nearly exhausted
its budget for the first phase of the identification process,
but an IMF post-conflict agreement is in place and
functioning. Half of the USD120 million promised in budgetary
support has been disbursed. Funding is also available from
the World Bank and the EU but has not been touched due to
poor financial management by the GoCDI. At the same time,
the Ministry of Finance is aggressively raising funds on the
regional bond market and preparing the groundwork for what
they hope will be substantial debt relief in 2008. The
Presidency continues to control revenue distribution, leaving
the Prime Minister, a novice at fiscal matters, on the hot
seat for failing to deliver more quickly on OPA promises.


The Government's Spending So Far on Audiences Foraines
========


3. (C) The government has identified a global need of USD 556
million for the sortie de crise, and has, according to
figures compiled by the Prime Minister's office, raised a
total of USD 401 million, combining the government's own
revenues with assistance from the international community.
On the discrete issue of the audiences foraines, the Ministry
of Finance has announced that of the approximately USG 20
million it budgeted for the process, USD 14.5 million has
already been spent. Only 25 audiences foraines teams have
been deployed (see septel on the PM's plan to jump-start the
process). In public comments during his November 16-17
visit, Louis Michel noted that the government does not lack
resources to put into motion either the audiences foraines or
other elements of the sortie de crise package. The was
likely a reference not just to the remaining 5.5 million
budgeted for the audiences foraines, but also to the fact
that the GoCDI continues to finance lavish travel and other
expenditures by favored government officials while portraying
itself publicly as strapped for cash.

The IMF
=======


4. (C) Contrary to claims that all the international
financial institutions have failed to provide promised
assistance, the IMF has a USD120 million Emergency Post
Conflict Assistance program underway. In a recent discussion
with Ambassador, IMF Country Director Phillipe Egoume said

ABIDJAN 00001176 002 OF 004


the program was approved in July, and the first tranche of
USD60 million was disbursed August 3. This assistance is
essentially direct support to the nation's treasury to help
it meet current expenditures. For the Finance Ministry to use
the disbursed funds, it must have the IMF Country Director
"countersign." According to the Country Director, this
system has worked acceptably well so far. The second tranche
of USD60 million is due to be disbursed in January, 2008, but
Cote d'Ivoire will still have to meet certain conditions in
order to "regularize" its relationship with the IMF and
trigger the resumption of a normal program. In essence, The
key condition is that Cote d'Ivoire will need to pay
USD240million in arrears to the World Bank.


5. (C) Egoume expressed serious concern about the outlook
for the 2008 budget, saying he anticipated a serious funding
gap. (Note: An IMF Mission currently in Cote d'Ivoire will
give donors a full read out on November 26) He pointed out
that the government has promised bureaucrats a salary
increases but did know how this would be treated in the
budget alongside 'crisis recovery' programs such as the
Service Civique, which the Prime Minister and President have
both called a top priority. The IMF rep agreed with the
government's approach to debt relief, saying that at this
point in time Cote d'Ivoire simply cannot re-start debt
servicing without signficantly impacting other programs.


World Bank
=======


6. (C) Ambassador Nesbitt and EconOff met with World Bank
Resident Representative Barnard Harbone on November 14 to
discuss, inter alia, the Bank's financial support for the
sortie de crise. The Bank signed on to the same package as
did the IMF in July 2007 which formally (but not fully)
reengaged the IFIs in Cote d'Ivoire and through which the
Bank pledged USD120 million to finance the reintegration of
youths and vulnerable persons. This is not the same as the
traditional reintegration element of DDR as assistance will
be given to communities rather than individuals. The Bank's
program will also cover community rehabilitation and
rehabilitation of the civil registries, the latter in
coordination with the EU. Cote d'Ivoire has met the
financial part of the July agreement, prefinancing its
arrears clearance package through the end of 2007 (total
arrears this summer reached USD 480 million). The
government's failure to meet one central condition, however,
has resulted in no/no WB post conflict assistance money
having been disbursed to date.


7. (C) Harbone explained that the Prime Minister's Office,
which has the lead for the entire government on crisis
recovery, is also the World Bank's main partner in this
program. The Bank's agreement with the PM's office calls for
a crisis recovery committee and committee chair to be
established via a competitive, transparent hiring process.
Instead of observing this requirement, the PM and/or his
staff, selected a committe chair (Daniel Ouattara) who is a
friend of the PM and set up a committee using a compeltely
internal and un-transparent process. The Bank has refused to
disburse through this committee and insisted that the
orignally agreed upon procedure be followed. According to
Harbone, a recent threat by the Bank to select a different
primary partner convinced the PM to act after months of
stalemate, and he has agreed to establish a new committee
through a transparent process. Several related steps must
be taken. The Prime Minister must issue a decree providing a
legal basis for the new committee (Bank sources report a
draft is waiting for Soro's signature for when he returns
from his current swing through the north) and must advertise
openly for a public auditor of the new committee (the ads
have been placed and the Bank has already begun receiving
bids). There should also be an advertisement for a committee
chair. The Bank's estimate is that a committee probably
cannot be in place before January 2008, meaning disbursement
will be delayed until then, at the earliest.



8. (C) The Bank, along with the Fund and the African
Development Bank, are pushing through several audits of the
oil and gas sector along with the cocoa sector. Those should
be completed and presented to the respective Boards in

ABIDJAN 00001176 003 OF 004


December. If the Boards accept the fiscal controls proposed
and Cote d'Ivoire is current on its arrears package, the Bank
staff intend to present in late January to the Bank Board a
plan to possibly move forward with HIPC (the Highly Indebted
Poor Countries initiative) by, tentatively, the summer of

2008. This would help relieve the country of its enormous
debt load (USD 18 billion, including bilateral, multilateral
and commercial). Harbone warned that the country needs to
tap the Bank's USD 120 million post conflict assistant
package and make it to HIPC by the summer, as debt payments
on the arrears will reach USD 50 million by February, a level
that will be unsustainable by the Ministry of Finance for
very long.

EU
=======


9. (C) The Commission has expressed willingness to finance
directly the audiences foraines, and has a package of USD 16
million for that purpose, along with an equal sum for the
identification process and eventual organization of
elections. The EU's funds can be used to pay per diems and
other operational costs of the teams, however, the Commission
has been adamant that it will not buy vehicles for the
audiences foraines teams. The government's sortie de crise
committee had initially said it would arrange for the
transportation needs of the audiences foraines, but now
claims it is "unable" to finance the required vehicles.
According to the EU resident representative, the only hurdle
to the government tapping funds the EU is ready to provide is
its own inability to mobilize the resources necessary to
purchase vehicles and/or other means of transporting the
audiences foraines teams around the country. EU Rep Arrion
told the Ambassdor in late October that the PM and his staff
are both extremely inexperienced in fiscal management; Arrion
thought the failure to use EU funding was due almost entirely
to poor financial management and lack of experience in
dealing with donors.


10. (SBU) Aside from sortie de crise assistance from the
IFIs, and the EU, bilateral donors are providing some
support, but much of that is tied to making initial progress
or is only loosely tied to the political process. Japan has
pledged USD 22 million to rehabilitate the civil registries
and organize the presidential and legislative elections, but
intends much of that assistance to be in the form of computer
and software provision to organize the relevant databases.
France is has pledged USD 23 million, but 90 percent of that
is for community rehabilitation and development projects
vaguely associated with the sortie de crise program. Germany
has USD 7 million on the table to support NGOs engaged in
"national reconciliation", and Switzerland has USD 15 million
available that is currently unbudgeted. For its part, the
African Development Bank has a USD 30 million project in the
works to aid the government's sortie de crise project through
restoration of public services in the north, but has been
frustrated by slow development of a specific implementation
plan by the government.

Cote d'Ivoire's Successful Commercial Bond Issuance
=======


11. (C) In stark contrast to the difficulties the Prime
Minister and his staff have had managing the crisis recovery
program, the Ministry of Finance proudly announced that in
September, it had successfully floated bonds on the regional
market that will eventually generate CFA 225 billion (USD 508
million). The Ministry of Finance is run by a extremely
competent staff and led by a loyal Gbagbo supporter. A
well-placed banker at a U.S. financial institution operating
in Cote d'Ivoire reports that the bond issuance offered
slightly over 6.5 percent, maturing in two years. In a
meeting with the Ambassador, the IMF Country Director had
expressed some doubt that the Ministry of Treasury would be
able to raise its targeted amount, but the U.S. banker said
that not only had the Ministry succeeded, but that it would
be soon offering another bond to raise an additional USD 100
million in the near future. According to the U.S. banker,
the money raised thus far is to pay off the World Bank
arrears entirely.


12. (C) According to the U.S. banker, and corroborated by
several other international financial executives based in

ABIDJAN 00001176 004 OF 004


Abidjan, once Cote d'Ivoire clears its arrears with the IFIs,
it plans to borrow on the international, vice regional, debt
market. Moreover, the long-rumored deal involving JP Morgan
and the Ivorian national retirement system (CNPS in French),
in which CNPS would be recapitalized in exchange for
discounted non-performing government bonds, is apparently
being looked at seriously again. Under the terms of the
potential USD 200 million agreement (reftel d) being
discussed, Morgan and the Ministry of Finance would execute
it once the arrears to the World Bank and African Development
Bank are fully paid.



13. (C) Comment: The Prime Minister's Office is struggling
to manage the sortie de crise program and has evidently not
taken seriously the need to meet conditions attached to
certain pots of assistance. He does not have the expertise
nor the level of personnel to take control over government
revenues to fulfill the PM's mandate to ensure that the
audiences foraines and the identification processes are
properly carried out. And remarkably, at least according to
World Bank sources, Soro hs refused technical assistance to
help him and his team more fully understand and engage in the
budgeting process. At the same time, the Ministry of Finance
appears to be moving aggressively on its own track to clear
arrears and set the stage for large scale debt relief. The
Ministry also appears to be avoiding major new commitments to
finance the end of Cote d'Ivoire's long-running political
crisis. This situation underscores the co-habitational nature
of this government and reminds us that while Gbagbo and Soro
have established a national unity government that is still
very divided in terms of how it operates on a day-to-day
basis. End Comment.
NESBITT