COTE D'IVOIRE, WB AND IMF STAFF CONCLUDE

C O N F I D E N T I A L SECTION 01 OF 03 ABIDJAN 000689 SIPDIS SIPDIS STATE PASS TO USTR, EX-IM, OPIC TREASURY FOR DAN PETERS, USED COMMERCE FOR RIVERO E.O. 12958: DECL: 06/26/2017 TAGS: ECON EFIN PREL PGOV IMF IBRD IV SUBJECT: COTE D'IVOIRE, WB AND IMF STAFF CONCLUDE NEGOTIATIONS ON POST-CONFLICT PACKAGE; GOV'T PROVOKES CONCERN WITH EFFORTS AT NEW PRIVATE BORROWING REF: A. ABIDJAN 615 ¶B. ABIDJAN 633 ¶C. SECSTATE 75118 Classified By: EMassinga, EconChief, Reasons 1.4 (b,d) ¶1. (C) Summary. The World Bank and IMF, working in tandem, finalized a deal on June 27 that would provide financing packages for the post-conflict transition (WB) and emergency budget support (IMF) in exchange for the GoCI paying 50 percent of its WB arrears and adoption of strict fiscal controls (Note. Cote d'Ivoire is not in substantial arrears to the IMF, but it, the WB and other multilateral financial institutions stand together when working with a member state in serious arrears with any one of them. End Note). The IFIs have succeeded in winning acceptance of shared control over cocoa and coffee state revenues, and are exploring how to implement a similar arrangement for energy revenues. The IFIs' Boards will be presented the package for a vote in mid-July. Should this overall framework be adopted and well-implemented, IFIs staff envision follow-on packages worth up to $300 million being put into place, which in turn would set the stage for an eventual HIPC negotiation (2009 at the earliest). While the IFIs won gains in imposing tough controls in exchange for multilateral assistance and debt relief, the GoCI appears to be actively searching for ways to issue new debt, calling into question the central proposition that Cote d'Ivoire's own resources ought to be deployed to cover its portion of its own reconstruction. Meanwhile, the IFIs and the rest of the international community are keenly interested in Cote d'Ivoire's reacquisition of AGOA benefits. End Summary. -------------- IFIs, GoCI Wrap Up Negotiations on Initial Post Crisis PackQes -------------- ¶2. (SBU) On June 27, The World Bank, IMF and the GoCI concluded negotiation defining the parameters of a $120 million Post Conflict Assistance Project (aka the pre-arrears clearance grant) as well as a similarly sized IMF Emergency Post Conflict Assistance (EPCA, effectively emergency budget support) program. A senior WB resident official, Barnard Harbone, reported on June 28 that the WB package is more heavily oriented towards mid and longer term aspects of the transition (such as identification) than earlier versions of the package, given uncertainties over when the DDR process will begin. The two packages will be put before the respective Boards in mid-July, starting with the World Bank Board on July 17. The terms of the World Bank accord will be ratified at a IDA 15 scheduled for June 30 meeting in Maputo, prior to the final Board vote. ¶3. (C) The conditions of the overall package are the same as described to Emboff during a June 23 meeting with a senior World Bank country official, Richard Doffonsou, in which the then-ongoing negotiations between the IFIs and the government of Cote d'Ivoire were the centerpiece. In the wide-ranging conversation, Doffonsou described the joint WB and IMF efforts to impose strict fiscal controls on Cote d'Ivoire as a precondition for renewed IFIs engagement with Abidjan. Emboff referenced the recently published Global Witness report that received extensive publicity in both the Ivorian and European press (Note: the report was scathing and quite detailed in its description of how tens of millions of dollars have been allegedly siphoned off from parastatals and ostensibly independent cocoa and coffee control boards to fund arms purchases for the government, and to a lesser extent the rebel "Forces Nouvelles." Most press accounts, however, referenced the report without going into its exhaustively detailed allegations. End Note). Doffonsou acknowledged in general terms the gravity of the Global Witness charges, and said that the report and other problems evident in the GoCI's management of the economy compel the IFIs to demand greater transparency over fiscal receipts, with regular reports presented both at regular GoCI Council of Ministers meetings (which would in turn publish them as part of the regular Council of Ministers statement) and to the IFIs themselves. ABIDJAN 00000689 002 OF 003 ¶4. (C) Regarding coffee and cocoa receipts, the IFIs succeeded in negotiating the imposition of an innovative control mechanism in which the Ministries of Agriculture and Finance will have dual controls; as the Ag Ministry is controlled by Alassane Ouattara's opposition RDR party and the Ministry of Finance is de facto controlled by the President's FPI. The approach appears on its face to create some of the checks and balances a truly transparent system would need. On energy (oil, gas and electricity generation), the IFIs are pressing ahead with three audits and pushing the GoCI to sign onto the Extractive Industries Transparency Initiative (reftel C),although to date this is not being presented as a prerequisite to conclude the WB accord and the EPCA (GoCI response to recent EITI letters sent by the UK's DFID will be reported septel). Emboff asked Doffonsou if the dual control mechanism being put in place on the agriculture side could be adopted for energy; Doffonsou averred that this would be useful, but that because both the Energy and Mines Ministry as well as Finance are controlled by the FPI, this would present problems. When the energy audits are done in mid to late July, the IFIs will try to impose a plan in which the "keys" to the energy receipts will be given to the Min of Finance and to the Ministry of Infrastructure, which is controlled by former President Bedie's PDCI. Such a division of authority could balance the overall control over fiscal receipts nicely. ¶5. (C) Doffonsou said that Bank staff, working in close collaboration with IMF staff, has won agreement for a 50 percent repayment level of Cote d'Ivoire's $480 million in arrears to the World Bank, coupled with the strict fiscal controls referenced in para four (this 50 percent proposal will be confirmed at the Maputo IDA 15 meeting). If GoCI performance on both the WB post-conflict package and the EPCA is good, the IFIs will begin negotiating a Poverty Reduction and Growth Facility (PGRF),building on the interim Poverty Reduction Strategy Paper submitted in March 2002, just prior to the outbreak of civil hostilities. If all goes according to plan, in 2008 the WB would then reactivate existing projects worth $104 million and embark on a new $20-40 million HIV/AIDS campaign, while the IMF would prepare a new Emergency Economic Recovery Credit (EERC) of $120-150 million to support structural reforms. Finalizing a Highly Indebted Poor Country (HIPC) deal sometime in '09 would be the end point of the process, during which Cote d'Ivoire's heavy external debt service burden would be substantially lightened. -------------- GOCI Engages JP Morgan in Scheme to Issue New Debt -------------- ¶6. (C) Coincidentally, on June 21, Ambassador Hooks met with senior representatives from JP Morgan's operations based in Johannesburg. JP Morgan was engaged in due diligence in reference to an "exclusive" offer proffered by the GoCI to restructure between $200 million and $300 million of Ivorian sovereign debt (currently non-performing) held by the state pension fund CNPS. Under the outlines of the deal, the debt would be sold at a discount to Morgan, which would repackage and sell itto investors looking to purchase emerging marketdebt instruments. According to Morgan, this operaion would free CNPS to purchase new debt to be isued by the GoCI. Ambassador Hooks urged Morgan t engage closely with the WB to avoid conflict wih a central objective of the international commuity, working through the IFIs: encouraging Cote 'Ivoire to mobilize its own resources to addressits portion of the post-crisis and reconstructionpackage. ¶7. (C) During Emboff's June 23 convesion with Doffonsou, the WB official expressed sme IFIs' concerns about such a development. Accrding to Morgan officials, the banking house wasgiven a very short window to perform its due diligence and conclude the deal (by sometime during theweek of June 25),lest they lose the "exclusive"rights. Morgan asked Embassy Abidjan for help with some due diligence related to questions over the ability of CNPS to act independently (four of its 12 board members are either government ministers, the rest either union leaders or corporate executives),and expressed some reservations about ABIDJAN 00000689 003 OF 003 how the CNPS would be able to handle the shortfall in its balance sheet were it to sell the securities at a discount as planned. As of June 28, Morgan is still contemplating the project, but has asked the WB for a letter of "non-objection" if it goes forward. -------------- GOCI, Int'l Community Thinking About AGOA -------------- ¶8. (C) Doffonsou asked Emboff how and when the USG would consider restoring AGOA benefits to Cote d'Ivoire. Pointing to the economic and symbolic benefits, Doffonsou said the international community is "seized" with the question, and noted the GoCI has formed an interministerial committee ("Back to AGOA") headed by a senior official within the Presidency and supported by a corporate steering council chaired by APEC-CI, the quasi-public trade promotion body responsible for steering the successful conclusion of the Cora de Comstar matter as well as the 2006 end of the ExxonMobil - Centaures Routiers question. ¶9. (C) Comment. While the international community, working through the IFIs, can be rightly pleased with the toughness and innovation of the post-conflict and debt relief packages just concluded, the JP Morgan-CNPS deal raises questions about the goodwill of the GoCI to use its own resources to address the country's post-conflict needs. The negotiation of the Morgan-CNPS debt deal is more transparent and better coordinated with the IFIs than seen initially, which offers some reassurances. Whether or not the CNPS debt deal with Morgan (or even another banking house) ever comes to fruition, the episode underscores the likelihood that working with the GoCI on financing its enormous post-conflict needs will be a constant challenge. End Comment. HOOKS