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.

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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.

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GOCI Engages JP Morgan in Scheme to Issue New Debt
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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.

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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