IMF PRESSURES COTE D'IVOIRE TO ABANDON JP MORGAN

C O N F I D E N T I A L ABIDJAN 000765 SIPDIS SIPDIS DEPARTMENT PASS TO USTR EMBASSY PRETORIA, CONSULATE JOHANNESBURG FOR ECON OFFICERS TREASURY FOR D. PETERS, J. RAYELA, USED E.O. 12958: DECL: 07/16/2017 TAGS: ECON EFIN IMF PGOV PREL IBRD IV SUBJECT: IMF PRESSURES COTE D'IVOIRE TO ABANDON JP MORGAN DEAL; WB, IMF PROGRAMS STILL GOING TO BOARDS FOR VOTES REF: ABIDJAN 689 Classified By: Acting PolEconChief EMassinga, 1.4 (b,d) ¶1. (C) In a somewhat abrupt denouement to the monthlong negotiations around the debt securitization deal between JP Morgan and the Ivorian pension fund CNPS (reftel),the local IMF representative convinced the Minister of Finance Charles Diby during a July 10 videoconference to abandon the project. IMF HQ in Washington had been informed about the local representative's misgivings over the USG 200 deal, and was reportedly fully on board with the decision to push for its end. Local World Bank representatives (participants in the videoconference) did not seem as worried with the deal's fundamentals, but acquiesced to the Fund's strong objections. ¶2. (C) Fund local representative Phillipe Egoume told Emboff on July 13 that the Morgan deal's implied cost of capital was too high for the IMF to accept as a prudent use of Cote d'Ivoire's resources, especially when the IFIs and their principal shareholders are being asked to contribute to Cote d'Ivoire's post-crisis economic development. Egoume said the 38 percent discount on Ivorian bonds contemplated for the JP Morgan - CNPS deal results in an implied interest rate of 22 percent, when taking into account net present value calculations. While the Fund expressed strong objections to the deal, it did relent somewhat by explicitly giving Cote d'Ivoire a green light to raise funds on the local and regional bond markets as well as through bank lending; Egoume believes the funds Cote d'Ivoire needs to finance its portion of the WB arrears clearance package can be had at 6-10 percent. ¶3. (C) Emboff spoke to WB deputy country director Richard Doffonsou on July 13, who confirmed the outlines of the decision taken at the July 10 videoconference. Asked how the end of the JP Morgan deal would affect the projected July 17 vote at the World Bank's Board of Directors on the USD 120 million pre-arrears clearance, Doffonsou said that the vote "should" go forward as planned, and implied the fundamentals had not changed and that the Board is expected to give its approval. Egoume, when asked about his Board's vote for the IMF's emergency post-conflict assistance grant, tentatively scheduled for later in July, said much the same. ¶4. (C) Comment. Bank and Fund officials, who have worked well together in developing the overall IFIs package to finance Cote d'Ivoire's political transition period, came to a clear impasse over the CNPS question. WB officials were willing to overlook troubling questions related to how the deal would affect CNPS's balance sheet (although the gov't bonds that would be the subject of the securitization deal are currently not/not performing) and were quick to accept the idea that Cote d'Ivoire could not mobilize additional fiscal resources to fund its portion of the post-conflict packages. The discord remains quiet, however, and has not been reported in the press. Were this question to scuttle the overall post conflict assistance package, that would deal a major blow to a peace process that is, at present, stalled. We believe, however, that staffs from both IFIs will work in concert to ensure that the packages are presented to the Boards in the best possible light. End Comment. HOOKS