COMOROS TOO INDEBTED FOR DEBT RELIEF

UNCLAS ANTANANARIVO 001173 SIPDIS DEPT FOR AF/E PARIS FOR D'ELIA TREASURY FOR FBOYE AND KTORP USTR FOR FLISER SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PGOV PREL CN SUBJECT: COMOROS TOO INDEBTED FOR DEBT RELIEF 1.(SBU) SUMMARY: A three-day IMF factfinding mission to the Comoros, November 14 to 16, estimates the economy will contract one percent in 2007 and Union Government debt is at its maximum. A new program and associated debt relief remain a distant goal, despite the Union' s precarious political situation, the ongoing Anjouan crisis, and a steadily deteriorating economy. END SUMMARY. -------------- "Bleak" Outlook -------------- ¶2. (SBU) International Monetary Fund (IMF) Mission Chief Andrew Gilmore is in Moroni for a three-day factfinding effort in the Union of the Comoros. Any talks on a new Poverty Reduction and Growth Facility (PRGF) have been stalled since July when the IMF Board delayed indefinitely a discussion on the Comoros due to the ongoing Anjouan crisis. The current factfinding mission is nothing but a "goodwill gesture," Gilmore said, at the invitation of Union officials who were in Washington in October for IMF / World Bank talks. The IMF is in Moroni to examine the faint possibility of completing a PRGF Program that excludes Anjouan. ¶3. (SBU) A PRGF without Anjouan, aside from being unlikely to obtain Board approval, carries with it several risks, Gilmore said. To wit: without Anjouan's deepwater port under Union control, imports and tariff revenue have declined; Anjouan' s fiscal operations are outside Union control; when Anjouan re-joins the Union during the three-year PRGF, it will likely bring substantial fiscal liabilities. All this is to say that a new PRGF, or even a Staff Monitored Program, is very unlikely, as is much-needed debt relief. ¶4. (SBU) All the while, the IMF projects that the Comoran economy will contract by at least one percent of GDP in 2007. Imports are down based on the declining economy and blockages at the main port in Anjouan imposed by Colonel Mohamed Bacar. Union spending, despite fiscal revenue shortfalls, has increased. The Union Treasury has taken on debt from all possible domestic credit sources, including the Central Bank, savings accounts, and from salaries arrears. ¶5. (SBU) Under these circumstances, the IMF is prescribing an austere budget for 2008. Recommendations include reduction in civil service payrolls, rolling back recent wage increases and cutting staff. Given low private investment, public sector jobs represent most of formal employment in the Comoros. -------------- Colonel Bacar Holds The Cards -------------- ¶6. (SBU) Renegade Anjouan Colonel Bacar is thus succeeding in remaining in power, impoverishing the Union government, and flaunting African Union sanctions. Given Bacar's control of the port in Anjouan, he can deprive Grande Comore and Moheli of needed imports and revenue indefinitely. He has also issued his own "lists" of Anjouanese opposition who are prohibited from leaving the island and of Union officials who are prohibited from entering. In technical terms, Gilmore conceded that although the Comoros desperately needs a new program and associated debt relief to avoid fiscal meltdown, Bacar holds the country hostage. He said he would present as favorable a picture as honestly possible for a non-Anjouan PRGF, but was not optimistic. ¶7. (SBU) COMMENT: The IMF team will prepare an assessment letter to present to the African Development Bank meeting in Paris November 28. Absent quick resolution of the Anjouan crisis, however, it seems the heavily indebted Union of the Comoros will not benefit from debt relief. As the freely elected Union government weighs its options in dealing with the crisis on Anjouan, its economic condition grows steadily more desperate. AGOA approval would be no panacea - indeed, it would have very little short-term impact - but it would at least provide a glimmer of hope for the future and a message of friendship and support from the United States. END COMMENT. SIBLEY