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.

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"Bleak" Outlook
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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.

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Colonel Bacar Holds The Cards
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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