Identifier
Created
Classification
Origin
07ANTANANARIVO404
2007-04-25 08:23:00
CONFIDENTIAL
Embassy Antananarivo
Cable title:  

MADAGASCAR AT THE HALFWAY POINT OF MCC COMPACT

Tags:  EAID KMCA ECON PGOV PREL MA 
pdf how-to read a cable
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PP RUEHMR RUEHRN
DE RUEHAN #0404/01 1150823
ZNY CCCCC ZZH
P 250823Z APR 07
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC PRIORITY 4692
RUEHLMC/MILLENNIUM CHALLENGE CORP
INFO RUCNSAD/SOUTHERN AF DEV COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 0019
RUEHBP/AMEMBASSY BAMAKO 0008
RUEHCO/AMEMBASSY COTONOU 0009
RUEHMU/AMEMBASSY MANAGUA 0001
RUEHFR/AMEMBASSY PARIS 0879
RUEHPA/AMEMBASSY PRAIA 0001
RUEHSN/AMEMBASSY SAN SALVADOR 0001
RUEHSI/AMEMBASSY TBILISI 0001
RUEHTG/AMEMBASSY TEGUCIGALPA 0001
RUEHYE/AMEMBASSY YEREVAN 0001
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 ANTANANARIVO 000404 

SIPDIS

SIPDIS

DEPT FOR AF/E, AF/FO
PARIS FOR D'ELIA

E.O. 12958: DECL: 04/25/2017
TAGS: EAID KMCA ECON PGOV PREL MA
SUBJECT: MADAGASCAR AT THE HALFWAY POINT OF MCC COMPACT

REF: A. ANTAN 287

B. NAIROBI 1426

C. 06 ANTAN 1372

D. ANTAN 325

E. ANTAN 232

ANTANANARI 00000404 001.2 OF 003


Classified By: AMBASSADOR JAMES D. MCGEE FOR REASONS 1.4 B, D

C O N F I D E N T I A L SECTION 01 OF 03 ANTANANARIVO 000404

SIPDIS

SIPDIS

DEPT FOR AF/E, AF/FO
PARIS FOR D'ELIA

E.O. 12958: DECL: 04/25/2017
TAGS: EAID KMCA ECON PGOV PREL MA
SUBJECT: MADAGASCAR AT THE HALFWAY POINT OF MCC COMPACT

REF: A. ANTAN 287

B. NAIROBI 1426

C. 06 ANTAN 1372

D. ANTAN 325

E. ANTAN 232

ANTANANARI 00000404 001.2 OF 003


Classified By: AMBASSADOR JAMES D. MCGEE FOR REASONS 1.4 B, D


1. (U) SUMMARY AND INTRODUCTION: Two years ago Madagascar
became the first country to sign a Compact with the
Millennium Challenge Corporation (MCC),recognizing progress
in investing in people, economic freedom, and governing
justly. Remarkable achievements in the Compact's priority
areas of land tenure, financial reform, and business
development are routinely reported via MCC channels. This
cable examines not the MCC program, but looks more broadly at
two years of milestones and challenges in Madagascar, a
"Transforming Country" in the Foreign Affairs Framework. END
SUMMARY.


2. (SBU) Expanding President Ravalomanana's vision,
"Madagascar, Naturally," senior government officials have
fully incorporated country ownership and thorough
consultation into the policy process; ideals first learned
and tested while drafting the MCC Compact. The Madagascar
Action Plan (MAP),an ambitious five-year strategy for rapid
development, was painstakingly vetted and revised with the
help of thousands of community, business, and civic leaders.
Economic goals, and the political changes which underlie
them, represent a path for Madagascar toward becoming an
African success story. There are also significant challenges
to be overcome to realize Madagascar's potential. END
SUMMARY AND INTRODUCTION.

Two Years of Modest Economic Triumphs
--------------


3. (SBU) With meager GDP growth rates of 4.6 percent in 2005
and 4.9 percent in 2006, Madagascar has yet to realize rapid
economic growth. However, inflation was controlled through
2006, and by early 2007 stood at 10.85 percent (February,
year-on-year). From a high above 80 percent in 2002, the
proportion of Malagasy people living in absolute poverty has

declined to 73 percent. Modest improvements in economic
management earned Madagascar a new IMF Program in July 2006,
ending months of contentious dialogue over reforms. In March
2007, an IMF Mission assessed Madagascar's performance to be
satisfactory (REF A).


4. (SBU) Fiscal revenue in 2006 was just under 10 percent of
GDP; paltry compared to similar economies. Even with Heavily
Indebted Poor Countries (HIPC) and Multilateral Debt Relief
Initiative (MDRI) debt forgiveness, the GOM has a substantial
debt burden from successive years of budget deficits. Senior
officials hope extractive industries such as the Rio Tinto
QMM investment in Fort Dauphin and the Dynatech investment in
Moramanga, will soon generate revenue for the government.
Mining revenue, however, already comes with a hidden cost:
of the USD 100 million QMM spent in the second half of 2006,
about USD 20 million hit the domestic economy in terms of
salaries and procurement. From a 24 month average of about
2200 Ariary / USD, the Ariary has appreciated to 1850 Ar /
USD in April, 2007. When Dynatech's USD two billion
investment begins in mid-2007, this appreciation will
continue unless the Central Bank initiates a monetary
intervention. Exporters, notably in shrimping and the AGOA
and European apparel factories, already report their slim
margins are being eroded away by the exchange rate
appreciation. Unlike relatively low employment mining, these
sectors are responsible for over 150,000 jobs.


5. (SBU) Exogenous shocks like high oil prices and cyclones
continue to plague Madagascar's economy. Electricity,
transportation, and communications costs are commonly cited
as impediments to growth. During heavy flooding during the

ANTANANARI 00000404 002.2 OF 003


2006-07 cyclone season, perhaps the worst in history,
hundreds of thousands were left homeless, dozens of bridges
and roadways were washed out, and substantial rice and cash
crops (such as vanilla) were lost (REF B).

Politics: More Stability, Limited Reform
--------------


6. (SBU) The December 3, 2006 Presidential Election and
April 4, 2007 Constitutional Referendum were relatively free
and transparent, each generally representing the will of the
Malagasy people (REFS C and D). Following the disputed 2001
election, Madagascar descended into a governance crisis in
2002 that brought the country to the brink of civil war.
During five years in office, President Ravalomanana's
government has brought political stability to Madagascar.
Freedoms of expression and political opposition, with a few
notable exceptions, have been protected. The President's
anti-corruption efforts, led by the Independent
Anti-Corruption Bureau (BIANCO) are laudable, even if
Madagascar's Transparency International Ranking is 84 out of
163 countries.


7. (C) Following Ravalomanana's landslide victory December 3,
2006, opposition leaders have begrudgingly accepted the
President's legitimacy and no longer call for a transition
government. The President remains reluctant to extend an
olive branch to his political adversaries, avoiding
opportunities for confidence-building or reconciliation. To
the contrary, emboldened by his reelection, the President
called for a referendum immediately afterward, making broad
changes to the Constitution which some say expand his powers
(REF E).


8. (SBU) Despite transparent voting organization, the GOM
remains reluctant to make fundamental electoral reforms to
apply the current norms of the regional and global community
of democracies - a single ballot and an independent electoral
commission.

A Look Forward
--------------


9. (SBU) The second half of Madagascar's MCC Compact
coincides with the first years implementing the MAP.
President Ravalomanana will measure success in economic terms
and hold Ministries, the 22 regional chiefs, and his stable
of advisors accountable; as he said at his inauguration, he
wants, "Results, results, results!"


10. (C) Madagascar will continue to diversify trade away from
former colonial power France and increase trade with China.
Having joined the Southern African Development Community
(SADC) Madagascar must quickly take advantage of access to
regional markets. In particular, Madagascar must attract
investment from neighboring powerhouses Mauritius and South
Africa to help fuel its growth. Madagascar's apparel
industry is responsible for over 100,000 factory jobs in the
export processing zone. AGOA apparel exports will likely
expand by 20 percent in 2007, all other factors being equal,
after the third-country fabric extension. With substantial
focus on agribusiness, Madagascar is also well-positioned to
diversify its AGOA exports into myriad other products.


11. (C) COMMENT: President Ravalomanana undoubtedly learned
important lessons about thorough policy consultation during
the MCC Compact process. His steady economic reforms,
leading to a new IMF program in 2006, demonstrate a genuine
effort to increase living standards. Ravalomanana has
sometimes been criticized, including by us, for not
separating his private business interests sufficiently from
his role of public trust. While the President's public and
private motivations are difficult to gauge, it is worth
noting that his TIKO empire is predominantly retail. As
Madagascar's economy grows and per capita income increases,

ANTANANARI 00000404 003.2 OF 003


TIKO will sell more yogurt, build more infrastructure,
process more commodities, and earn more in television and
radio.


12. (C) COMMENT CONTINUED: The calculus on political
reforms is very different. Although President Ravalomanana's
leadership style evolved somewhat since 2002 when he tried to
run the country like he ran TIKO, he remains impatient,
impetuous, and skeptical of bureaucracy. The President views
political reforms in terms of making government more
efficient and achieving the lofty goals in the MAP.
Expediency trumps democracy and inclusiveness, with the
President willing to do little more than the minimum in terms
of political openness. In a recent meeting with the
Ambassador he implored, "Trust me, I am not like some African
dictator who rules for life." Success in the first MCC
Country indeed requires a lot of trust in the President, and
verification that he follows through on his economic and
political responsibilities. END COMMENT.

McGEE