IMF/WB "NOT OPTIMISTIC" AS KYRGYZ HIPC DECISION

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000143 SIPDIS SIPDIS DEPT FOR SCA/CEN (GEHRENBECK) E.O. 12958: DECL: 02/08/2017 TAGS: ECON EFIN EINV PREL KG SUBJECT: IMF/WB "NOT OPTIMISTIC" AS KYRGYZ HIPC DECISION NEARS REF: A. 06 BISHKEK 1692 ¶B. 06 BISHKEK 1750 ¶C. BISHKEK 080 ¶D. BISHKEK 098 BISHKEK 00000143 001.2 OF 003 Classified By: Charge d'Affaires Lee Litzenberger for Reasons 1.4 (b) a nd (d) ¶1. (C) Summary: World Bank and IMF representatives in Kyrgyzstan have requested that Kyrgyz authorities recommit, in writing, to the December HIPC agreement by late February or risk the loss of all debt relief envisioned under HIPC. PM Isabekov's "step by step" parliamentary strategy on HIPC, designed to "protect" Kyrgyzstan's national interests ran into trouble when First Deputy Prime Minister Daniyar Usenov used a parliamentary hearing to denounce the HIPC initiative. Although President Bakiyev supposedly understands and favors HIPC, Bakiyev's unwillingness to control Usenov's public opposition questions his commitment to HIPC. The local World Bank and IMF representatives are not optimistic about HIPC's prospects, and are now preparing for a future without HIPC. End summary. Put it in Writing -------------- ¶2. (C) Within a week of taking office, PM Azim Isabekov met World Bank chief Roger Robinson and International Monetary Fund (IMF) chief James McHugh separately to discuss the Heavily Indebted Poor Countries (HIPC) initiative and other international assistance projects. During their January 31 meeting, Robinson requested a new, written confirmation of Kyrgyzstan's commitment to the HIPC triggers agreed in negotiations which concluded December 9. (Note: Prior to his late January departure from office, PM Kulov removed his name from the December letter committing Kyrgyzstan to the HIPC initiative. End note.) However, Robinson asked that President Bakiyev's name be added to those of PM Isabekov, Minister of Finance Japarov and National Bank Chairman Alapayev on the requested letter. ¶3. (C) The World Bank and the IMF publicly revealed their request in a joint February 7 statement calling for the new cabinet to reaffirm "its commitment to the government's reform program and its desire to seek debt relief through the HIPC and MDRI initiatives." The letter, Robinson told emboff February 8, is not a "legal" requirement, but, given the Kyrgyz political environment, is needed to confirm what had been agreed in the negotiations. Japarov announced February 8 that the government would make a decision next week. Step by Step ) and Out the Door? -------------- ¶4. (C) According to Robinson, PM Isabekov in the January 31 meeting said he wanted the "government's endorsement and support of parliament" before moving forward on HIPC. Isabekov, McHugh told emboff, outlined a "step by step" approach towards parliament that would allow Kyrgyzstan to judge each stage of HIPC's implementation in accordance with Kyrgyzstan's national interests. ¶5. (C) Parliament's Budget Committee Chairman Akmatbek Keldibekov chaired a February 2 hearing on HIPC that did not conform to Isabekov's plans. According to Robinson, who BISHKEK 00000143 002.2 OF 003 observed from the gallery, Keldibekov initially refused to give pro-HIPC Japarov an opportunity to speak but then only granted him "a minute," before permitted First Deputy Prime Minister Daniyar Usenov "hours" to condemn the HIPC program. (Note: The hearing took place while Keldibekov had been rumored to be a replacement for Japarov. Japarov has since been appointed to a slimmed down financial portfolio. Japarov previously spoke at a HIPC parliamentary hearing. End note.) McHugh characterized the event not only as a "disaster," but also a "watershed" moment which confirmed to him HIPC's demise. Robinson and McHugh walked out of the hearing "in protest." Crunch Time -------------- ¶6. (C) Following the parliamentary hearing, Robinson and McHugh advised Kyrgyz government officials of the limited timeframe for Kyrgyzstan to restate its commitment to the agreed HIPC program. As Washington-based World Bank and IMF officials are due to review Kyrgyzstan's HIPC package using 2005 data in late March, Robinson explained to emboff that Kyrgyzstan must provide its final commitment by February 20-25. Robinson added that Washington officials require approximately one month to process the package. Kyrgyz officials had previously proclaimed that the government would decide only in March if it should participate in the HIPC program. Robinson and McHugh explained the urgency by pointing to improved 2006 fiscal and currency data that would disqualify Kyrgyzstan from receiving any debt relief under HIPC. Usenov's Alternative Paths -------------- ¶7. (C) Prominent HIPC critic First Deputy PM Usenov has focused his disagreement on proposed reforms to energy and mining sectors. Earlier this month, Usenov identified the following alternative funding sources to replace HIPC-proposed measures: 1) increasing revenue from the U.S. base at Manas; 2) liquidating government-owned Centerra stock (Centerra is the Canadian parent company of the operator of the Kumtor gold mine); 3) reducing losses in the electricity sector; and 4) borrowing money from Kyrgyz nationals and institutions. ¶8. (C) Usenov has repeatedly claimed that the World Bank and IMF have never managed a "successful" program in Kyrgyzstan. Robinson told emboff he and his colleagues found numerous positive statements Usenov has previously made regarding World Bank activities. Despite Usenov's "unclear motives," Robinson does not plan to release these messages. Where is President Bakiyev? -------------- ¶9. (C) Robinson said he expected to meet President Bakiyev within the next day, but will not "push" HIPC. Bakiyev, who largely stayed quiet when PM Kulov was attacked for his pro-HIPC stance, joined the fray January 31 by calling on "young people to stop worsening the situation over (HIPC)." "In this connection," he added, "I would call on you to stop meetings and demonstrations. People are tired of politics." Although this appeal followed a prediction former Bakiyev Foreign Policy Advisor Ermek Ibraimov made to the Ambassador that Bakiyev "would push HIPC through" in the end, Robinson BISHKEK 00000143 003.2 OF 003 asked why would Bakiyev permit Usenov to continue his vocal campaign against HIPC. Amidst the Curses, Taking it All in Stride -------------- ¶10. (C) McHugh and Robinson separately predicted to emboff February 8 that the new commitment letter would not be forthcoming. McHugh said the World Bank and IMF would not raise HIPC again, and would instead focus on their other activities in Kyrgyzstan. Robinson added that he informed Minister of Finance Japarov "the window is now," but confided in emboff that Kyrgyzstan's non-participation in HIPC "would not be a catastrophe." "There's no need," he continued, to provide "knee-jerk reactions" to this anticipated political outcome. McHugh, paraphrasing a Harry Potter character, said once the deadline for Kyrgyzstan's commitment decision passed, "no curse can make HIPC come alive again." Robinson expressed concern, however, that Usenov may act on a threat to expel the IMF by the end of 2007. Comment -------------- ¶11. (C) HIPC was a strong force in PM Kulov's ouster, and it remains a controversial issue for PM Isabekov's government. Plans by officials to disclose Kyrgyzstan's position in March have been upset by the strongly anti-HIPC parliamentary hearings on February 2, which led the World Bank and IMF to request a recommitment by the Kyrgyz government within the next two weeks. Bakiyev, who's shown no leadership on this issue, will have to intervene personally to save HIPC at this point. LITZENBERGER