IMF REPRESENTATIVE IN BURUNDI CONCERNED OVER

UNCLAS BUJUMBURA 000563 SIPDIS SIPDIS SENSITIVE DEPT FOR AF/C E.O. 12958: N/A TAGS: PGOV PREL BY SUBJECT: IMF REPRESENTATIVE IN BURUNDI CONCERNED OVER BUDGET CRISIS ¶1. (SBU) Summary. Ambassador Moller met on August 7 with International Monetary Fund (IMF) Resident Representative Israel de la Piedra and visiting IMF Assessment Team economist Alvaro Manoel to discuss Burundi's impending budgetary crisis. De la Piedra identified the two most immediately troubling fiscal issues for Burundi as loss of revenue in the face of increased Government expenditures, and the questions of malfeasance raised by alleged illegal payments by the Government of Burundi (GOB) of $17 million to a private Burundian petroleum company, Interpetrol. De la Piedra said that the IMF would address these two issues and try to help the Government find a way to increase transparency in its budget process and in its fiscal operations. If the Government of Burundi is able convincingly to demonstrate that it is embarking upon necessary changes, then the IMF is prepared to consider continuing its budgetary support. De la Piedra noted that for IMF to provide further budget support, a third evaluation visit would have to take place. He emphasized to the Ambassador how seldom IMF agrees to make such a visit, but responding to the Ambassador's remarks about Burundi's status as a country emerging from decades of civil strife and about its strategic importance in the region, Alvaro Manoel conceded a third visit would be possible in Burundi's case, cautioning however that IMF visits do not occur "every few weeks". End Summary. ¶2. (U) Ambassador Moller met with IMF Resident Representative Israel de la Piedra to discuss the budget crisis facing Burundi. Mr. de la Piedra told Ambassador Moller that on August 6, he and Burundi's Second Vice President Gabriel Ntisezerana, and others participated in a video conference with IMF Washington. De la Piedra informed the Ambassador that the subject of the video conference was Burundi's deteriorating fiscal situation, its causes, and what the GOB needed to do to ameliorate the present crisis and ensure that support would continue to flow from IMF, World Bank, and others. Two Issues Facing the GOB -------------- ¶3. (SBU) Mr. de la Piedra told Ambassador Moller that, for its part, the IMF sees two immediate looming problems facing Burundi. The first of these is the Government's wide budget gap, driven partly by a loss of customs revenues at the same time as additional expenditures are being approved. The most egregious of these new and unplanned-for expenditures is the thirty-four percent salary increase for civil servants promised by President Nkurunziza on May 1. Alvaro Manoel, IMF visiting senior economist, pointed out that President Nkurunziza made his announcement of the salary increase after the IMF had proposed its 2007 budget for Burundi, commenting that Burundi's budget is "no longer financeable." ¶4. (SBU) The second problem De la Piedra described was the unfolding scandal of allegedly illegal payments amounting to some $17 million by the GOB to the private Burundian petroleum distributor, Interpetrol. He pointed out that the controversy and scandal surrounding the transaction touched both on good governance issues -- corruption -- and on the budgetary crisis, through the loss of GOB funds. Expanding on the illegal Interpetrol payments, he explained that the monies were handed over in three or four payments, the latest of which was in May. The USD payments requested by the Minister of Finance for Interpetrol were said to be needed to cover "exchange rate losses," but IMF believes those losses had already been paid by the GOB in 2004. ¶5. (SBU) Although it is important for the government to recover funds paid to Interpetrol, De la Piedra hoped that the GOB would not attempt to recover the lost money "by might," but would instead follow the law. Citing the August 4 arrest in his home of the Governor of the Central Bank for his alleged role in the Interpetrol affair, De la Piedra expressed hope the arrest had been made legally. Goals and Strategies -------------- ¶6. (SBU) Mr. de la Piedra said that IMF's immediate goals for Burundi are simple. Burundi must: acknowledge that the Interpetrol problem must be put right, begin to move the country towards responsible fiscal and budgetary policy and practice, and implement measures to enhance revenues and cut expenditures. The Second Vice President has already identified petroleum products, fizzy drinks and beer, and sugar as targets for tax increases. ¶7. (SBU) As part of the IMF's strategy to improve government transparency, De la Piedra stressed the importance of finding and closing loopholes in the law, such as the one that allows the Minister of Finance to write checks without any oversight, creating an opportunity for corrupt practices. He recommended as well requiring regular audits of companies that do business with the Government. ¶8. (SBU) Mr. de la Piedra informed the Ambassador that prior to the IMF's August 8 departure from Burundi, he would meet again with the Second Vice President, the Minister of Finance, and the Interim Governor of the Central Bank to continue their discussions on the budget impasse. On August 7, a second video conference with IMF Washington will take place. Mr. Manoel intervened to explain that if the GOB can convincingly demonstrate it will make needed changes to address the flaws in its budget process, then the IMF is prepared to continue its budgetary support. He went on to say, that the GOB must immediately address the loss of revenue and the worrying Interpetrol situation, cautioning that IMF missions do not occur "every few weeks". De la Piedra emphasized that for IMF to stay in Burundi, the GOB's efforts to solve its fiscal problems must be robust and transparent. Acknowledging the gravity of the situation, the Ambassador urged the IMF Rep to keep the Embassy apprised of developments. ¶9. (SBU) Comment. The IMF representative in Burundi is clearly disturbed by the GOB's fiscal behavior, but is continuing to work to find a solution. The IMF's willingness to return to Burundi in September is promising, and suggests its commitment to the country. Given the fragility of Burundi's young democracy, the need for the IMF and other international partners, to remain strongly invested in Burundi's future is evident, as is the IMF's need to identify serious brokers within the GOB with whom they can work. The IMF's principal Burundian interlocutor, the Second Vice-President, appears to be serious, a "straight-shooter", and someone who understands the task at hand. If he can make good on his pledges to fix the problems, then the IMF will likely consider it has a solid partner. End Comment. MOLLER MOLLER