BURUNDI MAKING EFFORTS TO MEET IMF DEMANDS

C O N F I D E N T I A L BUJUMBURA 000626

SIPDIS

SIPDIS

DEPT FOR AF/C

E.O. 12958: DECL: 08/31/2017
TAGS: BY PGOV PINR PREL
SUBJECT: BURUNDI MAKING EFFORTS TO MEET IMF DEMANDS
REQUIRED FOR BUDGET SUPPORT

REF: BUJUMBURA 564

Classified By: Ambassador Moller for reasons 1.4 b and d.


1. (C) SUMMARY: Local International Monetary Fund (IMF)
representative Israel de la Piedra met with Ambassador Moller
on August 30th to discuss the Government of Burundi's (GOB)
progress on meeting short term IMF goals required for funds
dispersal. De la Piedra expanded on actions undertaken to
date by the GOB, including shortcomings and achievements. He
noted that the GOB is making measured progress in resolving
the Interpetrol scandal (reftel) and making token gestures
for demobilization, but is not moving forward with Ministry
of Finance reforms. He continued that the IMF will likely
ask the GOB to scrap the current budget and find intermediate
financing while a new budget is formulated. De la Piedra
emphasized that a new budget would include several
politically unpalatable items, but that each of these issues
are critical to Burundi receiving IMF budgetary assistance.
END SUMMARY


2. (SBU) In an August 30 meeting, Burundi IMF representative
Israel de la Piedra briefed Ambassador Moller on the
Government Burundi's (GOB) progress on meeting immediate IMF
stipulations required for its continued budget support. IMF
approval will allow, he said, for the release of over USD 90
million in IMF, European Commission, and other donor funds.
After a second IMF budget review in July exposed serious
flaws in the GOB budget, including alleged double payments
for hazy, years old obligations to petrol company Interpetrol
and a 34 percent increase in salaries for government workers
promised by President Nkurunziza, IMF officials demanded the
GOB take certain steps to correct the irregularities. De la
Piedra told Ambassador Moller that the GOB is making measured
progress on meeting the goals, but they are not out of the
woods yet.


3. (SBU) De la Piedra explained that Burundian President
Nkurunziza wrote a letter to the IMF managing director
outlining in generic terms the steps the GOB is undertaking
to meet IMF demands. According to De la Piedra, the letter
was less detailed than the bank would like, but that the IMF
in Washington appreciated the effort. The IMF originally
asked for the GOB to produce an action plan for recovering
the money paid to Interpetrol. The action plan would be made
public and include judicial strategies designed to recoup the
misappropriated payments. To date, President Nkurunziza has
only made passing public references to the plan; however, De
la Piedra stressed that the GOB has initiated other measures.



4. (C) Complicating the seizure of Interpetrol assets,
according to De la Piedra, is the fact that the petrol
company supplies between 50 and 80 percent of gasoline that
comes into Burundi. When President Nkurunziza began halting
Interpetrol trucks and their fuel in an attempt to put
pressure on the company, fuel shortages occurred around the
country. However, in a deal with Interpetrol, the GOB has
solidified a hold on USD 6 million in Interpetrol funds
frozen in a local bank, and also persuaded Interpetrol to
offer as collateral 25 properties valued at USD 16 million
while the alleged double payment issue is resolved, according
to De la Piedra


5. (SBU) The IMF has requested modifications to current GOB
regulations that allow the Minister of Finance to authorize
extra budgetary allocations with essentially no redundancy to
protect against malfeasance. Unfortunately, the GOB is
unable to overcome its current political stalemate to vote on
any law, including one to reform Ministry of Finance
regulations. De la Piedra expressed frustration at GOB's
inability to reconcile this matter.


6. (C) De la Piedra noted that Interpol has reportedly issued
warrants for the arrest of former Ministers of Finance Denise
Sinankwa and Athanase Gahungu. He called this a step in the
right direction to determine who is ultimately responsible
for the missing funds. Additionally, De la Piedra affirmed
the qualifications of the new Governor of the Central Bank,
Gaspard Sindayigaya, stating that Sindayigaya has the
requisite experience and skills to return the bank to a
credible and reliable institution.


7. (SBU) The IMF also stipulated the GOB step up their
demobilization efforts in a move to reduce wage costs
reflected in the budget. De la Piedra observed that wage
costs for the GOB are upwards of 13 percent, while the
average for most developing countries is six to seven
percent. President Nkurunziza has indicated the GOB will
demobilize 1500 police and soldiers in the near term,

alleviating some pressure on the budget. While acknowledging
the good intentions of the President, De la Piedra cautioned
that this action has occurred too late in the budget cycle to
grossly affect budget operations.


8. (C) De la Piedra concluded the meeting by saying that the
political situation at the IMF is delicate, with several
members of the team openly weary of the continuous corruption
and others more sensitive to political considerations. He
added that the IMF will likely recommend that the GOB scrap
the current budget and start fresh in 2008, as chances for
approval of the current budget remain slim. De la Piedra
called the elimination of the salary increase and a tax hike
on sugar, beer, and gasoline essential components of a new
budget. He acknowledged how difficult that will make the
political situation for the GOB, but countered that it comes
down to the GOB receiving USD 90 million in budget support.
De la Piedra said, if the GOB is unwilling to make the
difficult choices, then they simply won't receive budgetary
support.


9. (SBU) COMMENT: Although his rhetoric was candid -
sometimes harsh - De la Piedra maintained a balanced view -
neither optimistic or pessimistic in his assessment of the
current budget crisis in Burundi. He mentioned that there
are ways around a temporary delay in funds dispersal,
including acquiring funds on the open market and then
repaying them in three months. De la Piedra seemed willing
to fight for Burundi within the IMF establishment, and
expressed his increasing affinity, as well as frustration,
for Burundi. Post will continue to urge the GOB to work
closely with the IMF to insure that miscommunication is not
the stumbling block that derails Burundi on its bumpy road to
stability. END COMMENT
MOLLER