IMF COMMITTED TO EVENTUAL BURUNDI BUDGETARY

UNCLAS BUJUMBURA 000657

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF/C

E.O. 12958: N/A
TAGS: PINR PREL BY PGOV
SUBJECT: IMF COMMITTED TO EVENTUAL BURUNDI BUDGETARY
ASSISTANCE, BUT IN THE MEANTIME...

REF: BUJUMBURA 564


1. (SBU) SUMMARY: International Monetary Fund (IMF)
representative Israel de la Piedra briefed a small number of
the diplomatic corps on a proposed IMF budget review in a
September 11 meeting. A positive review of the Government of
Burundi (GOB) budget will allow for the release of $93
million in much needed donor budgetary assistance. (Note: It
is widely reported that the GOB is having liquidity problems,
and civil servants went unpaid for August salaries until
September 10. End Note) Piedra said the IMF will no longer
review the 2007 revised budget and instead will move to the
2008 budget, eliminating the possibility of President
Nkurunziza's proposed 34% civil servant salary increase
taking place this year.


2. (SBU) Piedra cited a lack of time and a desire to start
with a clean slate as the principal reasons for moving on to
the 2008 budget. The IMF representative suggested there may
be a way for the GOB to obtain short term financing from the
central bank, but stressed that non essential programs will
have to be cut and that the GOB will be working on a "cash
budget" for the next several weeks. Several members of the
diplomatic corps pointed out the negative potential a cash
strapped government can have on Burundi's stability, and
vowed to take preventative measures to avoid potential
problems. The World Bank and the Government of Norway
representatives proposed exploring alternative methods
outside IMF budget review as a means to disperse their donor
money. Attendees at the meeting vowed to communicate a
common message to assure that the government, the media, and
the public understand the IMF's decision. END SUMMARY


3. (SBU) In a September 11 meeting, International Monetary
Fund (IMF) representative Israel de la Piedra briefed a small
number of the diplomatic corps on the proposed IMF budget
review. Upwards of $93 million in budgetary assistance from
the World Bank (WB) and other donors hinges on a positive
review. Piedra informed the diplomatic corps that the IMF
will not review the 2007 revised budget but will instead
start with a fresh slate and review the 2008 budget at the
conclusion of the annual IMF and WB meetings in Washington,
DC., October 19-21. The budget review will then move to the
IMF board in Washington for approval at the beginning of
January. Dispersal of funds could follow seven days later if
the IMF board approves the budget.


4. (SBU) The immediate impact of the IMF's decision to drop
the 2007 revised budget is that President Nkurunziza's
proposed salary increase of 34% to civil servants will go
unrealized this year. The revised budget was to include the
salary increase announced in a May 1 public speech by
Nkurunziza. To offset the salary increase, the Government of
Burundi (GOB) intended to demobilize a certain number of
soldiers. Piedra acknowledged that the Government of Burundi
(GOB) now finds itself in a difficult political position, but
said that the IMF finds it impractical to attempt to review
the revised budget in light of the short amount of time
before the end of the year. The promise of a salary increase
proved to be politically popular for Nkurunziza when he made
the announcement in May, but now he will be obliged to delay
the increase until at least 2008. The possibility of a
retroactive increase does exist.


5. (SBU) Piedra highlighted another issue of critical
importance to the IMF, the Interpetrol scandal (reftel),and
the inadequate time for the GOB to address the issue. Piedra
mentioned that the IMF expects the GOB to recover some of the
$17 million that allegedly was misallocated to local
petroleum import company Interpetrol. Additionally, the IMF
insists that the GOB establish criminal responsibility for
misappropriation of funds to Interpetrol. Also the IMF
wishes to complete an audit of all the oil companies
importing oil to Burundi over the last several years to avoid
a reoccurrence of the same problem. Finally the IMF desires
that the GOB establish processes and safeguards within the
government and the central bank to increase transparency and
prevent further corruption.


6. (SBU) The GOB has made progress on the judicial process
and in recovering some of the money, according to Piedra. An
IMF technical team will be here at the end of the month to
work with the central bank and the Ministry of Finance on
strengthening operating procedures and protocol. Piedra
stressed that the IMF wants to disperse the budgetary
assistance to the GOB, and that is why they are moving
forward with a review rather than dropping its planned review
all together. Piedra praised the GOB for its open
communication with the IMF but cautioned that the GOB should

be making a greater effort to confront the owner of
Interpetrol company to recover funds and resolve the
disagreement.


7. (SBU) In order for the GOB to address its liquidity
problems in the period between now and mid-January, Piedra
suggested the GOB, with IMF support, will seek out a bridge
loan from the Burundi Central Bank. According to Piedra,

although the GOB has reached its limits on borrowing from the
Central Bank, he believes the IMF can come up with a creative
financing option that will allow them to borrow between $30
and $40 million to see them through the lean times. Piedra
continued that the GOB will also be required to cut all
non-essential programs and likely work on a cash money
budget. For example, the GOB only recently paid its civil
servants for August, while normally civil servants are paid
at the end of each month for the preceding month.


8. (SBU) Representatives of the Government of Norway and the
WB said that their organizations might release funds if signs
from the budget review at the end of October are positive.
The WB stressed that in order for them to disperse funds, a
stable macro economic framework must be in place. It is
usually IMF board approval, he stated, that the WB uses as
evidence of that framework. In light of the special
circumstances in Burundi however, the WB might be willing to
use alternative evidence to fulfill that requirement. The
representative from Norway echoed the WB rep, adding that
suspension of budgetary assistance this year could jeopardize
future Norwegian budgetary assistance.


9. (SBU) The WB rep added that the WB is optimistic that the
GOB will fulfill the requirements set forth by the IMF to
conclude a positive budget review. However, he countered
that the WB does not want to send the message that the WB is
"soft" on good governance requirements. Otherwise, he said,
this problem will only continue.


10. (SBU) Some members of the diplomatic corps pointed out to
Piedra that not providing money for 2007 could lead to
serious political unrest in this already shaky post conflict
country. In response, Piedra recommended that the
international donors find a way to address the most serious
weaknesses to avoid a return to conflict. In response,
representatives stressed a need to immediately undertake
preventative measures that they see as stabilizing the
country in the near term.


11. (SBU) The UN rep at the meeting advised that the IMF and
diplomatic community in Burundi coordinate a common
communication strategy aimed at combating negative
impressions held by some at the UN towards the IMF. The UN
rep requested that each mission work diligently to educate
its representatives in New York that the IMF's intent is not
to sacrifice the average Burundian because of the bad actions
of a few. Indeed not, replied Piedra, the IMF wants to
insure that donor money is not immediately siphoned away by
corrupt officials.


12. (SBU) COMMENT: The political impact of a delay in the
34% salary increase for civil servants is problematic for
President Nkurunziza's administration. Because the delay is
directly linked to the Interpetrol scandal and the corruption
in the government, the media and the public will continue to
criticize the incumbent administration for its
ineffectiveness. Additionally, the announcement of the delay
comes at a difficult time for the President, since he is
already trying to salvage negotiations with rebel group
PALIPEHUTU-FNL and overcome a political impasse in the
National Assembly. To date, President Nkurunziza has yet to
take a strong role in leading Burundi out of its current
quagmire; unless this short term budget crunch is carefully
managed, it may permanently damage the President's
reputation. END COMMENT
MOLLER