IMF GUARDEDLY OPTIMISTIC ABOUT BURUNDI 2008 BUDGET

C O N F I D E N T I A L BUJUMBURA 000714

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF/C

E.O. 12958: DECL: 10/05/2017
TAGS: EFIN ECON PARM PREL PGOV BY
SUBJECT: IMF GUARDEDLY OPTIMISTIC ABOUT BURUNDI 2008 BUDGET
REVIEW

REF: A. A. BUJUMBURA 564

B. B. BUJUMBURA 556


1. (U) SUMMARY: The International Monetary Fund (IMF)
representative to Burundi called a meeting of the principal
donor representatives to review the progress the Government
of Burundi (GOB) is making in terms of meeting conditional
provisions of the Poverty Reduction and Growth Facility. The
agreement to extend the current Facility by three years must
be signed by January 15. While the GOB has made progress on
resolving the long-standing political impasse which blocked
legislative action over the past several months, the IMF
requests donors to maintain a common front on pushing for the
reforms needed to meet Facility guidelines in a timely
manner, so that Burundi can continue to receive budgetary
support from donor nations. END SUMMARY


2. (U) On October 3, 2007, IMF resident representative Israel
de la Piedra invited Burundi's principal donor partners to
review recent GOB progress on key economic and political
issues. Progress is a condition for the release of budget
assistance from the World Bank, Holland, France, Norway and
the EU to cover the budget deficit for 2007. Principals at
the meeting included the Ambassadors from France, Germany,
Belgium; the Charges from the EU and the Netherlands; the
DFID Country Representative; and the World Bank resident
representative. The US was represented by the USAID Country
Representative.


3. (U) De la Piedra was generally upbeat about the progress
the Ministry of Finance was making in finalizing the 2008
budget. This will be a key document which the Minister of
Finance will be bringing to the IMF budget review to be
conducted next week in Washington. Should the results of
that review confirm recent progress has been sufficient to
continue with a more in-depth analysis that will likely lead
to timely finalization of the agreement in January, the IMF
will dispatch a team to Burundi during the 26 October to 7
November period.


4. (U) The major budget issue facing the GOB, according to De
la Piedra, is the need to begin in earnest the International
Bank for Reconstruction and Development (IBRD) assisted
defense demobilization. He sees the planned reduction of
approximately 8,000 soldiers and police officers by March as
essential to freeing funds for the 34% civil service salary
increase promised by Burundi President Nkurunziza last May.
De la Piedra was informed by General Silas Ntigurirwas,
National Director of the Disarmament, Demobilization, and
Reintegration (DDR) program, that 300 soldiers and 600 police
are to start the demobilization process next Monday, October

8. While previous delays in the demobilization program have
caused Burundi's partners to be cautious about predictions of
progress, De la Piedra expressed optimism.


5. (U) In addition to progress on the budget, the IMF is
insisting that the GOB address the structural problems in the
GOB that gave rise to the Interpetrol scandal (ref A),as
well as make every effort to recover the missing money and
initiate the judicial process against the perpetrators of the
fradulent payment. De la Piedra insisted that it was not the
intention of the IMF to become involved in the judicial
process, but rather to seek legislative, regulatory, and
procedural reforms to assure that such a scam could not be
repeated easily. The IMF also believes that the GOB should
make every reasonable effort to apprehend, try, and punish
the guilty parties. While the IMF admits that it is unlikely
that the judicial process will be complete prior to
concluding the extension of the Facility, the IMF insists
that the GOB initiate the legal process.


6. (U) The IMF is also actively seeking movement of six
billion Burundian Francs (5.45 million USD) that was in an
Interpetrol-owned account in the Banque du Commerce du
Burundi (BCB) to a holding account within the Central Bank
until the judicial process is completed. The IMF considers
money in any commercial bank at risk and does not believe
that a commercial bank should be using this money as a
guarantee for their lending operations. So far the IMF has
succeeded in getting the money transferred out of the
Interpetrol account into another account within the BCB,
owned by the Ministry of Justice, but have not yet been able
to convince the GOB to transfer the funds to the Central Bank.


7. (U) Lastly, De la Piedra expressed satisfaction with
recent efforts by President Nkurunziza to bring progress in
resolving the political impasse that led to blockage of
National Assembly (ref B). It appears that the Parliament
will once again be able to debate and pass legislation

critical to structural reforms being promoted by the donor
community, including measures on the Budget, Anti
Money-Laundering, Public Offerings, Privatization, and Sale
of Public Assets. The opening of this session will be
reported septel.


8. (U) De la Piedra warned that a ministerial re-shuffle was
imminent. He was hopeful that the current Minister of
Finance, Clotilde Nizigoma, would not be removed, in the
interest of maintaining momentum in coming to closure on all
the financial reform actions currently underway within the
Ministry of Finance. In his opinion, every day lost in
transition to a new Minister will make it significantly more
difficult to meet the tight deadlines surrounding the
IMF/Washington review, the work of the IMF technical team due
26 October, and the IMF board consideration on January 15.


9. (U) While the USG does not provide budget support to the
GOB, most of the donor partners participating in the meeting
do. Most of that support is tied to the reforms being sought
by the IMF and World Bank. Therefore, the progress being
reported by De la Piedra was well received by the French,
Belgians, EU, Dutch, British, and Germans. Comments from the
group on De la Piedra's report focused mainly on the
necessity to maintain a common front in discussing reform
issues with the GOB. Progress in reaching agreement with the
IMF becomes increasingly important as the end of the calendar
year approaches, because most of the donors are unable to
carry over 2007 budget support commitments into 2008.


10. (U) The message De la Piedra encouraged the group to pass
along to their GOB counterparts was:
-- Do whatever you need to do to help the Minister of Finance
meet the review requirements.
-- We are pleased at the progress made on the political
reconciliation front.
-- We support the legislation for structural adjustments
noted above, required as part of the review process.
-- Don't change the Minister of Finance during the cabinet
re-shuffle.
-- Approve the 2008 budget quickly.
-- The six billion Burundian Francs from the Interpetrol
account needs to be moved from the BCB to a holding account
in the Central Bank now.

CASEBEER