CENTRAL BANK WOES; AS GUINEA'S STORY GOES

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000709 SIPDIS SIPDIS TREASURY FOR OFFICE OF AFRICAN NATIONS E.O. 12958: DECL: 06/22/2017 TAGS: ECON PGOV EFIN GV SUBJECT: CENTRAL BANK WOES; AS GUINEA'S STORY GOES Classified By: Economic Officer Kim Jordan. Reasons 1.4 (b) and (d). ¶1. (SBU) SUMMARY. The problems facing Guinea as a whole are the same problems facing its Central Bank. Cronyism and corruption have been endemic at the Central Bank, as in the government. Prime Minister Kouyate promised reform and to clean up the Bank as a key institution of Guinea's government. However, the appointment of the new Central Bank Governor and questions about the Governor's independence cast doubts about the promised reforms. With recent price increases, many believe that inflationary pressures will continue unless the Prime Minister is able to demonstrate more stringent controls on key government institutions. END SUMMARY. -------------- THE PROMISES ARE FAR FROM REALITY -------------- ¶2. (SBU) After being appointed, Prime Minister Lansana Kouyate promised to clean up the government, including the Central Bank. The IMF also specified reforms at the Central Bank as a requirement for a funded program. Kouyate promised to accomplish several goals: to bring in new leadership, untainted by past corruption; to stop allowing the Central Bank to be used as President Lansana Conte's personal checking account; and, in order to control inflation, stop the practice of "loans" to the Guinean Treasury to finance the budget. ¶3. (C) While President Conte initially agreed to give Kouyate the power to clean house at the Central Bank, Conte's people remain on the inside to service the Head of State's needs. On May 18, Conte named Daouda Bangoura as the new Bank Governor. Many believe the appointment was just replacing one Conte loyalist with another, confirming the widespread sentiment that nothing has really changed. ¶4. (C) Cronyism and corruption at the Bank not only result in opaque banking operations, but impact the public through increased inflationary pressures. Recent price increases significantly effect the population. Over the last few weeks, there has been a tripling of the cost of a liter of water in the interior and a 65% increase in the cost of sugar. Furthermore, while the official exchange rate is currently set at 3270 GNF to the dollar, the informal rate has climbed back to 4000 GNF to the dollar (last month, the parallel rate was the same or lower than the official rate). Fatoumata Drame, President of the Money Exchangers Association told Econoff that she is pessimistic about Kouyate's chances. Drame told us that the exchange rate, and therefore inflation, will go higher unless Kouyate fulfills his promises to clean house at the Bank. -------------- BANK APPOINTMENT AN "INSULT AND A VIOLATION" -------------- ¶5. (SBU) The January 28 tripartite agreement ending the general strike provided for Kouyate to nominate civilian employees and heads of the government agencies, such as the Governor of the Central Bank. However it was President Conte who appointed then Vice Governor Daouda Bangoura as the new Governor of the Central Bank. Conte's action caused a storm in the independent Guinean press and outrage from the labor unions. The labor unions called the appointment "an insult and a violation of the agreements." ¶6. (C) Governor Bangoura stated that the economic development of Guinea was his top priority and that restoration of the authority and independence of the Central Bank was the first step. He said the right things and, towards that end, he has reportedly instituted limits on the amounts the Central Bank can loan to the Guinean Treasury to fund government expenditures. The problem is that Governor Bangoura is seen as part of the old guard. His detractors allege that he is close to Conte, part of the old system and, thus, part of the problem. They further allege that as Vice Governor, he allowed Conte to use the bank as his personal piggy bank, instead of upholding the independence of the institution. With a history of serving Conte, many believe Bangoura will be ineffective in limiting the Head of State's access to Bank coffers. ¶7. (C) Bangoura's supporters believe the real problem at the Central Bank was former Governor Daffe. The current General Director of Credit at the Central Bank, Tidiane Sylla, told Econoff "the reason for the previous problems at the Bank was that the Governor and the Vice Governor did not work well together," implying that there was a personal animosity CONAKRY 00000709 002 OF 002 between the two. Bangoura's supporters go on to say that Daffe was ill and weak and thus easy to manipulate. They claim that Bangoura actually tried to prevent illicit activities at the Central Bank, but was limited by Daffe. They also allege that Bangoura cannot be close to Conte since it was he who led the legal attack on Mamadou Sylla and Futurelec over overdrafts at the Central Bank. -------------- COMMENT -------------- ¶8. (C) The situation at the Central Bank is a reflection of Guinea's current political landscape and inter-group struggles. Kouyate promised reform and to fight corruption, beginning at the Central Bank. It remains to be seen if the new directives are actually being followed and whether the Central Bank can control and document its transactions. The appointment of the Bank's Governor was supposed to have been a strong signal that Kouyate was in a position to effectuate his reform agenda. While the jury may still out on Bangoura, the appointments cast doubt on the Prime Minister's ability to implement real reforms. At the Central Bank, Conte still has "his people" in positions that count. Conte recently stated in a press interview, "I am Guinea" -- Guinea's institutions continue to behave as if this is the reality. MCDONALD