SENEGAL'S DONORS AGAIN GIVE IMF MISSION AN EARFUL

UNCLAS SECTION 01 OF 02 DAKAR 001515

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EB/IFD, AF/EPS AND AF/W

E.O. 12958: N/A
TAGS: EFIN EAID ECON ETRD EINV SG
SUBJECT: SENEGAL'S DONORS AGAIN GIVE IMF MISSION AN EARFUL

REF: 06 DAKAR 2614

DAKAR 00001515 001.2 OF 002



1. (SBU) SUMMARY: At the beginning of a two-week mission to
negotiate a new program with Senegal, IMF officials on July 12
received a non-stop stream of complaints and concerns by the
country's traditional donors over the current state of public
finance and governance. Senegal very much needs a new IMF program
to revive donor confidence and assure follow-though on pledges. On
July 26 the donors will learn the outcome of the negotiations. Even
with a new program, the prospects for near-term sunshine on
Senegal's budget expenditures and public contracts will likely
remain dim. END SUMMARY.

ANOTHER EARFUL
--------------

2. (SBU) Reftel highlighted the tough messages that donors
delivered to a visiting IMF team last October. That session proved
a mild preview to the meeting held on July 12 when Senegal's
traditional donor community again gathered to highlight their
concerns at the beginning of a two-week IMF mission, this one to
negotiate a new IMF program. The "non-traditional" donors such as
the Gulf States, Morocco, and China, who have been dominating the
news in recent months due to their special partnerships with GOS
ministries and agencies, were apparently invited but did not attend.
While acknowledging that the donors were raising all the issues
(and more) that the mission planned to address with the GOS, after
an hour-plus of pointed concerns, complaints, and frustrations, the
IMF Chief of Mission, Johannes Mueller, appeared a bit
shell-shocked. Unlike other donor-IMF briefings, nobody at the
table came to the GOS's defense; not France, not the EU, not the
World Bank, not the UNDP.

THE LAUNDRY LIST -- JUST AS DIRTY BUT EVEN TOUGHER
-------------- --------------

3. (SBU) The donors insisted that the IMF address a broad range of
issues in its discussions with the GOS and that the donors' concerns
form the basis of any new program's "commonly agreed reform
measures" (read, "conditionality"). Most of the issues raised by
the various donors have been well-reported by post, and none are
particularly new. Collectively, the issues raised underscore the
over-arching concern, namely, the GOS does not appear to have any
specific and sound plan for improving its public finances and
reviving the economy. President Wade, his spokesmen, Ministers and
various agency heads all say, "trust us, we have a plan," but trust
is in short supply these days in Dakar.


4. (SBU) More specifically, the donors raised, in part:
-- Senegal's completely stove-piped decision-making, with a single
point for all decisions (President Wade and his personal political
advisors);
-- lack of transparency in Senegal's public finances and
procurement;
-- not enough effort to offer fair and open tenders for public
projects;
-- no improvement in solving Senegal's energy-financing crisis;
-- no effective GOS counterparts for donor thematic groups;
-- no information on the source, control, or GOS requirements under
agreements for the "Arab funds" (that is, the special, exclusive
deals between the GOS various companies and entities from Kuwait,
Saudi Arabia, and the UAE for infrastructure investments);
-- a National Assembly that has no role providing checks and
balances;
-- an ineffective judiciary;
-- inconsistent application of laws and regulations;
-- diminishing budgets for development priorities, including health
and education;
-- lack of follow-through on debt forgiveness commitments;
-- the unaccountable role of the "Agencies" set up to manage public
investment; and
-- zero movement on improving the business and investment climate,
including no formal response, after two years, to the letter
highlighting specific areas for improvement provided to the Prime
Minister by the U.S.-chaired Private Sector Working Group.

THE IMF'S ASSIGNMENT
--------------

5. (SBU) Mr. Mueller explained that he is beginning this mission
with five goals for the negotiations:
i) establish needed improvements in Senegal's macro-economic
situation, including effective management of the national budget;
ii) agree to much-needed transparency and governance reforms for
public finances;
iii) outline concrete steps for increasing economic growth;
iv) establish a workable plan for improving the private sector
business and investment climate;
v) underline the importance of improving and modernizing Senegal's
financial sector.

DAKAR 00001515 002.2 OF 002




6. (SBU) Mueller explained that the conditionality must be
established as a first step, because it will be essentially the same
whether the two sides agree to a new Policy Support Instrument (PSI)
or a more traditional Poverty Reduction and Growth Facility (PRGF).
He speculated that the reporting requirements of a PSI might be too
strict for Senegal at this time. Another option is a PRGF with only
a "symbolic" disbursement since once Senegal's budget deficit and
public finances management are addressed the country does not really
need a significant financial contribution from the IMF (assuming
other donors continue their assistance).


7. (SBU) Senegal's IMF Resrep Alex Segura, promised that Meuller
would brief the donors on the results of their negotiations on July

26. As for the timeframe for a new program, Mueller explained that
if there is a general agreement by the end of this mission, the new
program could be presented to the IMF board by early October.

COMMENT
--------------

8. (SBU) Senegal has much at stake in a successful conclusion to
these negotiations -- not just a much-needed boost in credibility
for securing donor project and budget support pledges, but also for
agreeing to regularize its management of public finances. However,
even with a new program we are not confident that Senegal's talented
Finance Minister Abdoulaye Diop will be able to implement
much-needed reforms in the near-term. That will probably have to
wait until the opaque financing of projects for the proposed March
2008 OIC summit has run its course. It will also require winning
difficult political battles with the entrenched political advisors
surrounding President Wade who quite enjoy having their fingers in
all the pies. END COMMENT.


9. (U) Visit Embassy Dakar's Intranet site at:
http://dakar.state.gov/htdocs/section/econSec tion.aspx and Embassy
Dakar's SIPRNET Web site at http://www.state.sgov.gov/p/af/dakar

SMITH