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07KHARTOUM477 2007-03-27 07:42:00 UNCLASSIFIED Embassy Khartoum
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1. Summary: The March 22 meeting of the Wealth Sharing working group
of the AEC focused on the introduction of the new currency, which
has been one of the relative success stories in the CPA. The
Governor of the Central Bank used the meeting to complain of slow
delivery of donor support for the CPA-mandated project. It was
agreed that the Ministry of Finance should be invited to meet with
the working group in May to discuss the implementation of the new
fiscal federalism model. End Summary.

2. A meeting of the Assessment and Evaluation Commission Working
Group on Wealth Sharing was held on March 22. The meeting was
chaired by the U.S. Charge d'Affaires and was attended by
representatives from Italy, Kenya, NCP, Norway, U.K., U.S. and
observers from EC, and the UN. The invited speaker was Governor of
the Central Bank, Dr. Sabir Hassan, who delivered a presentation on
the implementation of the new currency, the Sudanese Pound.

3. Dr Hassan described the currency project as one of cooperation
between the GNU and the GOSS, with the Central Bank as the lead
agency. He noted that legally the Bank of Southern Sudan is a
branch of the Central Bank and is not a separate entity. The new
currency was designed jointly by Northerners and Southerners. The
World Bank and Norway provided assistance with the funding for the
design aspect of the project.

4. The Governor noted that the budget for the currency exchange
program is $150 million, with most donor funding channeled through
two Multi Donor Trust Funds. He stressed that there had been delays
in the project caused by shortfall in financing from international
donors. To resolve this delay, the bank drew on the Oil Revenue
Stabilization Account (ORSA). The arrangements for the procurement
of paper, ink and other materials had followed World Bank
procedures. The printing of the currency and minting of coins was
done in Sudan. Distribution of the new currency commenced January 9,
2007, the second anniversary of the signing of the CPA.

5. The Dinar and the new Pound will co-circulate until June 30,

2007. After June 30, the Dinar can be exchanged at commercial banks
for one month. After August, the Dinar can only be converted at the
Central Bank. The Governor expects that, by the end of May, 90
percent of the Dinar notes in circulation in the North will have
been withdrawn. In the South, the situation is more complex as there
is less coverage by the commercial banks.

6. The Governor flagged three specific challenges ahead. First, the
financing to be provided by the international community for the
project needs to be speeded up. Secondly, the security situation in
the South needs to be addressed; while security is primarily the
responsibility of the government, the bank will have to incur some
expenses as well. Finally, there is a need for an ongoing awareness
campaign for the new currency.

7. In the question and answer session following the presentation,
the Governor returned to the theme of the delays in disbursements of
donor contributions. He stated that while the cost of the currency
exchange was initially an argument against the project, the
political decision had been made to adopt a new currency and the
international community had agreed to share the cost. Delays in
international support had caused the GNU to draw funds from the ORSA
to move forward. This loan from ORSA funds should be repaid. The
Governor also noted that security concerns had caused some delays in
the conversion in the South.

8. The Governor concluded his remarks by stressing that the lack of
a common currency in the South has been a major problem. The
economy of the South is based on barter. The monetary economy is
fragmented. Resolving this is a major breakthrough for the South
and will be a stimulus to economic activity and will allow citizens
there to buy sell and transact business to the benefit of all.

9. Under Any Other Business, the NCP representative suggested that
the Minister of Finance be invited to meet with the Working Group at
the meeting scheduled for May 3 in order to discuss the
implementation of the recommendations made by the FFAMC for the new
fiscal federal system. There was consensus with this suggestion.

10. Comment: Following up on the meeting, on March 23, econoff met
with the Norwegian official who has followed the currency issue most
closely, Endre Stiansen. Stiansen arranged a conference call with
Ake Lonnberg of the IMF in Washington to discuss the status of IMF
and World Bank actions. Lonneberg confirmed that a final draft of
the IMF appraisal had been sent to Governor Sabir earlier in March
and the IMF is awaiting the Governor's reply. Lonneberg has been in
touch with the World Bank and confirmed that the World Bank is in
discussions with the Central Bank of Sudan to finalize the budget
for the project. The World Bank has also requested that an
international audit firm be appointed for the project (the Sudan
affiliate of Ernst and Young is being considered) and the IBRD has
also asked for further details about the plan for the conversion of
the currencies in the South. A consultant from the IBRD, paid for

KHARTOUM 00000477 002 OF 002

by Norway, will be coming out to Sudan soon to offer assistance to
the Bank of Sudan with these items. End Comment.