ANGOLA DECIDES NOT TO SEEK IMF AGREEMENT

C O N F I D E N T I A L LUANDA 000250

SIPDIS

SIPDIS

FOR AF/S AND EB/OMA
NSC FOR BPITTMAN

E.O. 12958: DECL: 03/13/2017
TAGS: EFIN ECON AO
SUBJECT: ANGOLA DECIDES NOT TO SEEK IMF AGREEMENT

REF: LUANDA 70


1. (SBU) Summary. Angola,s Finance Minister, Pedro de
Morais, announced that Angola will not pursue a program with
the IMF. Citing Angola,s progress in combating inflation
and its growing foreign exchange reserves, Angola believes it
does not need a stand-by agreement to ensure macroeconomic
stability. Many financial observers see this as a move to
placate the domestic lobby in the run-up to elections.
Nonetheless, a number of financial experts in Luanda expect
that the GRA will continue to seek IMF technical assistance.
The IMF has proposed the visit of a technical team in May.
End Summary.


2. (SBU) On March 12, 2007, the GRA made public its February
13 decision and notification to the IMF that it would not
seek an agreement. Portions of the IMF's February 23
response, suggesting technical meetings in May, were also
made public. In his notification letter to the IMF, Finance
Minister Jose Pedro de Morais said he saw no benefit to
Angola from an IMF agreement and pointed to Angola,s
independent success in macro-economic stabilization and 13
percent GDP growth during the period 2004-2006. Minister
Morais added that Angola,s foreign exchange reserves have
grown, permitting it to pay off bilateral debt and secure
financing for investment out of its own resources, without
relying on external credit.

Looking to the Elections
--------------

3. (C) World Bank Resident Representative Alberto Chuenca
told us he viewed Angola,s domestic politics as the driving
force behind the decision. Chuenca believes image is very
important to Angola right now: the GRA wants to project the
image of a sovereign state and regional power, open to the
world and capable of managing its own affairs. An Embassy
expat banking contact, longtime resident in Angola,
interpreted the move as the GRA not wanting to be subject to
international oversight before the elections. He elaborated
that the decision can also be seen as primarily a domestic
political gesture for MPLA members who would denounce an IMF
agreement as selling out to the West. He believed the actual
impact would be minimal, and didn,t expect other dramatic
moves to further distance the GRA from the international
community.


4. (C) Chuenca reiterated the connection to elections, noting
that President Jose Eduardo dos Santos is reluctant to take
any decision that might make him appear to members of his
party as beholden to Western powers. Chuenca thought the IMF
announcement fit politically with the recent announcement
that Sonangol,s operating arm would divest itself of its
non-petroleum activities: Angola was demonstrating its
ability to clean its own house.

Implications for IMF and Paris Club
--------------

5. (SBU) Our expat banker contact noted that since Angola has
just paid the principle and interest on its Paris Club debt,
but not the late interest, it may have decided it is willing
to pay the late interest rather than enter into an IMF
agreement, given that the Paris Club still seems to make debt
relief contingent on an agreement with the IMF. IMF
technical assistance is widely expected to continue ) but
out of the public and media spotlight.

The IMF,s Program without the IMF?
--------------

6. (SBU) Miguel Alves da Rocha, Professor of Economics at the
Catholic University of Angola observed that talks between the
IMF and the GRA have continued for years without ever
reaching a conclusion. Rocha believes the IMF,s rigidity in
prescribing specific policies to achieve transparency
contradicted the GRA,s sense of its own sovereignty. Since
the IMF would or could not soften its proposals, the GRA
decided to stop the process, concluded Rocha. He emphasized
however, that the GRA remained committed to incremental
practical steps to improve governmental budget accountability
and management. During the recent monetary policy workshop
in Luanda (reftel),retired experts from the U.S. Federal
Reserve system and Treasury, as well as speakers from African
central banks proposed actions to control inflation and
restrict the appreciation of the Kwanza, he recalled. In
fact, Rocha argued, the GRA included such measures in its
work plan for 2007-2008. Dr. Rocha also expects the GRA to
continue benefiting from IMF technical assistance.

Comment
--------------

7. (SBU) Comment: Angola has been famous for the size of its
oil-backed lines of credit, estimated by the World Bank at
USD 15 billion. Expected revenues cover only 75 percent of
the 2007 budget, so the GRA clearly needs international
expertise and international finance. The fact that the May
technical meetings were made public indicates that the GRA
will still pursue technical consultations with the Fund, but
not under any formal arrangement at this time. This
reinforces the argument that Angola is making a political
gesture for domestic consumption and will attempt to minimize
its impact in dealings with the IMF and the international
community.
EFIRD