COTE D'IVOIRE PAYS WORLD BANK ARREARS; IMF SEES

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 000166

SIPDIS

SIPDIS

DEPARTMENT FOR AF EPLUMB, EREPTKO, KDIZOGLIO
USAID FOR CGARRETT, SSWIFT
DEPARTMENT PASS TO USTR CHAMILTON
ACCRA FOR USAID PRICHARDSON, KMCCOWAN
DAKAR FOR FCS SMORRISON, FAS RHANSEN

E.O. 12958: DECL: 03/07/2018
TAGS: ECON EFIN PGOV PREL IMF IBRD IV
SUBJECT: COTE D'IVOIRE PAYS WORLD BANK ARREARS; IMF SEES
AGRESSIVE HIPC TIMETABLE

Classified By: EconChief EMassinga, Reasons 1.4 (b,d)


1. (C) Summary. The World Bank announced in late February
that the Government of Cote d'Ivoire has paid its portion of
its arrears clearance package, paving the way for renewed
assistance. The IMF announced that with the arrears
clearance package in hand, it will proceed aggressively with
a Poverty Reduction Strategy Paper (PRSP) and to negotiate a
Poverty Reduction Growth Facility (PRGF) with the aim of
reaching a HIPC decision point much more quickly than most
donor country representatives had thought possible. End
Summary.

Cote d'Ivoire Pays Last Tranche of Arrears Package
--------------

2. (SBU) The World Bank reported that the government has
paid in full its portion of an arrears clearance package
negotiated in July 2007, at a meeting of international donors
on February 29. This action clears the way for the Bank to
pay its portion of the package, 50 percent of the total stock
of approximately $500 million in arrears. Bank Country
Representative Harbone said a vote by the Bank Board is being
scheduled for sometime in late March.


3. (SBU) Harbone reported that the Bank will immediately
enter into intense negotiations on how to spend USD 104
million in old credits. Bank staff envision USG 50 million
going immediately to education (particularly in the north
where government schools have been effectively shut for the
past five years) and USD 20 million to improve degraded
transportation routes. In May/June, four new urban
infrastructure projects concentrating on access to water and
road reconstruction will begin in the two biggest cities in
Cote d'Ivoire, Abidjan and Bouake.


4. (C) The USD 120 million Post Conflict Assistance
Program, approved in July 2007 but never tapped due to the
manifest failure of the Prime Minister's office remains an
embarrassment. The Prime Minister's office has still failed
to comply with rules related to selection of a public auditor.

HIPC Negotiations to Proceed on an Aggressive Pace
--------------

5. (C) IMF Country Director Philippe Eugume said that now
that the World Bank arrears clearance package is complete,
the next step is completion of a PRGF and PRSP, assuming
fiscal performance remains acceptable. This needs to be done
relatively quickly, possibly this calendar year (the timing
was not specified) while Cote d,Ivoire remains eligible for
HIPC. This was a point that needed clarification for the
assembled donor country representatives - in order to keep
its HIPC eligibility, Cote d'Ivoire's debt-to-annual export
ratios must stay above 250%. With expected modest debt
relief associated with World Bank and African Development
Bank arrears clearance packages, that threshold will be
breached sometime in late 2008 or early 2009. Thus, IFI
staff anticipate a HIPC schedule, governed by the completion
of the PRSP, could go forward on a faster track than many
donor country representatives had understood.


6. (C) Eugume said that progress on PRSP and a PRGF are all
the more important because of the elections timetable
described by Independent Electoral Commission President
Mambre at a briefing for donor country representatives on
February 28. Mambre said elections could technically take
place 11 months after the audiences foraines process comes to
its completion. If the CEI's technical calendar is
maintained, elections would take place in February of 2009.

Assessment of Budget Support Package To Date
--------------

7. (C) A visiting IMF assessment team lead by Arend
Kouwenaar looking into the government's performance during
the period of a July 2007-approved, USD 120 million budget
support package reported broad satisfaction with fiscal
management. The team expressed particular satisfaction with
the substantial numbers of new employees in the health and
education ministries (at least 700 new doctors and other
health care workers, and even more educators) to be created
in the new budget. However, as the IMF team reported to a
group of representatives from major donor countries, funding
to cover an anticipated 2008 budget gap will have to be
identified. The IMF found no immediate takers among the
assembled donor community. The IMF team noted that regional
financial markets remain liquid, despite heavy recent

ABIDJAN 00000166 002 OF 002


borrowing by the Ivoirian government, indicating some
additional sources of cash could probably be accessed through
that route.


8. (C) One large expenditure that is not adequately
accounted for in the 2008 budget is the anticipated cost
associated with disarmament (DDR). The IMF team said it
finds that the process is moving forward, but largely without
the structure (cantonment, stocking of arms, well-designed
reinsertion programs, etc.) envisioned by the international
community and as seen in other post-conflict scenarios. The
already-approved DDR budget of approximately USD 55 million
was structured to integrate 2000 troops from the Forces
Nouvelles (FN),but the IMF team noted a recent political
decision was made to expand that to 5000 troops. The EC
representative complained that the DDR budget (which
ostensibly will cover the reportedly tens of thousands of
militiamen in the west and the Abidjan environs claiming
equal treatment) is grossly insufficient. According to the
EC's representative, the promised demobilization payments of
approximately USD 650 promised to each demobilized member of
the 37,000 FNs alone would break this budget.


9. (C) The second large expenditure that the IMF said is
likely to cause a budget shortfall is funding for the voting
identification card "operator" SAGEM, a French company. The
2008 budget has an approximate USD 55 million line item for
this program, but the IMF team said this will not be enough
for the company to accomplish its ambitious mission. The EC
representative rebutted the notion that SAGEM would need more
than USD 100 million to do the job. The EC representative
said that the current funding for SAGEM is more than
sufficient, and that the formal scope of work set by the
government and that guides more detailed contract negotiation
should be further restricted to allow greater oversight of
the company's expeditures.


10. (C) The IMF team said the government's revenues and
expenses outside of DDR and identification are as expected.
While revenues could be enhanced by requiring that more
profits from 100-percent state-owned petroleum company
PETROCI be shared with the government treasury,
realistically, not much additional revenue is expected. On
the expense side of the ledger, the President's "sovereign
account" could be trimmed, as could the implicit subsidies
involved in lower-than-world-average electricity and petrol
prices. Again, not much is expected in these realms.


11. (C) Comment. The Government of Cote d'Ivoire appears
to have taken advantage of resilient liquidity in the
regional financial market to put an end to the World Bank
arrears saga, and may very well take advantage of the same
source to finance budget gaps created by bigger than
anticipated DDR and identification costs. The announcement
of an aggressive drive towards HIPC surprised most in the
international community. Embassy Abidjan will pay close
attention to this process as it unfolds. End Comment.
NESBITT