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