AMBASSADOR TELLS FINANCE MINISTER DEBT RELIEF

C O N F I D E N T I A L ABIDJAN 000813

E.O. 12958: DECL: 11/11/2018
TAGS: EFIN ECON PREL PGOV IV
SUBJECT: AMBASSADOR TELLS FINANCE MINISTER DEBT RELIEF
REQUIRES BETTER PERFORMANCE

REF: (A) ABIDJAN 806 (B) ABIDJAN 723 (C) ABIDJAN 758

Classified By: POL/ECON Chief for reasons 1.4 (b) and (d).


1. (C) Summary. In a November 6 meeting, Ambassador told
Economy and Finance Minister Charles Diby that Cote d'Ivoire
must show stronger fiscal performance to reach the Highly
Indebted Poor Country (HIPC) decision point. Diby explained
extra-budgetary spending on public works projects in
Yamoussoukro as a one-off event, but admitted that the GOCI
has no mechanism for ensuring that resources are linked to
stated national priorities. Diby said the GOCI had already
taken steps to avoid a repeat of the Yamoussoukro
expenditure. He outlined measures taken by the GOCI to
increase budgetary discipline and transparency, insisted that
other members of government are now cognizant of the
importance of HIPC debt relief, and argued that such relief
would not be possible if the GOCI does not reach the decision
point by March 31, 2009. End Summary.


2. (C) After delivering a demarche on the Monterrey Consensus
on financing for development (ref A),Ambassador raised HIPC
with Finance Minister Diby, stressing that the GOCI--like all
other governments--should show six months of strong fiscal
performance under an IMF program to reach the HIPC decision
point. Ambassador assured Diby that the USG understands Cote
d'Ivoire's need for debt relief and wants to see Cote
d'Ivoire succeed, but also expects Cote d'Ivoire to meet the
established criteria and noted that to date the GOCI's
performance under its second Emergency Post-Conflict
Assistance program has been poor.


3. (C) Diby launched into a defense of his personal actions
with regard to the unbudgeted Yamoussoukro public-works
expenditures (refs B, C). He acknowledged that the contract
for the Yamoussoukro projects (signed in 2004) included a
clause calling for possible payment in petroleum but said
this clause had never before been exercised. It was only
during the IMF mission in late September and early October of
this year that he became aware of the fact that the
contractor had received a payment in petroleum. The Finance
Minister said he fully disclosed information on the contract
to the IMF mission as soon as he became aware of the payment.
He also defended expenditures for the renovation of the
Hotel Ivoire. President Gbagbo expects Abidjan to host the
2010 African Development Bank conference, and the Hotel
Ivoire is the only facility that would be able to accommodate
a gathering of heads of state. That expenditure, plus
expenditures to improve the Port of Abidjan, apparently led
the GOCI to use petroleum for payment for the Yamoussoukro
projects. Diby said Gbagbo has already signed a decree to
eliminate payment in petroleum in any future transactions.
All oil revenue will come directly to the government and be
accounted for in a transparent manner, he claimed.


4. (C) Ambassador acknowledged Diby's personal commitment to
complying with the IMF program but said the extra-budgetary
expenditures suggest a lack of commitment on the part of the
government overall to control spending and to ensure that
expenditures support the government's stated priorities. She
asked Diby what mechanisms the government has in place to
match resources to priorities; he admitted that there is
none. Diby argued, however, that due to his repeated
interventions at cabinet meetings, etc. ministers throughout
the government have come to understand that it is critical
for Cote d'Ivoire to obtain debt relief under the HIPC
program, and have therefore accepted that the Finance
Ministry has to take certain measures, such as paying the
country's arrears to the World Bank rather than paying off
internal debts. Ambassador reminded Diby that an underlying
principle of HIPC is that countries will channel funds that
would have been used to pay debts to support social sector
development, hence the importance of mechanisms to ensure
resources match priorities.


5. (C) Diby acknowledged the GOCI's past shortcomings but
said the government is doing the best it can under difficult
circumstances. He stressed actions the current government
has taken despite its difficulties, including publishing
budget figures every quarter (for the first time in the
country's history),paying arrears to the World Bank, and
moving forward on Extractive Industries Transparency
Initiative membership. He said execution of the budget has
been suspended from October 15 through the end of this year
to help make up for unbudgeted expenditures. The only
spending that continues is for salaries and some social
sector activities. He said the IMF would be able to see
improvement in October and November data, and cocoa revenues
would soon be rising, as this year's harvest progresses.
Noting that the GOCI was now quite late in clearing its
African Development Bank (AfDB) arrears, Ambassador asked
Diby when the GOCI would clear the arrears. Diby said the
GOCI had already paid USD 50 million of the arrears and would
pay the remainder by November 15, in part from cocoa revenues.


6. (C) Diby repeatedly stressed the difficulties he has had
persuading other cabinet members and GOCI leaders that
painful steps must be taken and said he is the only person in
the GOCI with "macroeconomic vision." However, he noted,
Ivorian leaders now realize the importance of qualifying for
HIPC debt relief, and all of the "potential presidents" want
debt relief. Diby pleaded for understanding, noting that if
the six-month clock begins ticking only now, the GOCI will
not be able to achieve debt relief at all, since as of March
31, 2009, the IMF will discontinue the Poverty Reduction and
Growth Facility (PRGF),i.e., no country in the world will be
able to obtain a PRGF. (Note: PM Soro made a similar
comment to Ambassador a few months ago. End note.)
Ambassador noted that the USG knew Cote d'Ivoire's debt
ratios were falling and that Cote d'Ivoire might lose its
HIPC status. However, she and econoff said they did not
believe the IMF was discontinuing PRGF programs. Diby
reiterated his belief that if Cote d'Ivoire does not have a
PRGF in place and reach the decision point by March 31, it
will forever lose its opportunity to obtain debt relief under
the HIPC program.


7. (C) Comment: Econoff confirmed with Treasury after the
meeting that PRGF programs are not ending. Given Diby's
apparent misunderstanding about this, the GOCI may have
unrealistic expectations about qualifying for debt relief.
Diby clearly understood the need for immediate improvement in
fiscal performance, and he made a persuasive case that the
government's overall performance has consistently been better
when it was trying to comply with an IMF program than when
there was no program. His message was clearly, "Give us the
benefit of the doubt," indicating that the Ivorians are
deeply worried about losing what they see as their last
chance to qualify for HIPC debt relief.


8. (SBU) Post notes that the communique issued November 10 by
the Permanent Consultation Framework (CPC) in Ouagadougou
called on the international community to help Cote d'Ivoire
be eligible for a PRGF and the HIPC decision point by
December 31, 2008. This is unusual in a communique from this
set of political leaders and, in our view, underscores
Ivorian anxiety about obtaining debt relief. End Comment.


AKUETTEH