IMF DISPLEASED OVER GOM POLICY DECISIONS

C O N F I D E N T I A L SECTION 01 OF 02 ANTANANARIVO 000879 SENSITIVE SIPDIS STATE FOR AF/E - MBEYZEROV PARIS FOR RKANEDA LONDON FOR PLORD USDOC FOR BERKUL TREASURY FOR FBOYE E.O. 12958: DECL: 11/04/2018 TAGS: ECON EFIN PREL PGOV MA SUBJECT: IMF DISPLEASED OVER GOM POLICY DECISIONS REF: A. 08 ANTANANARIVO 663 ¶B. 08 ANTANANARIVO 849 ANTANANARI 00000879 001.2 OF 002 Classified By: Charge Eric Stromayer for reasons 1.4 B AND D. ¶1. (SBU) SUMMARY: Responding to open source reports concerning several recent GOM economic policy decisions, IMF and World Bank officials raised their concerns in a 12 December letter to Minister of Finance and Budget Haja Nirina Razafinjatovo. In the last month, the government has purchased an expensive new official airplane, initiated the re-creation of a state petroleum company, and pushed through a VAT exemption that is disproportionately favorable to President Ravalomanana's own company, Tiko. Displeased at being excluded from important decisions with significant budgetary impact, the letter is a marked departure from the IMF and Bank's relatively positive semi-annual PRGF review in September (see reftel A),and may foreshadow changes in the spring review. Some partners involved in direct budget support will reportedly suspend their payments to the GOM in protest over these actions, but the government has yet to respond. END SUMMARY. THREE STEPS BACK -------------- ¶2. (SBU) Three key moves this month prompted the IMF and the World Bank to take the unusual step of outlining their concerns in a carefully worded letter that barely conceals their displeasure: - The government replaced the official presidential airplane in an allegedly all-cash transaction of around $60 million, without disclosing the source of the funds or the extent to which budgetary and procurement procedures were followed. The IMF is seeking an assessment on the impact this will have on the GOM's year-end fiscal position and net international reserves. - A draft law has been proposed that would re-establish a state-owned company with exclusive rights to import certain petroleum products. Madagascar only recent moved away from such a system, and the letter voices fears concerning the budgetary impact this would have, as well as the disincentive it would create for participation by private distributors. - A VAT and customs exemption on soybean oil was granted by the Council of Ministers, against the advice of an IMF team. The IMF doubts such a measure's utility, and questions the motivations behind it; left unsaid in the letter is the fact that the president's company, Tiko, holds a monopoly on vegetable oil in Madagascar, and would likely be the sole beneficiary of this move. ¶3. (SBU) The IMF and World Bank are not alone in their concern; the EU, Germany, and France will reportedly suspend their direct budget support in protest over these moves and the opaque manner in which they were undertaken. The IMF/World Bank letter makes it clear that these issues will be discussed in the upcoming 5th PRGF review, which could have a negative impact on the GOM's plans to pursue a further agreement when the current one expires in July 2009. A MOMENTARY LAPSE, OR A SIGN OF WHAT'S TO COME? -------------- -- ¶4. (C) COMMENT: All of these issues first appeared in the domestic media, with the airplane purchase garnering attention and eliciting commentary well before the IMF sent its letter. The government has provided responses when absolutely necessary ("the old presidential plane was too slow"),but continues to demonstrate a lack of concern for transparency in governance or an even playing field in business. This request for clarification from the IMF will likely be met with disdain, and while the reborn state petroleum company may still die in parliament, the president's new Boeing 737 is soon to be en route from US based suppliers. Post has issued visas at the Foreign ANTANANARI 00000879 002.2 OF 002 Ministry's request for the pilots. ¶5. (C) This confrontation comes at a particularly sensitive time for the GOM: while Ravalomanana seeks to push through his "development" agenda and ready the country for the June 2009 African Union Summit, domestic politics are heating up (see reftel B),donors are starting to question the GOM's political and economic intentions, and the president is encountering a generally more pessimistic outlook among donors than has been the case in recent years. A more assertive IMF is a welcome development, and may be indicative of dialogue to come. END COMMENT. STROMAYER