Identifier
Created
Classification
Origin
08ANTANANARIVO879
2008-12-30 13:48:00
CONFIDENTIAL
Embassy Antananarivo
Cable title:
IMF DISPLEASED OVER GOM POLICY DECISIONS
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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.
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
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