IMF PRAISES TUNISIAN ECONOMIC MANAGEMENT

C O N F I D E N T I A L SECTION 01 OF 02 TUNIS 000050 SIPDIS SIPDIS STATE FOR NEA/MAG (HARRIS) STATE PASS USTR (BURKHEAD) AND USAID (MCCLOUD) USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (REITZE),AND CLDP (TEJTEL AND MCMANUS) CASABLANCA FOR FCS (ORTIZ) CAIRO FOR FINANCIAL ATTACHE (SEVERENS) LONDON AND PARIS FOR NEA WATCHER E.O. 12958: DECL: 01/16/2018 TAGS: ECON EFIN ETRD TS SUBJECT: IMF PRAISES TUNISIAN ECONOMIC MANAGEMENT Classified By: Ambassador Robert F. Godec for Reasons 1.4 (b) and (d). -------------- Summary -------------- ¶1. (SBU) During a January 14 meeting with the Ambassador, International Monetary Fund (IMF) Mission Director Abdelhak Senhadji praised GOT economic management and characterized Tunisia's 2007 GDP growth of 6.3 percent as "remarkable" in the current international economic climate. Senhadji told the Ambassador that the IMF continues to recommend reductions in external debt and strengthening of the banking sector. Noting that sometimes the IMF would like to see faster reform, he acknowledged that although the GOT takes its time, it recognizes the necessity of continued liberalization. End Summary. -------------- Right Bureaucrats in the Right Places -------------- ¶2. (SBU) IMF Mssion Director Abdelhak Senhadji had high praisefor GOT economic management, stating that Tunisia ad the "right bureaucrats in the right places." He credited good macroeconomic management, socialcohesion and political stability for Tunisia's sstained long-term growth. Senhadji added that Tnisia's 6.3 percent growth during 2007 was "remakable" given the unfavorable international economic situation -- in particular, high oil and food comodity prices. -------------- ut Room for Improvement... -------------- ¶3. (SBU) Senhadji noted that while overal investment levels were solid, domestic private investment rates have been stagnant over the past everal years and were lower than one would expec to see. However, he highlighted that private sctor investment takes time to grow in developing cuntries and that overall, FDI is more diversified than it appears at first glance. While it may sem that FDI is only being allocated to real estae, Senhadji emphasized that FDI in infrastructur projects would help create jobs and spur growth Nevertheless, he told the Ambassador the IMF continued to recommend reductions in the level of extrnal debt andstrengthening of the banking secto, both of which are critical for eventual liberaization of the capital account. -------------- Slow, But Steady -------------- ¶4. (SBU Concurring with an oft-heard comment on the pace f Tunisian reform, Senhadji stated that "someties we would like faster movement." He added tha the GOT is "cautious" and compared the GOT to amutual fund manager that makes safe investments tat yield dividends over the long-term. Senhadji oted that unlike many other countries, the IMF lcked the leverage of Fund lending that might be usd to encourage certain reforms. He acknowledgedthat certain reforms, such as the elimination of ood subsidies, were likely to be detrimental if one too quickly. He recounted that one senior GT official had stated that eliminating subsidies could jeopardize everything with rioting in the streets. According to Senhadji, ultimately the GOT recognizes the imperative of increased integration with the global economy. He emphasized that the GOT "realizes that the train is moving and they are about to be left behind." -------------- Comment -------------- TUNIS 00000050 002 OF 002 ¶5. (C) We agree that Tunisia should receive its due for its solid and steady economic growth. Tunisia really is a "country that works," in many respects. Yet, for all its success, Tunisians themselves are not feeling bullish about their prospects. Tunisian consumers continue to complain about rising prices and low purchasing power. Additionally, Tunisia's unemployment rate remains high (officially 13.9 percent) and is not dropping. While it is true that certain reforms, such as eliminating food subsidies, may have a high short-term cost, there are many other simple and sensible reforms -- eliminating prior authorization for property sales, for example -- with little to no downside. A little caution goes a long way; Tunisia should be commended, but it must do more and do it faster. End Comment. Please visit Embassy Tunis' Classified Website at: http://www.state.sgov.gov/p/nea/tunis/index.c fm GODEC