CAMEROON'S IMF PROGRAM AT A KEY DECISION POINT

UNCLAS SECTION 01 OF 02 YAOUNDE 000592

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: CM ECON EFIN
SUBJECT: CAMEROON'S IMF PROGRAM AT A KEY DECISION POINT



1. (SBU) Summary: On June 10, Pol/Econ Chief met with IMF
Resrep for Cameroon Malangu Kabedi-Mbuyi to discuss the
Fund's plans for Cameroon after the anticipated end of its
three-year program later this month. She explained that the
GRC is currently deciding whether to pursue a new IMF Poverty
Growth and Reduction Fund program or request a Policy Support
Instrument (PSI),which would be advisory but not have
disbursements. The current program will likely be extended
to February, 2009, she said. Kabedi was skeptical about the
GRC's ability to qualify for a PSI and was critical of poor
economic performance and weak implementation of HIPC fund
programs. End summary.

Which Way to Go?
--------------


2. (SBU) The IMF's three-year Poverty Growth Reduction Fund
(PGRF) in Cameroon was due to end in June 2008; however,
according to Kabedi, Prime Minister Ephraim Inoni signed a
Letter of Intent (LOI) this week seeking to extend the
program until February, 2009. The LOI will go before the
Board at the end of June, Kabedi said, who saw the move as a
mere legal procedure to see the program through its final
Board review in December, 2008. The final Mission under the
current program will visit Cameroon in late August/early
September to prepare for the Board meeting.


3. (SBU) The GRC has three options for follow-on to the
PGRF, Kabedi outlined: negotiate a new PGRF (something she
thought would be easy for the government to do),leave an IMF
program, or request a Policy Support Instrument (PSI). While
the GRC has not formally requested a PSI and the Minister of
Finance says he is weighing options, the government has a
clear preference for a PSI, according to Kabedi.


4. (SBU) Cameroon would need to qualify for a PSI by
demonstrating its ability to design and implement its own
fiscal management programs. A PSI would bring no
conditionalities and no disbursements but would keep the IMF
in an advisory role and serve as a stamp of approval for
capital markets, enabling the GRC to raise new market
finance, Kabedi explained. Seeking a PSI would also have the
political benefits of demonstrating that the government has
"graduated" from the IMF, she added. Kabedi was eager for
the GRC to signal its intent "now" so there could be a smooth
transition from the current PGRF into the next phase, noting
this kind of transition would not be possible if a decision
is not made by September (although a program could be
negotiated at a later date). She acknowledged that the
government "feels no pressure" on this decision; because of
high oil revenues and completion of the Highly Indebted Poor
Country (HIPC) initiative, the GRC has substantial cash
available and "doesn't need the IMF; it just needs to
understand its own need to boost the economy."

Economic Views
--------------


5. (SBU) Kabedi was highly skeptical of the GRC's ability
to qualify for a PSI. She noted that the IMF Mission in
February (interrupted by civil unrest and continued in
Washington later in the Spring) had agreed to support the
GRC's "March measures" raising public sector salaries and
lowering tariffs and taxes on a number of basic commodities.
In return, the government had promised to fund the measures
by reducing spending in non-priority sectors, Kabedi said.


6. (SBU) Kabedi was downbeat about the overall economy and
questioned the government's seriousness about economic
reform. She was critical of the government's very low
revenue base, continued subsidies of fuel, slow movement on
privatization, and lack of vision on investment and
agriculture. She conceded there has been progress since 2005
on public finance reform (especially in improving
transparency, monitoring and data collection); the government
will soon adopt a medium-term plan to boost revenues and is
working on a similar plan to reduce expenditures, as well as
plans to spur private sector growth and financial sector
reform, Kabedi said.


7. (SBU) Commenting on use of the HIPC fund, she said debt
relief funds had been appropriately transferred into the
government's HIPC account but implementation of HIPC-funded
projects was very poor (about 50% of the funds in the 2007
account had been spent). She blamed this on poor planning,
administrative inefficiency, and slow and late
decisionmaking. While not discounting the possibility of
corruption ("this is Cameroon after all"),and acknowledging
some financing irregularities in the early days after HIPC
completion, she thought the account had been well audited and

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she had "no proof of misuse".

Comment
--------------


8. (SBU) We share Kabedi's skepticism about the GRC's
ability to do effective fiscal planning and policy
implementation. Cameroon's government is highly
dysfunctional, failing to spend half of its annual budget.
Decisionmaking is slow and highly centralized, planning and
coordination are weak, and corruption is rampant. We are
more convinced than Kabedi appears to be that there has been
some misuse of HIPC money. While it is good that the GRC is
thinking beyond needing the IMF, in our view a Fund program
still has a useful role to play in keeping Cameroon's fiscal
house in order and pushing the economic reform agenda.






GARVEY