MELES SUMMONS G-20 AMBASSADORS FOR PRE-SUMMIT

C O N F I D E N T I A L SECTION 01 OF 03 ADDIS ABABA 000728

SIPDIS

E.O. 12958: DECL: 03/25/2019
TAGS: EAID ECON EFIN ETRD ET
SUBJECT: MELES SUMMONS G-20 AMBASSADORS FOR PRE-SUMMIT
BRIEFING

REF: A. 2008 ADDIS 2254 (NOTAL)

B. ADDIS 557

Classified By: Ambassador Donald Yamamoto for reasons 1.4 (b) and (d).

SUMMARY
--------------


1. (SBU) Ethiopian Prime Minister Meles Zenawi summoned most
G-20 Ambassadors on March 26 to present a briefing of the
position he will take in London on April 2 where he will
represent Africa at the Summit. The meeting occurred just
hours after Meles convened a separate, but supposedly
similar, meeting with the Chinese, Indian, and Brazilian
Ambassadors. Arguing that his comments reflected the
consensus views of the "Special Committee of Ten" -- composed
of five African finance ministers and five African central
bank governors who have held a series of pre-G-20
consultations over the past few months -- Meles called 1) for
a revitalization of the Doha Round of trade talks to
resurrect the "collapse of global trade," 2) for G-8
countries to meet their pledge made at Glen Eagles to
contribute 0.7% of GDP toward foreign assistance, and 3) for
developed countries to recapitalize the international
financial institutions (IFIs) and reform them to provide
quick and easy money to "jump start" African economies
including the IMF selling gold reserves to increase funds.
This would allow for special drawing rights (SDR)
for developing countries. The U.S. Ambassador stood alone in
raising two concerns on Africa's call for more liberal
non-concession loans and de-emphasis of structural reform and
policy reform in favor of more performance based criteria for
loans. End Summary.

REVITALIZE TRADE AND EXPAND BILATERAL AID
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2. (SBU) In a late-called meeting with G-20 Ambassadors less
China, India, and Brazil, Prime Minister Meles highlighted
the consultations held over recent months between the
"Special Committee of Ten" which finalized its deliberations
in early March on the margins of the IMF meeting in Tanzania.
Meles presented a "consensus" perspective from the
Committee, which he clearly shared and intends to present in
his role in representing Africa at the April 2 G-20 summit in
London. Arguing that "trade has collapsed," specifically due
to the collapse of global commodity prices for primary
African exports, Meles stressed the need to improve the
global trade environment. Without giving details, Meles
emphasized that the "revitalization" of the Doha Round of
trade talks is "critical" to revitalizing trade and, through
it, African economies. Similarly, Meles stressed the African
consensus for G-8 countries to meet their pledges made at
Glen Eagles to allocate 0.7% of each country's GDP to foreign
assistance for least developed countries.


3. (SBU) Specifically, Meles argued that international aid
should be focused on 1) supporting "safety net" programs
throughout Africa to help people prevent and mitigate the
impacts of drought and economic downturns, 2) balance of
payments support to help African countries cope with their
diminished terms of trade, and 3) investment in
infrastructure.

RECAPITALIZE THE IFIs TO JUMP START ECONOMIES
--------------


4. (SBU) The bulk of Meles' arguments to the assembled envoys
focused around measures that the developed world and Bretton
Woods institutions can take to jump start African economies
through recapitalization, expediting disbursements, availing
new options to developing countries, and granting African
countries greater representation on IFI boards of directors.
Also reflecting a consensus view of the Special Committee of
Ten, Meles argued for the International Monetary Fund (IMF)
to sell off U.S. $15 billion in gold reserves to expand its
pool of available capital. To complement this, Meles urged
the G-8 countries to recapitalize IMF coffers through SDR 30
billion in bilateral contributions. To this end, Meles
claimed that Japan has already committed U.S. $100 million.


ADDIS ABAB 00000728 002 OF 003



5. (SBU) Once recapitalized, the IFIs should take program
processing measures to facilitate and expedite disbursements
in order for African countries to meet safety-net targets,
attain balance of payments support, and maintain critical
infrastructure development goals. In addition to expanding
the pool of concessional development assistance, Meles called
for the World Bank to greatly expand access for developing
countries to non-concessional loans through the Bank's hard
window.


6. (SBU) The Prime Minister also reflected an African
consensus view calling for the World Bank to establish a
"vulnerability trust fund," similar to the U.S. $275 million
that Ethiopia received in December through the Bank's
expedited Global Food Crisis Response Facility (Ref A).
Meles's comments came on the heels of a recent Chinese
government announcement to provide a pool of up to U.S. $5
billion of investment capital for African development needs.
The Ethiopian Government (GoE) has routinely referenced the
growing level of investment and support from China and India
as a notice to the West that we are ceding ground tot he East
and losing potentially fruitful investment opportunities.


7. (SBU) Finally, Meles called for two structural adjustments
that IFIs should take to better empower African countries and
jump start their economies. First, he echoed the African
call to expand sub-Saharan Africa's representation on the
boards of executive directors of both the World Bank and IMF
to five seats each. Second, Meles made a strong push for the
IFIs to shift away from policy conditionalities which dictate
how recipient countries achieve specific desired results to
the establishment of performance standards in which the IFIs
and recipients agree to end results that each government's
choice of policy options will strive to achieve. In response
to queries as to what such performance standards might
include, Meles claimed that the G-8 has previously agreed to
a clear set of performance standards, but provided no
specific examples of what these may be. Acknowledging that
this shift may be contentious among developed and donor
countries, Meles called for a slow phasing in of this new
approach with IFIs initially offering new funds with 50
percent contingent on policy reforms, while the other 50
percent would be tied to performance standards.

SUMMARY ARGUMENTS
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8. (SBU) Meles emphasized that his position was not for an
"overhaul" of IFI operations, but "adjustments" and he called
for G-20 countries to "experiment" with various options to
revitalize trade and aid while jump starting global economic
growth. Meles argued that the Western world's debt
sustainability framework does not reflect the true credit
risk dynamics that developing countries are facing.
Specifically, Meles acknowledged that African countries are
already borrowing from countries like India and China, but
claimed that that borrowing should be from the IFIs. The
steps called for above, therefore, would create a conducive
international environment to encourage such a shift among
borrowing countries. Meles was emphatic that investments in
Africa often yield higher returns than similar investments
elsewhere, and therefore called for donor countries to both
make more assistance available on an absolute level, as well
as to assess project viability and avail non-concessional
funds through IFIs such as through the Bank's hard window.

COMMENT
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9. (C) Meles' comments may well reflect a consensus view from
African states. At the same time, however, we assess that
Meles is cannily leveraging his presence at the G-20 summit
-- which was granted because Ethiopia is the current head of
NEPAD -- to ride the effects of the global crisis that many
other African countries are legitimately facing in order to
secure more, but less conditioned, aid flows to Ethiopia to
counter its own economic crisis which is largely independent
of the global crisis (Ref. B). Ethiopia's tightly controlled
economic policies have resulted in large imbalances in the
country's macroeconomic fundamentals -- with the continent's
second highest inflation rate after Zimbabwe, a sustained

ADDIS ABAB 00000728 003 OF 003


balance of payments crisis, hugely negative real interest
rates, four weeks of import equivalent in foreign exchange
reserves, and a government and ruling party-led strangle hold
on many key sectors of the economy.


10. (C) As Prime Minister Meles's chief economic advisor told
a visiting delegation earlier this month (septel),Ethiopia's
perspective is that "the IFIs do not know what are the right
economic policies, and Ethiopia has grown robustly over the
past 18 years, so the IFIs should just give us more and
easier access to funds so we can overcome the current bumps."
Unfortunately, Ethiopia's mythic growth and economic figures
do not hide the real challenges that this economy is facing,
and left to its own devices, the Ethiopian Government has
shown minimal internal incentives to make the reforms
desperately needed to return the economy to sound
fundamentals. While the arguments that the Special Committee
of Ten, through Meles, has called for may significantly help
those African countries suffering from the global crisis but
which have strong and conducive policy environments,
Ethiopia's crisis is largely endogenously driven and the
steps advocated for above will only provide a band-aid over
the short-to-medium term symptoms. t is also interesting to
note the shift in strategy by the GoE in making the case for
increased support through the IFIs as a way to limit the
influence of China and India. While the U.S. can certainly
play a role in jump starting African economies, it is clearly
not appropriate for us to apply this same response to every
economy.


11. (SBU) Finally, the U.S. Ambassador stood alone in raising
potential debate and concerns over Africa's call for a more
liberal non-concession loan arrangements and a de-emphasis on
structural and policy reforms in favor of more performance
based indicators. These two issues will be open to further
debate at the G-20. As the Ambassador left the room, the
Prime Minister
grabbed the Ambassador's arm and said, "Africa is looking to
the U.S., particularly, and especially the new American
President, to help Africa overcome the global economic
crisis." End Comment.
YAMAMOTO