(SBU) IMF, WORLD BANK ON SAME PAGE ON CONGO

UNCLAS SECTION 01 OF 02 BRAZZAVILLE 000079

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN IMF IBRD
SUBJECT: (SBU) IMF, WORLD BANK ON SAME PAGE ON CONGO

REF: BRAZZAVILLE 0062

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1. (SBU) SUMMARY: At the conclusion March 6 of a mission by
the IMF to assess Congo's progress with its current PRGF
(Poverty Reduction and Growth Facility) program, mission chief
Robert York briefed interested diplomatic missions and
international organizations, along with key financial
interlocutors, on the mission's findings. With respect to
Congo's program to qualify for debt relief under the Highly
Indebted Poor Countries (HIPC) initiative, he identified oil
marketing transparency and government procurement as areas where
more progress is needed, as did a similar earlier World Bank
mission (reftel). END SUMMARY.


2. (SBU) Identifying the mission as the first review of the
PRGF program approved on December 8, 2008, he said that the
parameters of the examination looked backward, at performance up
to December 31, and forward, at the ability of the authorities
to achieve the program's objectives. In addition, with the
World Bank, the mission would look at the implementation of the
HIPC "floating completion point" in light of the Congo
government's desire to move to completion point as soon as
possible.


3. (SBU) With respect to the backward look, as of end-December,
Congo had met all the quantitative targets, although performance
on the non-oil primary deficit had been very near the outside
limit. With respect to structural targets, on public finance
management, the Congo target was to achieve quarterly
certification of audits and to post the audits with government
comments on the internet. Though the auditors had completed and
posted the results, the required comment had not been posted.
Second, with respect to the requirement to repatriate oil
proceeds within 45 days of lifting, there had been some
progress, and the government was close to the target, but there
had been some slippage. There were also some (unspecified)
technical difficulties in the second half of 2008 regarding oil
marketing.


4. (SBU) With respect to the "forward" look, discussion with
the authorities had revolved around the outlook for oil
revenues, with concerns regarding the fluctuations in exchange
rates (largely between the euro and the US dollar) and the sharp
expected decline in revenues in 2009. That raised concerns
about how to achieve the program objectives, in light of the
need to find a balance between the desire for a tight fiscal
stance and the possible need for a stimulus should growth
decline sharply. It would be necessary for the government to
re-consider low-priority initiatives that were outside the PRSP
(Poverty Reduction and Support Paper) framework, as well as the
investment budget. For example, he said, fuel subsidies could
be reduced. Moreover the government could use more of its HIPC
resources in priority areas. With respect to the financial
crisis, York noted that the Congo economy was not
well-integrated into the world economy, particular its financial
sector, which was largely insulated from developments outside
Congo and which enjoyed strong liquidity. This, he said,
contrasted to the timber sector, which was "severely depressed"
as a result of falling demand for wood. He characterized the
outlook for the timber sector as "grim." Considering all these
factors, the growth outlook for 2009 had been reduced by half,
from the earlier-projected 8 percent to 4 percent. In response
to a question after the main presentation, York said that
Congo's average per-barrel price for oil during 2008 was $99.00,
expected to drop by over half in 2009, to around $40.00 per
barrel. He emphasized that with declining oil prices, the
horizon for high risk for debt distress would move further away
in time and thus, when oil prices were low, debt relief became
more important. He also noted that Congo's oil sector, in terms
of exports, was still growing, with 2010 expected to be the peak
production year. Due to a fire in one production facility, 2008
had been a little lower than expected, but oil growth was still
projected at 10%.


5. (SBU) Thus, he said, there might need to be a fiscal
adjustment in 2009 to meet changing circumstances. There was
the possibility that the Congo authorities would present a
request in late March/early April, but this, and the first
review, were contingent on the Congo government providing a
report to the Paris Club (which York characterized as "very
important") regarding the status of negotiations with all/all
creditors, specifically including the "litigating creditors,"
This, he said, was a condition of the Paris Club for the
December 8 rescheduling to support financing assurances of the
Club members.


6. (SBU) With respect to HIPC, York said that there are a large
number of the "triggers" established in 2006 that have been met,
mentioning particularly external debt, education, health, and
public financial management. Though not yet met, he said there
were good prospects to meet the triggers in forests,
telecommunications, and the annual report on PRSP progress.

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However, he said, progress had been "slow" in the areas of
procurement and oil sector government, in particular the
requirement for successive successful audits of the national
petroleum marketing arm (SNPC) and action with respect to the
commercialization of Congo-owned oil. He said the IMF and the
World Bank had provided an action plan, and the "ball is in the
Congo's court" on the timing of implementation (and thus
movement closer to completion point). Of course, he said,
satisfactory performance under the PRGF was also required.


7. (SBU) Responding to a question after the presentation, York
said that from the point of view of IMF staff, the only route to
stronger performance is stronger implementation of the trigger
requirements. There is, he said, no scope to reach completion
point other than full implementation of those requirements, and
IMF staff is not prepared to consider or recommend otherwise,
despite strong external and political pressures to do so.


8. (SBU) He told the Ambassador in a subsequent private
conversation that "this is not the time to go soft." Despite an
unprecedentedly difficult external situation, Congo has its own
resources to weather the difficulties, and the key point should
be to maintain discipline, not relaxing on the fiscal situation
nor on structural reforms.


9. (SBU) COMMENT: We agree. END COMMENT
EASTHAM