Identifier
Created
Classification
Origin
09CONAKRY16
2009-01-06 14:13:00
UNCLASSIFIED
Embassy Conakry
Cable title:
GOVERNMENT LOWERS GAS PRICES; EXCHANGE RATE SOARS
how-toVZCZCXRO1067 RR RUEHMA RUEHPA DE RUEHRY #0016 0061413 ZNR UUUUU ZZH R 061413Z JAN 09 ZDS FM AMEMBASSY CONAKRY TO RUEHC/SECSTATE WASHDC 3316 INFO RUEHZK/ECOWAS COLLECTIVE RUEAIIA/CIA WASHDC RHEFDIA/DIA WASHINGTON DC RHMFISS/HQ USAFRICOM STUTTGART GE RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS CONAKRY 000016
SIPDIS
C O R R E C T E D COPY - MRN
E.O. 12958: N/A
TAGS: EPET EFIN ECON PGOV GV
SUBJECT: GOVERNMENT LOWERS GAS PRICES; EXCHANGE RATE SOARS
UNCLAS CONAKRY 000016
SIPDIS
C O R R E C T E D COPY - MRN
E.O. 12958: N/A
TAGS: EPET EFIN ECON PGOV GV
SUBJECT: GOVERNMENT LOWERS GAS PRICES; EXCHANGE RATE SOARS
1. SUMMARY. According to the acting Minister of Commerce,
the GoG will no longer subsidize fuel prices, though the
government will continue to fix these prices monthly in
concert with the two oil companies in Guinea. The Minister
blamed a one-week, 32% appreciation in the Guinean franc on
speculation and an uncertain business climate. END SUMMARY.
--------------
FUEL PRICES FALL
--------------
2. (U) The GoG announced on 3 January a 12.7% reduction in
fuel prices, from GNF 5,500 to GNF 4,800 per liter (from
$4.80 to $4.19 per gallon). Acting Minister of Commerce
Falilou Barry told Econ LES that, barring a crisis, the GoG
would no longer subsidize fuel. From this point forward,
Barry said that a committee composed of representatives from
the Ministries of Commerce, Finance, and Customs, along with
the two oil companies in Guinea, Royal Dutch Shell and Total,
would review worldwide conditions once per month and readjust
the price accordingly. He asserted that these fixed prices
would be as close to a 'market price' as possible. Barry
said that the government was actually earning revenue off a
small amount of import tax and VAT revenue on each liter
sold, even after the recent price drop.
--------------
THE FRANC RISES
--------------
3. (U) Turning to the exchange rate, Barry blamed
speculators for the franc's 32% appreciation, which went from
GNF 5,200 and GNF 3,500 per dollar between 23 December and 2
January. He stated that rumors of drastic price cuts for
fuel and rice caused many businesses to put dollar purchases
of imports on hold. Further, a source told Econ LES that the
widespread expectation that the government might peg the
Guinea franc to a more stable currency such as the dollar or
the euro prompted many people to stop hoarding dollars.
Taken together, these two beliefs significantly curbed demand
for other currencies, prompting the franc to soar.
4. (U) However, after the government squelched a rumor on
January 2 about a possible drop in gasoline prices to GNF
3,000 per liter, Barry noted that the franc fell back to
roughly 4,000 versus the dollar. As of 5 January, $1 was
worth GNF 4,259, a level roughly where it was in early 2008.
--------------
COMMENT
--------------
5. (U) The new GoG fuel price policy may represent a step in
the direction of full liberalization. However, it could also
simply be a quick fix economic measure to show the population
that the new government is responding to their demands. The
GoG is likely only able to do this because world oil prices
have plummeted. If oil prices increase again, the GoG will
be under significant political pressure to maintain what
would quickly become the old fuel subsidy program, which is
financially untenable. Despite the minister's claims that
the GoG has eliminated the subsidy program, the fact that
they are still adjusting the price on a monthly basis means
that they are still controlling the market. END COMMENT.
RASPOLIC
SIPDIS
C O R R E C T E D COPY - MRN
E.O. 12958: N/A
TAGS: EPET EFIN ECON PGOV GV
SUBJECT: GOVERNMENT LOWERS GAS PRICES; EXCHANGE RATE SOARS
1. SUMMARY. According to the acting Minister of Commerce,
the GoG will no longer subsidize fuel prices, though the
government will continue to fix these prices monthly in
concert with the two oil companies in Guinea. The Minister
blamed a one-week, 32% appreciation in the Guinean franc on
speculation and an uncertain business climate. END SUMMARY.
--------------
FUEL PRICES FALL
--------------
2. (U) The GoG announced on 3 January a 12.7% reduction in
fuel prices, from GNF 5,500 to GNF 4,800 per liter (from
$4.80 to $4.19 per gallon). Acting Minister of Commerce
Falilou Barry told Econ LES that, barring a crisis, the GoG
would no longer subsidize fuel. From this point forward,
Barry said that a committee composed of representatives from
the Ministries of Commerce, Finance, and Customs, along with
the two oil companies in Guinea, Royal Dutch Shell and Total,
would review worldwide conditions once per month and readjust
the price accordingly. He asserted that these fixed prices
would be as close to a 'market price' as possible. Barry
said that the government was actually earning revenue off a
small amount of import tax and VAT revenue on each liter
sold, even after the recent price drop.
--------------
THE FRANC RISES
--------------
3. (U) Turning to the exchange rate, Barry blamed
speculators for the franc's 32% appreciation, which went from
GNF 5,200 and GNF 3,500 per dollar between 23 December and 2
January. He stated that rumors of drastic price cuts for
fuel and rice caused many businesses to put dollar purchases
of imports on hold. Further, a source told Econ LES that the
widespread expectation that the government might peg the
Guinea franc to a more stable currency such as the dollar or
the euro prompted many people to stop hoarding dollars.
Taken together, these two beliefs significantly curbed demand
for other currencies, prompting the franc to soar.
4. (U) However, after the government squelched a rumor on
January 2 about a possible drop in gasoline prices to GNF
3,000 per liter, Barry noted that the franc fell back to
roughly 4,000 versus the dollar. As of 5 January, $1 was
worth GNF 4,259, a level roughly where it was in early 2008.
--------------
COMMENT
--------------
5. (U) The new GoG fuel price policy may represent a step in
the direction of full liberalization. However, it could also
simply be a quick fix economic measure to show the population
that the new government is responding to their demands. The
GoG is likely only able to do this because world oil prices
have plummeted. If oil prices increase again, the GoG will
be under significant political pressure to maintain what
would quickly become the old fuel subsidy program, which is
financially untenable. Despite the minister's claims that
the GoG has eliminated the subsidy program, the fact that
they are still adjusting the price on a monthly basis means
that they are still controlling the market. END COMMENT.
RASPOLIC