WORLD BANK/IMF TO CONDUCT "DAMAGE ASSESSMENT" VISIT

C O N F I D E N T I A L SECTION 01 OF 03 CONAKRY 000170 SIPDIS E.O. 12958: DECL: 03/19/2019 TAGS: ECON EFIN EAID PGOV PREL ASEC GV SUBJECT: WORLD BANK/IMF TO CONDUCT "DAMAGE ASSESSMENT" VISIT REF: CONAKRY 0167 Classified By: A/DCM SHANNON CAZEAU FOR REASON 1.4 B AND D ¶1. (C) SUMMARY. The World Bank's Resrep in Guinea is preparing for what he calls a "damage assessment" WB/IMF team visit, which is scheduled to arrive this weekend. Even if the World Bank program remains active, the Bank's plan is to stall any additional funding until elections take place. The Resrep was highly critical of CNDD President Moussa Dadis Camara's fiscal policy decisions, which he believed will permanently drive the country's economy into the ground. Although the GoG continues to make its debt service payments to the Bank, the Resrep said it is only a matter of time before the whole system falls apart. END SUMMARY. -------------- "DAMAGE ASSESSMENT" TEAM -------------- ¶2. (C) On March 17, Pol/Econ Chief met with World Bank Resrep Siaka Bakayoko to discuss economic developments. Siaka was preparing for an incoming World Bank/IMF delegation, due in this weekend, which will be the first such visit since the December 23 coup d'etat. Although the Prime Minister is apparently eager to welcome the team, Siaka said that the GoG has been dodging his requests for meetings with Finance and other key ministries this week. "If they don't meet with me by Thursday, I'm just going to bring the team in and go from there," Siaka said. ¶3. (C) Siaka emphasized that he has purposely been trying to keep a low profile about the visit. "This is a damage assessment team...we won't be making any promises." He added that he has been holding on to a letter from the PM inquiring about opportunities to advance the IMF/World Bank program. "I want to wait until after the visit is completed before I respond...I don't want them to get the impression that the PM's letter prompted the visit," Siaka said. When asked what he meant by "damage assessment," he clarified that the team wants to analyze how much damage the government has done to the country's finances since the coup. Siaka noted that the Bank hopes to address two key questions: how much money has been spent and how much revenue has been collected since January. In particular, Siaka is keen to know what the government is doing with the funds it reportedly has been recuperating from the country's "economic predators," as part of its national audit campaign. -------------- WORLD BANK PLANS TO STALL -------------- ¶4. (C) With respect to World Bank's strategy in the coming months, Siaka said that the Bank has no intention of doing anything with the GoG until, at a minimum, the CNDD sets an election date that is then reinforced by a presidential decree. Even if that occurs, Siaka said that the Bank's strategy will be to keep the program active, but procrastinate until elections are actually held. "This is not the mission the GoG is expecting...they think we are going to talk about how to restart HIPC...that is nowhere on our horizon." -------------- THE DADIS SYSTEM -------------- ¶5. (C) Siaka was deeply concerned about how the government has been operating fiscally since the coup. Commenting on CNDD President Moussa Dadis Camara's various moves to consolidate presidential control over the country's finances, Siaka said that the decisions represent a series of mistakes that will ultimately only serve to fuel more corruption. As an example, he discussed how Dadis had authorized the Minister for State Economic Control (which had existed previously under similar names) to essentially bypass the Minister of Finance on budgetary issues. Siaka explained that prior to this decision, Economic Control could formulate a budget or propose expenditures that would then be evaluated and approved by Finance, which was also responsible for monitoring that the funds were expended as planned. "By bypassing Finance, Economic Control is the only one that will see what is happening...they can approve any garbage they want and then audit that same garbage once it is spent...no one else will see it," Siaka said. ¶6. (C) According to Siaka, Dadis plans to set up a parallel budgetary system by establishing separate government accounts that would be directly managed by the CNDD at Camp Alpha CONAKRY 00000170 002 OF 003 Yaya. Money in these accounts would never pass through the Treasury or the Ministry of Finance. Siaka said that Dadis plans to funnel the recuperated funds from the audit commission into these accounts, which means that no one will really know how much money is collected, or what is done with it afterwards. Siaka commented that the Prime Minister is so completely ineffective that he had actually called Siaka to ask him to personally go see Dadis in order to argue against the parallel budget plan. "The Prime Minister was afraid to even bring it up with Dadis," Siaka said. ¶7. (C) A third problematic budget issue for Siaka is Dadis' recent announcement that members of the audit commission are entitled to keep 10% of the funds they successfully recover. "Can you imagine how much money we're talking about? Billions of dollars have disappeared...so now these guys are going to pocket millions? You might as well tell the Minister of Finance that he can keep 10% of whatever state revenues he collects," Siaka said. He added that instead of providing a disincentive for corruption, the 10% commission actually encourages corruption since auditors will likely be bribed to turn a blind eye on certain cases, i.e., by negotiating a much smaller direct payment to a personal account, which would be higher than the anticipated commission, but smaller than what should be paid to the government. Siaka also commented that it is highly unusual that the audit commission is conducting the actual audits since an audit commission's role is usually to review rather than investigate. ¶8. (C) Siaka was convinced that the CNDD is moving in a dangerous direction. "If things continue to go this way, this country will never recover," he said. He added that although Dadis may be publicly declaring how he is above corruption, the fact is that he setting up a system that not only facilitates corruption, but legalizes it. -------------- IN ARREARS, BUT MAKING THE PAYMENTS -------------- ¶9. (C) When asked about the status of the GoG's debt payments to the World Bank, Siaka said that the GoG made the February payment, but is in arrears for the payments due March 1 and March 16, which total more than $3.2 million. -------------- GUINEAN ECONOMY TO "HIT THE WALL" -------------- ¶10. (C) Pol/Econ Chief asked Siaka about the recent economic slow-down in Guinea (reftel). Siaka agreed that the Guinean economy is in serious trouble. He anticipated that the GoG would "hit the wall" by June. Noting that the GoG is currently operating without a budget since the entire thing has to be redone to account for the loss of the anticipated HIPC debt relief, Siaka said that the GoG is quickly approaching a point where government revenues will not be able to support Guinea's debt service payments. He attributed the decline in revenues to reduced imports and a significant slow down in mining operations. ¶11. (C) Furthermore, Siaka emphasized that the GoG is little more than a house of cards. "Their whole financial management system is a mirage," he said. Siaka explained that although the GoG has been able to marginally keep up with its external debt, it has failed to pay its internal debt. "They are not paying salaries nor ministerial operating expenses...how long can they keep that up before the civil servants hit the streets?," he asked. (COMMENT. Embassy has heard that salaries are being paid, but that they are often delayed by several weeks. END COMMENT). Siaka added that the GoG's strategy has been to try and extract future revenues from major companies such as Intercel (telecom) and the Ashanti Gold Mining Company, effectively borrowing against future revenues, although this has been reportedly unsuccessful. -------------- COMMENT -------------- ¶12. (C) Siaka was visibly wound up over the state of affairs in Guinea. The day before meeting with Pol/Econ Chief, he had told the Charge that he was thinking about pursuing a World Bank opening in Mali because the prospect of dealing with Guinea for another two years was completely unappealing. He told Pol/Econ Chief that he is tired of dealing with "these guys," and that he felt like they were constantly lying to his face. He was particularly disappointed with the CONAKRY 00000170 003 OF 003 PM, who he sees as a fellow economist with significant experience, but who has consistently defended weak policies with unsound economic arguments. "They are taking me a for a fool and I'm tired of it," Siaka said. ¶13. (C) Siaka's overall assessment is consistent with what the Embassy is picking up. The economy is in serious trouble, the government is going to have a hard time paying its bills, and Dadis' fiscal control policies seem to be making everything worse. END COMMENT. RASPOLIC