MOF Zakhilwal Letter to IMF Over the Fund's Decision to

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E.O. 12958 N/A
TAGS: EFIN ECON EAID PREL PGOV AF
SUBJECT: MOF Zakhilwal Letter to IMF Over the Fund's Decision to
Cancel Delegation's Visit


1. (SBU) Summary: Following the International Monetary Fund's (IMF)
surprise decision to cancel its September visit to Afghanistan to
conduct the 6th review of its Poverty Reduction and Growth Facility
(PRGF) and proceed instead via video teleconference, Afghanistan's
Minister of Finance Dr. Omar Zakhilwal sent a protest letter to Mr.
Murilo Portugal, Deputy Managing Director of the IMF dated September
12, 2009. We agree the IMF's decision is ill advised and sends an
unhelpful message, particularly given that the U.S. is the IMF's
largest stakeholder and wants to encourage Afghanistan's continued
progress under the PRGF. Embassy believes it is important
Washington agencies register serious concern over this development
with the Fund with the aim of reviewing the IMF's decision. End
Summary.


2. (SBU) Afghanistan's Finance Minister Omar Zakhilwal wrote IMF
Deputy Managing Director Murilo Portugal expressing his deep
disappointment over the IMF's decision to cancel the September
review of the Poverty Reduction and Growth Facility (PRGF) that was
supposed to take place in September and conduct the review instead
by video conference. Zakhilwal copied Ambassador Eikenberry and
Ambassador Holbrooke on the letter as well as British Ambassador
Sedwill and a number of senior IMF and World Bank officials.


3. (U) Text of the letter is as follows:

Dear Mr. Portugal:

We understand that the joint PRGF/HIPC mission to Kabul in early
September has been cancelled and instead, some discussions between
the IMF and the Government of Afghanistan will be held through
videoconferences over the next few days.

Firstly, I would like to express our deep appreciation to the IMF
for all the support it has given to Afghanistan. As we all
recognize, Afghanistan's Poverty Reduction and Growth Facility
(PRGF) program is a crucial driver for economic reform in
Afghanistan -- indeed, its launch in 2006 stemmed from the strong
commitment of the key IMF shareholders to support fiscal and
macroeconomic stability in Afghanistan. Similarly, meeting the
Heavily Indebted Poor Countries (HIPC) reform program, also launched
in 2006, is a key step not only towards clearing the Government's
total debt obligations of USD 11.2b, but it will also demonstrate
the Government's dedication to implement important social and
economic reforms. Like the PRGF, HIPC is strongly supported by key
IMF shareholders.

IMF missions to and in Afghanistan serve a range of very important
purposes: we undertake dialogue on needed reforms, they offer
valuable advice, help build our capacity, effectively monitor the
PRGF, and helpfully apply pressure for timely implementation of our
commitments. We greatly value this role. As such, these missions
concern not only the Ministry of Finance and the Central Bank, but a
range of key counterparts such as other Government ministries and
agencies (e.g., DABMS/DABS, FLGE, the Civil Service Commission, and
CAO),and donors. I would note that conducting missions in a third
country or via videoconferences does not approximate the role of a
mission in Kabul.

The September mission was particularly important. Given the PRGF is
scheduled to end in March 2010, it is necessary to bring both the
PRGF 6th review and HIPC to closure as soon as possible. Despite a
challenging period over the elections, I and my cabinet colleagues
have worked very hard to ensure this. We were also keen to discuss
future reform benchmarks during this mission for the final, 7th PRGF
review, to ensure its timely success.

Hence, the cancellation of this mission is an enormous
disappointment to the Government of Afghanistan, and as we
understand, also for key donors. Unfortunately, the effectiveness
of the mission is greatly reduced by not holding it here in Kabul
with all key stakeholders present. It is also a concern if the
final decisions might need to be postponed until late October. To
our great alarm, we have not been informed of any plans to review
HIPC. Hence, we would like to receive your firm assurance that the
necessary discussions on the 6th PRGF review and HIPC will be
concluded as planned, including decisions reached by the end of

2009. In the future, we would also be grateful if key decisions on
missions that affect both parties be made through close consultation
between the Government and the IMF.

I have requested a meeting with you during the IMF and World Bank
Annual Meetings in early October. I propose that we use this
opportunity to discuss the role of the IMF in Afghanistan going
forward. Economic reforms need to continue. Given the important

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role the PRGF plays in Afghanistan and the forthcoming discussions
on a possible new IMF program, I hope that the IMF continues its
strong commitment to Afghanistan and its development, through
practical and active involvement with the new Government in its
fiscal and monetary reforms.

Many thanks for your consideration for these concerns, and your
continued support to Afghanistan.

Sincerely,
(Signed)
H.E. Dr. Omar Zakhilwal
Minister of Finance
Ministry of Finance
Islamic Republic of Afghanistan


4. (SBU) Action Request: The decision is the second time this year
that the IMF has cancelled an on-site review, resulting in increased
confusion and disappointment among key Afghan reform leaders.
Embassy understands the on-site review was cancelled, in part, due
to concerns regarding the security situation in Kabul. However, we
note the World Bank is continuing its work in Kabul without delay.
Like the Minister, Embassy does not think a review via
teleconference is sufficient for reviewing Afghanistan and engaging
donors on-the-ground. Embassy requests Washington register serious
concern through the U.S. IMF Executive Director's Office and through
the office of the Special Representative to Afghanistan and Pakistan
with the aim of reviewing the IMF's decisions not to travel to
Kabul.

EIKENBERRY