VICE CHAIRMAN OF THE BANK OF SOUTH SUDAN AIRS HIS

C O N F I D E N T I A L SECTION 01 OF 02 KHARTOUM 000834 SIPDIS DEPT FOR SE GRATION, S/USSES, AF A/S CARSON, AF/E, EEB/IFD NSC FOR MGAVIN DEPT PLS PASS USAID FOR AFR/SUDAN DEPT PLS PASS TREASURY FOR OIA, USED IMF AND USED WORLD BANK ADDIS ABABA ALSO FOR USAU E.O. 12958: DECL: 07/09/2019 TAGS: EFIN ECON EAID PGOV PREL KPKO UNSC AU SU SUBJECT: VICE CHAIRMAN OF THE BANK OF SOUTH SUDAN AIRS HIS DIFFERENCES WITH COLLEAGUES FROM THE NORTH REF: A. 09 KHARTOUM 806 ¶B. 08 KHARTOUM 1566 ¶C. KHARTOUM 727 Classified By: CDA Robert E. Whitehead, for reasons 1.4 (b) and (d) ¶1. (C) Summary: In a July 9 meeting with CDA Whitehead, the Assistant Governor of the Central Bank of Sudan, Mr. Kornelio Koriom Mayik, who also serves as head of the Bank of Southern Sudan (BOSS),described his contentions with northern officials over fiscal policy, especially with regard to forex reserves and the Central Bank of Sudan's (CBOS) insistence that the GoSS expend its forex reserves to purchase Sudanese pounds to cover recurrent GoSS expenses. Mayik's comments on the role of the Central Bank vis a vis the BOSS and the Comprehensive Peace Agreement (CPA) wealth sharing arrangements revealed differences in interpretation with the North (ref) which will be difficult to reconcile. End Summary. ¶2. (C) Mayik opened the meeting by presenting his interpretation of the Comprehensive Peace Agreement (CPA) provision that provides for two banking systems in Sudan, conventional and Islamic, to co-exist and work together, with Islamic banks licensed in the North and both in the South. Management of this dual system is based in the Central Bank, and Mayik expressed frustration that he is the only real representative of the conventional system in Central Bank headquarters. He said that he lacks adequate expert staff and called for a change in the bank's organizational structure that would make the conventional side of banking co-equal with the Islamic side. So far, he said, Central Governor Sabir Hassan has rebuffed this request. ¶3. (C) Mayik voiced objections to what he perceives as the unfair CBOS practice that requires the BOSS to purchase local currency (pounds) from the BOSS using GoSS forex, which the Government of Sudan subtracts from the South,s monthly portion of oil revenues, which are denominated in forex. Mayik said that the South remains part of a unitary Sudan; therefore, it should not be required to buy local currency from its own forex reserves but should instead be able to request pounds directly from the BOSS. In response to CDA's question about what amount of local currency the South should be permitted to draw from the CBOS on a monthly basis, Mayik remarked that the Southern Minister of Finance would tell him how many pounds were needed for recurrent expenses and he would transfer the requested amount to the GoSS. His explanation did not address how or when the BOSS or the GoSS would reimburse the CBOS or GOS for these credits. ¶4. (C) The Assistant Governor said that no planning for a post referendum banking world is taking place for either a unified Sudan, or a divided one. He remarked that it is too early for such planning, and consequently there have been no discussions on how the potential separation of the North and South would impact apportionment of national debt, reserves, or joint assets belonging to the Government of National Unity (GNU). He observed that most real estate would likely stay where it was when separation came, which he thought would be the inevitable outcome of the referendum in 2011. He concluded that such a separation would not persist forever, since the two parties were linked by the Nile River and a long history. Within fifty years there would be some form of unity again, but for now separation looks likely. ¶5. (C) Comment: While Mayik made some good points, there were obvious lacunae in his analysis. He admitted that presently there are only a handful of conventional banks operating profitably in South Sudan, and that the non-petroleum GDP generated by the South is a fraction of that of the North. In light of this, the insistence on splitting equally the regulatory resources of CBOS headquarters between the two banking systems would seem out of balance, although Mayik could reasonably expect a more robust staff. His "eat my cake and have it too" assertion that the CBOS should provide the BOSS sufficient local currency to cover GoSS recurrent expenses came without reference to the GoSS budget or receipts, of which 93 percent derive from petroleum. The GOS could profitably provide more resources to the development of the South as a way to make unity attractive, but providing large sums of local currency to the GoSS on demand would invite unbridled spending and more of the fiscal irresponsibility that has plagued the GoSS KHARTOUM 00000834 002 OF 002 from the start. Whatever the merits of the arguments presented by the two sides, the gap between their wealth-sharing perceptions remains wide and will not be easily bridged. WHITEHEAD