Identifier
Created
Classification
Origin
09KINSHASA1135
2009-12-23 15:18:00
CONFIDENTIAL
Embassy Kinshasa
Cable title:  

THE DRC AND THE PRGF: HOW WE GOT HERE AND HOW WE

Tags:  ECON EFIN EAID PGOV PREL CG 
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RUEHBJ/AMEMBASSY BEIJING PRIORITY 0147
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RUEHFR/AMEMBASSY PARIS PRIORITY 1332
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C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001135 

SENSITIVE
SIPDIS

E.O. 12958: DECL: 12/23/2019
TAGS: ECON EFIN EAID PGOV PREL CG
SUBJECT: THE DRC AND THE PRGF: HOW WE GOT HERE AND HOW WE
GET THE DRC TO HIPC COMPLETION POINT -- PART TWO OF A SERIES

REF: A. KINSHASA 1112

B. KINSHASA 1079

Classified By: Ambassador William J. Garvelink for reasons 1.4 (b) and
(d)

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001135

SENSITIVE
SIPDIS

E.O. 12958: DECL: 12/23/2019
TAGS: ECON EFIN EAID PGOV PREL CG
SUBJECT: THE DRC AND THE PRGF: HOW WE GOT HERE AND HOW WE
GET THE DRC TO HIPC COMPLETION POINT -- PART TWO OF A SERIES

REF: A. KINSHASA 1112

B. KINSHASA 1079

Classified By: Ambassador William J. Garvelink for reasons 1.4 (b) and
(d)


1. (SBU) Background: This is the second in a two-part
series on the GDRC and the HIPC completion point. Part 1
(ref A) was a look at some of the bumps and turns along the
way since early 2006 as the GDRC inched its way toward the
IMF Board's December 11 approval of the DRC's Poverty
Reduction and Growth Facility (PRGF). In this installment,
we look at opportunities and pitfalls in light of the DRC's
accession to the PRGF and the nation's economic and political
realities. This cable also lays out what the GDRC must do in
this final stretch of the journey to the HIPC completion
point.


2. (C) Summary: PRGF reflects a key opportunity for the
government of the DRC (GDRC) to finally break its long cycle
of indebtedness, as well as to address key structural
impediments and implement sound fiscal and monetary policies.
The GDRC rightly views the approval of the new IMF program
as a significant achievement, particularly following a gap of
three years since falling out of compliance in 2006 with
their previous program and the significant political decision
taken in June/July to renegotiate the Sino-Congolese
agreement. While many of the structural measures included as
triggers in the new PRGF are well underway -- in large part
due to the program's retroactive July 2009 start date -- the
GDRC will not achieve the end goal of the HIPC completion
point without a significant, sustained and high-level
committment to control spending. Emergency spending has
been, and will continue to be, the greatest risk for the DRC
to achieve what it could not in 2006: the HIPC completion
point. With competing and vested interests from many
ministries, a weak Prime Minister, and many legitimate
pressures (including security spending and salaries),the
active engagement of President Kabila in controlling his

government's spending will be key. Donors, including the
United States, can and must play a key role in engaging and
supporting the President in this effort. End summary.

Control of spending is the linchpin for success
-------------- --


3. (C) If the road to IMF Board approval for the PRGF was
not without bumps, neither will be the DRC successfully
reaching the HIPC completion point. While the GDRC has made
important progress on many of the PRGF's triggers,
controlling expenditures remains the single greatest risk for
the DRC's meeting it's reviews under the new PRGF. As noted
by the IMF staff mission briefing to donors in November,
spending commitments by the GDRC already increased starting
in October. The GDRC does, in fact, face a number of
legitimate increased spending priorities, including for
security-related concerns. In addition, the GDRC's budget
remains woefully small compared to the country's needs: the
GDRC's draft 2010 budget submitted to Parliament in early
October totals only USD 5.3 billion, over half of which will
be financed by external sources. Much of the (already
Qbe financed by external sources. Much of the (already
limited) spending towards key social sectors, such as health
and education, is consumed by the wage bill.


4. (C) The GDRC's spending woes reflect a vicious cycle,
though one largely of its own making. A key example can be
seen in revenue collection. Increasing domestic revenue
remains a key objective of the GDRC under the new PRGF.
Currently, however, all of the GDRC's revenue collection
agencies (including Customs, OFIDA, and the three other tax
agencies, DGI, DGRAD and OCC) are on strike due to the
non-payment by the GDRC of bonuses ("primes," in French). At
the same time that the GDRC needs to enhance revenue
collection, the GDRC is being told by the IMF that their
current expenditure plan cannot support paying the "primes"
that would ensure the revenue collection agency employees
return to work.


5. (C) While the fiscal and monetary measures and structural
reforms outlined in the PRGF are critical to the DRC's
long-term macroeconomic stability, a more transparent budget

KINSHASA 00001135 002 OF 002


and expenditure process, and an improved investment climate,
the spending issue remains a political one. Given the DRC's
highly corrupt and bureaucratic government, including within
the key economic ministies agencies, the decision to control
spending must come from Kabila. Kabila's message to the
Central Bank, Finance and Budget Ministries, and key line
ministries (e.g., Defense) must be clear: "Spending must be
brought under control."

Glass half full or half empty?
--------------


6. (C) If Kabila is the key for the DRC to reach the HIPC
completion point, which post believes is the case, there are
some reasons for mild optimism. First, the GDRC, under
Kabila's instructions, took the difficult political step in
renegotiating the Sino-Congolese agreement. Second, Kabila
appears to be much more engaged on economic issues than in
the past. His recent State of the Union address (ref B)
highlighted both the importance of debt relief and the need
to improve the investment climate. Kabila feels under
pressure to show progress before the DRC's fiftieth
anniversary of independence on 30 June, 2010. An
announcement that the DRC had reached the HIPC completion
point would serve as a key economic accomplishment.


7. (C) In post's view, a fundamental step in getting Kabila
to take the tough political decisions necessary to reach the
HIPC completion point will be a high-level and
well-coordinated engagement by the donor community. As was
seen with Kabila's lack of understanding and information on
the Sino-Congolese agreement, his close advisors cannot be
relied upon to serve this role. Rather, it took the visit of
Strauss-Kahn to open the President's eyes. Once done, Kabila
was, in this case at least, willing to give the marching
orders to his staff to do what was necessary to address donor
concerns. While contacts have informed Econcouns that the
Central Bank Governor (a trusted personal contact of the
President) has informed Kabila personally of the need to
control spending, this message must be reinforced directly by
the donors.


8. (C) Comment: To recapitulate, progress thus far in
reaching the HIPC completion point has been the result of
considerable effort on the part of the international
community and the GDRC. Reaching the completion point, if it
is attained, will be a significant victory for the GDRC. But
it will likely not happen without significant effort by both
the donor community and Kabila himself. We have an
opportunity over the coming months to help President Kabila
do the right thing. If we (both donors and Kabila) fail, the
DRC faces the real risk of losing a key opportunity to
advance the country's development. End comment.

GARVELINK