IMF APPROVES FIRST STAND-BY AGREEMENT FOR ANGOLA

C O N F I D E N T I A L SECTION 01 OF 02 LUANDA 000746

SIPDIS

E.O. 12958: DECL: 12/08/2024
TAGS: AO ECON EFIN PGOV
SUBJECT: IMF APPROVES FIRST STAND-BY AGREEMENT FOR ANGOLA

Classified By: Ambassador Dan Mozena, Reasons 1.4(b) and (d).


1. (C) SUMMARY. On 23 November, the IMF approved a $1.4
billion dollar financing package for Angola, the first IMF
deal to be signed with Angola since the end of the civil war
in 2002 and the largest IMF financing package to date for a
sub-Saharan African country during the current global crisis.
IMF support is being given under a 27-month Stand-By
Agreement (SBA) to support policy adjustments that aim to
restore macroeconomic balances and rebuild international
reserves. Angolan officials have tried to give the impression
that the loan is condition-free, but behind the bravado, IMF
officials expect Angola to comply with loan conditions,
including increased transparency regarding oil revenues. The
Angolans believe this SBA will boost international investor
confidence. END SUMMARY.

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IMF APPROVES FIRST LOAN TO ANGOLA
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2. (U) The IMF approved on 23 November its first financing
package with Angola since the end of the civil war. The $1.4
billion dollar deal will be delivered under a 27-month
Stand-By Agreement (SBA) to support policy adjustments that
aim to restore macroeconomic balances and rebuild
international reserves. While the immediate goal is to
mitigate repercussions of adverse terms of trade shocks, the
program will also include a reform agenda aimed at
medium-term structural issues on which long-term sector
growth will ultimately depend. The IMF also hopes the loan
will provide a foundation for non-oil sector growth over the
medium-term, though it notes that deeper structural reforms
are still needed to enhance private sector development.

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ANGOLAN AND IMF VERSIONS DIFFER
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3. (C) There is some disconnect, however, between how Angolan
authorities and IMF officials portray the loan. The IMF has
publicly commended Angolan authorities for their strong
commitment to a comprehensive reform program that will
address macroeconomic imbalances, which include restraining
discretionary public expenditures, while providing adequate
resources for social spending and vital infrastructure
projects. More specifically, the SBA has been approved on the
condition that the Angolan government makes the following
structural reforms:

-- Improve fiscal transparency by publishing quarterly
budget execution reports and ensure greater transparency and
better oversight of major state-owned enterprises, especially
state-owned oil company Sonangol;

-- Develop an institutional framework that de-links the
fiscal stance from volatile short-term oil revenues and set
up a sovereign wealth fund along the lines of the Norwegian
oil fund to cushion against future oil boom-bust cycles; and

-- Develop a tax reform strategy to move toward a
consumption-based tax system and to simplify the current tax
system to improve efficiency and reduce evasion.


4. (C) Angolan Minister of Economy Manuel Nunes Junior,
however, has portrayed the loan privately as unconditional
and a sign of international confidence. In late October,
Nunes told US officials that the package was the biggest loan
in recent years to Africa, and that it would come with "zero
conditionalities." Later in the conversation, though, he
said that the IMF had asked the government to correct the
imbalance between the official and parallel exchanges rates
(which they did),and to set up a sovereign wealth fund.
Most interesting, Nunes never mentioned anything about
improving fiscal transparency. (COMMENT: Nunes said that
President Dos Santos himself initiated the conversation with
IMF officials about a potential financing package on the
sidelines of the G8 summit in July. The process, Nunes said,
went quickly after that with almost all details worked out by
September. END COMMENT)

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BITE WORSE THAN BARK
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5. (C) Resident World Bank senior economist Ricardo Gazel
(protect) brushed aside any disconnect between IMF and
Angolan characterizations of the SBA. Gazel agreed that
Angolan officials like to give the impression they do not
need IMF assistance, but the reality is that they have been
quietly following the IMF's advice for years. As an example,
he said though Angola rejected an IMF loan in 2007, they

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never stopped engaging with them, taking seriously
cooperation with IMF missions for Article 4 consultations.
Citing another example of Angolan bite being worse than its
bark, he pointed out that Angolan officials love to criticize
EITI as a "Blair initiative," but at the same time publish
more data about their extractive industries than some
signatory countries.


6. (C) Gazel does not believe Angola accepted the loan simply
for the money, though they desperately need it. Gazel noted
that the amount of the loan, spread out over a 27 month
period, is actually not that significant given the size of
Angola's economy. Instead, he believes they signed the loan
to increase its international credibility and to build
greater confidence. Therefore, Gazel concludes Angola will
adhere to the conditions of the SBA, regardless of what some
officials may say publicly.

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IMF STILL UNDER SOME FIRE
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7. (C) The IMF has come under criticism by some international
watchdog organizations for agreeing to the loan. Global
Witness in particular has been quite vocal, urging the IMF in
October not to approve the loan without stringent conditions
given Angola's high levels of corruption. "The IMF has a
public duty not to bail out a corrupt government without
requiring much greater transparency in return," said Gavin
Hayman, Global Witness' Campaigns Director. Specifically,
Global Witness expressed concerns regarding transparency in
the oil sector, namely a lack of confidence in publicly
published government data about oil revenues, and the opaque
nature of Sonangol, which does not disclose fully its
financial transactions. Gazel dismissed Global Witnesses
arguments, saying Angola already publishes much of its
revenues and public expenditures, and that NGOs often simply
do not know how to analyze the data.

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COMMENT
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8. (C) Angola's engagement with the IMF represents a
significant shift, given its highly publicized rejection of a
proposed IMF loan in 2007 over IMF insistence on more
transparency in the oil sector, which is a key condition of
the current loan. Angola's newfound willingness to engage
with the IMF is borne in large part out of necessity given
the sharp decline in oil revenues, its impact on Angola's
reserves (which plummeted from $20 billion to $12 billion),
and the GRA's seriously over-leveraged position at the start
of the financial crisis. Whether it reflects a genuine
change of attitude towards greater transparency and adherence
to international standards or proves ephemeral once oil
revenues rebound remains to be seen.
MOZENA