IMF SAYS GOC MISSES SPENDING TARGETS ON

UNCLAS SECTION 01 OF 02 NDJAMENA 000424 SIPDIS SENSITIVE STATE FOR AF/C, S/USSES NSC FOR GAVIN LONDON FOR POL - LORD PARIS FOR POL - BAIN AND KANEDA ADDIS ABABA ALSO FOR AU E.O. 12958: N/A TAGS: PGOV ECON EFIN IMF PREL IBRD CBD EAID CD SUBJECT: IMF SAYS GOC MISSES SPENDING TARGETS ON REVENUE-MANAGEMENT PROGRAM REF: NDJAMENA 398 NDJAMENA 00000424 001.3 OF 002 -------------- SUMMARY -------------- ¶1. (SBU) In a meeting October 1, IMF ResRep Joseph Karangwa told Charge and A/DCM that the IMF,s Staff-Monitored Program (SMP) for the GOC had gone completely off track, and that Chad would not meet spending targets through the end of 2009. The IMF would likely agree to a GOC request to "extend" the SMP, he noted, with the aim of trying to encourage achievement of spending targets by mid-2010. Karangwa indicated that IMF Managing Director Dominique Strauss-Kahn had delivered a strong message to President Deby at their meeting in Washington the previous week, but Deby,s recognition of the need to get spending under control could not be taken for granted. According to Karangwa, the GOC was making budget preparations for 2010 in an acceptable manner. But the ResRep expressed concern about sizable loans that the GOC seemed to be negotiating, especially with Libya. ¶2. (SBU) The IMF's assessment at the end of its September review is very negative; Karangwa appears to have decided to give the GOC another chance under an extended SMP because his only other option would be to pull the plug entirely on advice-giving. The GOC's inability to practice responsible revenue management under the six-month SMP program calls into question its long-term ability to meet qualifications for debt relief as a Highly Indebted Poor Country. END SUMMARY. -------------- SMP IS COMPLETELY OFF TRACK -------------- ¶3. (SBU) IMF Resident Representative Karangwa,s end-September assessment of Chad,s adherence to budget strictures was considerably more critical than he indicated to us it might be when we spoke with IMF Chad chief Christian Josz and Karangwa at the beginning of the SMP review early in the month (Reftel). Karangwa based his comments on the result of the IMF mission's review of end-August spending figures, which indicate an unusual number of extra-budgetary expenses. ¶4. (SBU) Karangwa claimed that the GOC had accepted the IMF's conclusions, but that it had requested an "extension" of the SMP rather than agreeing to acknowledge failure in public. The IMF felt that it could be most helpful by claiming that the SMP was being "re-examined." Thus the IMF,s currently intent was to try to hold Chad accountable for hitting 2010 budget spending targets at two periods in the future, end-March and end-June 2010. (Note: As the SMP is a six-month program, the "extension" is, in reality, a complete redo for the GOC. End Note.) -------------- INVESTMENT SPENDING REMAINS OUT OF CONTROL -------------- ¶5. (SBU) Karangwa indicated that Managing Director Dominique Strauss-Kahn,s September 24 meeting with President Deby had been cordial, and that Strauss-Kahn,s message on the need for discipline had been very clear. But in answer to our questions on whether the IMF thought Deby truly understood that extra-budgetary spending would have to cease, Karangwa acknowledged that this was far from certain. In response to Deby's defense of extra expenditures on security grounds, Strauss-Kahn had pointed out that there had been excessive extra-budgetary spending in many non-security sectors. Karangwa said that Strauss-Kahn had emphasized to Deby that the IMF needed to see proof of the GOC's commitment to reform and that responsible revenue management was the only way for the GOC to earn debt relief as a Highly Indebted Poor Country (HIPC). ¶6. (SBU) The IMF was now waiting to see whether the GOC would prove capable of reining in spending in the coming months, said Karangwa. He reiterated that capital investment NDJAMENA 00000424 002.3 OF 002 spending was most seriously out of control, and that of all Ministers, Infrastructure Minister Adoum Younousmi -- a close associate of President Deby -- was most profligate and least concerned with respecting IFI goals. Karangwa blamed President Deby for giving Younousmi carte blanche on spending projects designed primarily to gain political support (Septel). -------------- 2010 BUDGET: PROGESS AND CONCERNS -------------- ¶7. (SBU) The ResRep was less critical of GOC planning for 2010 spending, but added that he was waiting to see how allocations would be distributed among ministries. The GOC needed to demonstrate that it could responsibly spend in line with its poverty reduction strategy would entail. ¶8. (SBU) Karangwa asked whether we had information on the reasons for which the GOC appeared to be negotiating a loan of U.S. $300 million from Libya. He also questioned the advisability of GOC intent to borrow from the Chinese a 40-percent stake in a planned Chinese-built oil refinery. Karangwa said he wondered whether the GOC was planning major military purchases from the U.S., which might explain the pursuit of the Libyan loan. He also said that the IMF had warned the GOC that any non-concessional loans could hurt Chad's ability to qualify for HIPC debt relief. -------------- COMMENT -------------- ¶9. (SBU) The IMF's assessment at the end of the September review is more much negative than Karangwa seemed to think it would be when Josz and Karangwa spoke with us at the beginning of the month. The GOC's inability to practice responsible revenue management under the six-month program calls into question its long term ability to meet qualifications for debt relief as a Highly Indebted Poor Country. Successful performance under the SMP could open the door to additional donor assistance, which the government needs, particularly as the IMF believes that revenue will remain low into 2011. END COMMENT. ¶10. (U) Minimize considered. BREMNER