IMF SAYS GOC MISSES SPENDING TARGETS ON

UNCLAS SECTION 01 OF 02 NDJAMENA 000424

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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

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SUMMARY
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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.

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SMP IS COMPLETELY OFF TRACK
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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.)

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INVESTMENT SPENDING REMAINS OUT OF CONTROL
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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

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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).

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2010 BUDGET: PROGESS AND CONCERNS
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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.

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COMMENT
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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