IMF AGREES TO A NEW THREE YEAR PROGRAM WITH

C O N F I D E N T I A L SECTION 01 OF 02 NOUAKCHOTT 000611

SIPDIS

E.O. 12958: DECL: 09/22/2019
TAGS: ECON EFIN IMF MR
SUBJECT: IMF AGREES TO A NEW THREE YEAR PROGRAM WITH
MAURITANIA

Classified By: CDA Dennis Hankins for reasons 1.4 (B and D)


1. (C) Summary. A delegation of IMF advisors visited
Mauritania to mark the resumption of GIRM and IMF relations
following the 2008 coup d'etat. The IMF announced a Special
Drawing Right loan valued at USD 80 million for Mauritania,
as well as plans for a three-year IMF aid plan to begin in

2010. Initial economic indicators told a better than expected
story concerning the isolation of the Mauritanian economy
during the previous year, however, some of the IMF analysts
indicated after the public meeting that there are fears that
the initial statistics given to the IMF team do not represent
the true picture of the Mauritanian economy. The GIRM
insisted that assistance will be needed to meet their
expenses at the end of the fiscal year, while also claiming
optimistically that government expenditures and spending
deficits have been reduced. (End Summary.)


2. (U) A delegation of IMF advisors visited Mauritania
September 9-18th for meetings with the GIRM to discuss IMF
re-engagement in Mauritania. During the course of their
visit, they held meetings with President Aziz, public and
private sector leaders and diplomatic representatives of
large donor countries with embassies in Mauritania. At the
conclusion of their visit, the lead delegate announced the
intent of the IMF to re-establish its program with
Mauritania, which had been frozen following the 2008 coup
d'etat. As a gesture to mark their mutual re-engagement, the
IMF announced the extension of a USD 80 million Special
Drawing Right to Mauritania to assist with short-term
economic difficulties caused by the global economic crisis.


3. (SBU) According to the outbriefing of the IMF team,
Mauritania's economy has suffered more because of the
domestic political crisis than the global economic crisis. As
a small economy that is not well-integrated with the global
financial system, the Mauritanian economy has not been
irreparably damaged by the crisis. The global decrease in
commodity prices, while hurting Mauritania's export markets,
has had a greater impact on the control of inflation and the
falling price of domestic imports, particularly food imports,
on which Mauritania depends. The simultaneous drop in the
price and demand for iron ore is the largest negative impact
of the global crisis on the Mauritanian economy. The damage
in investor confidence and international aid flows during the
previous year of isolation will have the longest and largest
impact on the health of the Mauritanian economy.


4. (C) The IMF team stressed that their initial visit was
simply to re-establish a working relationship with the GIRM
in preparation for the resumption of a three-year IMF
assistance plan in 2010-2012, the details of which will be
determined in a follow-on IMF visit to take place in November

2009. While the team did not release official statistics,
they estimate that the Mauritanian economy will contract by
1.2-1.8% in 2009. The GIRM also claims to have a
surprisingly healthy USD 300 million in currency reserves.
The IMF team estimates only a 5-6% budget deficit for 2009,
somewhat smaller than the 9% budget deficit of 2008. The 5-6%
budget deficit is larger than the 3% budget deficit agreed
upon with the IMF in earlier discussions, yet smaller than
many expected given the political uncertainty during the past
year and the cessation of much international aid. The
slightly smaller deficit is only because of large cutbacks in
government spending; however, there were indications that
these figures may not tell the complete story. According to
the IMF, the GIRM claims they will need an emergency infusion
of cash in order to meet their end of year expenses and many
fear that not all government expenses from the past year have
been factored into the estimates passed to the IMF analysts.
Most expect a far more distressed economic picture to emerge
after the November visit and closer to the end of the fiscal
year in December.


5. (C) IMF Representative Mark Carre (strictly protect) told
Charge September 21 he found some questionable numbers in
what the Mauritanians had presented to the IMF. Carre
accused the GIRM of using the international food price crisis
of late 2008 to push through a number of post-coup
expenditures. In 2008 the GIRM had highlighted the need to
enter international food markets to ensure urban food
supplies. The IMF had given its blessing for these
unprogrammed expenditures but, according to Carre, had said
they should have been off set by reduced capital investment
expenditures to maintain the 3% budget deficit target.

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During the IMF visit, the GIRM said that was not what the
GIRM had understood. (Comment: In fairness, Charge had
attended a meeting in 2008 where it did seem the IMF had
given its blessing for increased deficit spending to meet the
food crisis. End Comment). Carre had found a number of
unanticipated projects in late 2008 -- including several
paving and street projects in Nouakchott -- that clearly had
nothing to do with the food crisis. Carre, who was blocked
from the financial oversight mechanisms during the year of
the coup, is doubtful the relatively positive outlook for
2009 will hold up. Although assured several times that all
2009 expenditures are listed in the oversight system, Carre
is now finding late additions being added. The balance
sheets still don't add up, according to Carre. The IMF
Representative (who will be leaving his post and return to
the World Bank September 25) agreed with Charge that
government financial transparency and the strength of the
economy had taken a hit because of expenditures meant to
support the coup. He thought most of the oversight
mechanisms could be re-established but he was doubtful there
will be a clear accounting for expenditures during the
2008-2009 coup. Carre, who told Charge he was somewhat
isolated (with the U.S.) in saying the GIRM public financing
procedures had substantially improved under the 15 months of
the Abdallahi government, was not confident the new Aziz
administration would work as hard to provide honest figures.
(Comment: Under the Abdallahi government, the Minister of
Finance told donors to essentially ignore any pre-2005
government statistics as unreliable. He questioned himself
whether the GIRM had the technical means to get reliable
numbers, but donors saw serious efforts in that direction.
End Comment)
HANKINS