CAMEROON SEEKS EMERGENCY IMF SUPPORT; DONORS

C O N F I D E N T I A L YAOUNDE 000518

SIPDIS

DEPARTMENT FOR AF/C AND EEB
USDOC FOR ITA- BURRESS

E.O. 12958: DECL: 06/08/2019
TAGS: CM ECON EFIN
SUBJECT: CAMEROON SEEKS EMERGENCY IMF SUPPORT; DONORS
FRUSTRATED WITH GOVERNANCE

REF: A. A) YAOUNDE 357

B. B) YAOUNDE 433

C. C) YAOUNDE 216

Classified By: Political/Economic Chief Scott Ticknor for reasons 1.4 (
d) and (e)


1. (C) Summary: In a June 4 meeting of donors hosted by
Ambassador, IMF Res Rep detailed Cameroon's request for about
$140 million in Exogenous Shock Facility (ESF) funds to
compensate for budget shortfalls due to low oil prices and
the global economic crisis. While IMF Res Rep was confident
the Board would approve the ESF, other Chiefs of Mission
voiced serious concerns about poor governance in forestry,
finance, and health. End summary.

An IMF ESF
--------------


2. (C) In a June 4 meeting of the "8 plus 6," an informal
group of like-minded Ambassadors and the heads of the World
Bank, IMF, UN and African Development Bank, IMF Res Rep
Malangu Kabedi-Mbuyi described IMF discussions with the
Government of Cameroon (GRC) for an Exogenous Shock Facility
(ESF). According to Kabedi, during the March/April IMF
discussions with the IMF, Prime Minister Ephraim Inoni had
expressed an interest in a "high access" ESF, which implies a
large sum of money with conditions attached. Finance
Minister Essemi Menye, who at the time rejected IMF
assistance, subsequently approached the IMF for an
alternative "rapid access" ESF, which is quicker but involves
less money with fewer conditions. In response to Menye's
request and a recently received government letter of intent,
the IMF plans in early July to take to the Board a request
for a 90 million Special Drawing Right (SDR) - roughly $140
million - ESF proposal for Cameroon. The ESF will be
designed to help cover the expected 200 billion FCFA (about
$425 million at the current exchange rate, but was )
government deficit in 2009 resulting from a drop in oil
prices, lower revenues from cotton and timber, and other
exogenous shocks to the economy.


3. (C) The Fund initially thought Cameroon's roughly 500
billion FCFA ($1 billion) in deposits in the Central Bank
were sufficient to handle these shocks without an ESF.
However, they learned during the April IMF visit that 40% of
these deposits are earmarked and not available to cover short
term revenue shortfalls. These earmarks, totaling about 220
billion FCFA (about $500 million) include roughly 45 billion
FCFA for a road fund with the European Union, 80 billion FCFA
for an agreement to safeguard repayments of commercial debt,
a small sum to cover external debt payments, 6 billion FCFA
for a forestry fund, 6 billion FCFA for an agriculture fund,
and 110 billion FCFA committed under French debt relief
agreements, according to Kabedi. In the absence of an ESF,
the GRC is nervous about depleting nearly two thirds of its
available deposits, which would leave it with little money to
handle crises next year as the country heads toward scheduled
presidential elections in 2011, Kabedi said.


4. (SBU) Note: The IMF's Chief Economist in Cameroon later
clarified to Pol/Econ Chief that, while Cameroon has about $4
billion in foreign exchange reserves (separate from
government deposits in the Central Bank),it could be costly
for the government to tap these reserves from the Central
Bank. He also noted that Cameroon is expected for the first
time to run a negative trade balance and has seen its terms
of trade worsen by 30 percent, which could put pressure on
the forex reserves. He thought the government preferred not
to touch these reserves. When asked about the impact of the
recent rebound in international oil prices, he said this
would lessen the revenue gap but he was unsure by how much
and cautioned that oil prices could fluctuate. End note.


5. (C) Kabedi thought it likely that the Board would
approve the ESF and hoped it would serve as a catalyst for
the GRC to improve the business environment and lay the
groundwork for another Poverty Reduction and Growth Facility
(PRGF),despite the Finance Minster's past resistance to the
idea. She noted that the GRC had written to other
multilateral donors for additional emergency funding and
thought the IMF would be unlikely to provide emergency aid
beyond the ESF.


6. (SBU) The UK High Commissioner hoped the GRC would use
an ESF and economic hard times to improve the business

climate and boost reforms. He was frustrated with the GRC's
budget capacity and transparency problems. The European
Union rep said the EU would not provide budget support since
Cameroon is an oil-producing country.

Governance Challenges: Forestry
--------------


7. (C) The Canadian High Commissioner detailed frustrating
discussions with the Ministry of Forests and Wildlife which
revealed major governance problems in the sector. He noted
that, despite a donor-supported program to provide oversight
to forestry concessions, five out of 17 illegal forestry
plots had restarted production and the rest had not responded
to government inquiries. No tax had been collected in the
sector since 2005 and oversight efforts "have been worth
nothing," lamented the High Commissioner. The Italian
Ambassador added that Minister of Forests and Wildlife "knows
nothing" about what goes on his corrupt ministry, while the
UK High Commissioner said the UK has frozen all funding to
the sector, calling senior ministry officials "bandits."

Governance Challenges: HIPC
--------------


8. (C) Canadian High Commissioner and German DCM explained
that their governments used to participate in a donor
oversight committee to review spending of funds generated
from debt relief under the Highly Indebted Poor Country
Initiative (HIPC) in 2006. In March, donors received a
letter from the Minister of Economy abolishing this
committee. The committee has responded with a request to
keep the oversight function; the German and UK reps agreed
HIPC funds have produced virtually nothing to date. IMF Res
Rep said that as of April the government had over 150 billion
FCFA in the HIPC account and that very little of the HIPC
money had been spent (last year no funds were disbursed),
opining that civil servants preferred not to spend the money
because the funds had too many controls. Kabedi shared that
the government believed it had every right to manage HIPC
funds without an oversight committee but she believed that
without the committee "we'll never know" how the money gets
spent.

Governance Challenges : ARV
--------------


9. (C) Ambassador noted that Cameroon is heading toward a
crisis because its funding will run out in the Fall for
thousands of people on HIV/AIDS anti-retroviral drugs (ARVs).
Cameroon hopes donors will come up with the money (estimated
at $1 million/month),either through the Global Fund or
bilaterally. As reported ref C, donors have so far been
disinclined to step in with money, arguing that the GRC has
the funds but has just mismanaged them in the past (the
previous Health Minister is currently in jail on charges of
embezzling health funds.) The Italian and Canadian High
Commissioners voiced initial concerns about bailing out the
government on ARVs, although they hoped to get more
information about the problem. They noted the challenge of
doing economic and social planning when publication of the
revised census has been stuck in the presidency for over a
year.

Comment
--------------


10. (C) Kabedi stated that the Spring IMF team was very
impressed with the knowledge and strategic planning of
sectoral ministers, but she lamented that their main problem
was a lack of clout and presidential backing. As we have
noted in ref B and C, Cameroon performs poorly in
transparency and implementation of its budget. It spends
only 75% of its annual investment budget. The World Bank, EU
and other major donors in Cameroon routinely vent frustration
at the difficulty in getting their projects moving here. The
governance concerns voiced about the forestry sector and with
HIPC funds ring true to us and mirror similar concerns we
hear about infrastructure, agriculture and other key sectors.
A "rapid access" ESF would help with a real revenue pinch
but would not force the GRC to confront fundamental
governance challenges. Rising oil prices will also likely
lessen the immediate need for budget assistance and
importance of an ESF, although it is difficult at this time
to say by how much. For now, the eight plus six donors seem
inclined to use whatever influence they have to keep pushing

for improved management of the budget and government
resources. We will keep pushing as well and hope that, if
approved, an IMF ESF can help provide new leverage for
reforms.
GARVEY