Identifier
Created
Classification
Origin
10ADDISABABA395
2010-02-26 13:55:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Addis Ababa
Cable title:  

ETHIOPIA: CODEL MEEKS HEARS GOE'S WHIP-INFLATION-NOW PHILOSOPHY

Tags:  PREL EAGR AF ET ECON PGOV 
pdf how-to read a cable
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UNCLAS SECTION 01 OF 02 ADDIS ABABA 000395 

SENSITIVE
SIPDIS

H PASS TO CONGRESSMEN GREGORY MEEKS AND MELVIN WATT

E.O. 12958: N/A
TAGS: PREL PGOVECON EAGR AF ET
SUBJECT: ETHIOPIA: CODEL MEEKS HEARS GOE'S
WHIP-INFLATION-NOW PHILOSOPHY

UNCLAS SECTION 01 OF 02 ADDIS ABABA 000395

SENSITIVE
SIPDIS

H PASS TO CONGRESSMEN GREGORY MEEKS AND MELVIN WATT

E.O. 12958: N/A
TAGS: PREL PGOVECON EAGR AF ET
SUBJECT: ETHIOPIA: CODEL MEEKS HEARS GOE'S
WHIP-INFLATION-NOW PHILOSOPHY


1. (SBU) SUMMARY. Visiting Congressmen Meeks and Watt asked
Finance Minister Sufian and National Bank Governor Teklewold
to comment on the impact of the world financial crisis on
Ethiopia and on the state of relations between the ministry
and the bank. Sufian said the crisis had largely passed
institutionally isolated Ethiopia by, although exports,
remittances, and development assistance all decreased as
foreign funds dried up. The minister had high praise for
International Monetary Fund (IMF) efforts to mitigate those
secondary impacts and almost equal criticism of the World
Bank. Sufian and Teklewold agreed that both the ministry and
the bank focus on price stability with an arsenal of weapons
and consider deficit budget financing only when inflation is
firmly in hand, a shared preoccupation that he said tends to
maximize operational coordination. END SUMMARY.


2. (SBU) Congressmen Gregory Meeks and Melvin Watt joined
Charge John Yates in a February 17 meeting with Ethiopian
Minister of Finance and Economic Development Sufian Ahmed and
National Bank Governor Teklewold Atnafu in the minister's
Addis Ababa office. P/E Couns and Poloff also participated
along with Codel staffers.

Silver lining of Stifled Development: Worst Effects of
Financial Crisis Spare Ethiopia
--------------


3. (SBU) Congressman Watt told the Ethiopians that the Codel
multi-stop mission to Africa was to get a sense of the impact
of the financial crisis and to foster multilateral
relationships in Africa and between African states and the
U.S. Addressing the first point, Minister Sufian said
Ethiopian banks and interests were not highly exposed because
they were not linked to any significant degree to the world
economy and that the crisis had frankly "passed us by." He
quickly qualified that conclusion, however, by adding that he
was talking about direct impacts and that Ethiopia had felt
strong indirect effects of the foreign difficulties in three
respects: export growth had dived from a recent annual
average of 25-30 percent to zero; remittances passing through
the banking system had decreased precipitously with an
attendant reduction in foreign exchange; and bilateral
development assistance had decreased significantly,
particularly from the EU and more particularly from Ireland.



4. (SBU) Minister Sufian volunteered that the IMF's response
to Ethiopia's difficulty had been "unprecedented" as the fund
immediately provided $250 million to rehabilitate reserves,
adding that the "quality of technical advice provided by the
IMF was wonderful." He said Ethiopia continues to benefit
from the IMF's "exogenous shock" facilities under which
further funds are expected to arrive in Addis Ababa in coming
weeks. The minister also praised recent African Development
Bank efforts to foster accountability in African banks.


5. (SBU) The World Bank, however, did not fair so well in
Sufian's assessment. He said the bank "should have played a
prominent role but did not." He sees the bank as hindering
its own ability to foster development in Africa by
application of pointless rules like the one mandating that
"regional" projects eligible for World Bank funds must
involve at least three countries. He complained that
potentially worthy Ethiopia-Djibouti and Ethiopia-Kenya
development projects have never gotten off the ground as a
result, singling out hydropower projects whose fruition he
said could have seen Ethiopia taking advantage of its
comparative advantage in this area by generating electricity
at $3 per unit and selling it to a neighbor at $6-7 per unit.

Finance Ministry-Central Bank: Comrades in War Against
Inflation ...
--------------


6. (SBU) Congressman Watt asked National Bank Governor

ADDIS ABAB 00000395 002 OF 002


Teklewold about relations between the bank and Sufian's
ministry. Teklewold replied that the bank is operationally
independent with its budget approved by a board of directors
and not the government's council of ministers. He said
Ethiopian law charges the bank with spearheading
anti-inflation efforts, particularly by setting annual price
index targets, and precludes the GOE from seeking deficit
budget financing, absent a parliamentary waiver, unless those
targets are met. He candidly added, however, that the bank
is not politically independent of the GOE because the prime
minister appoints the board of directors and sets their
salaries under the Ethiopian Constitution.


7. (SBU) Governor Teklewold insisted, however, that Prime
Minister Meles Zenawi, the National Bank, and the entire GOE
are in full agreement that the poor suffer most from
inflation and that getting and keeping inflation under
control will remain their collective goal. He said
Ethiopia's inflation target for 2010 is eight percent.
Minister Sufian said the National Bank is the primary
inflation fighter "and I help." He said his ministry has
determined to this end to cut nonpriority expenditures
notwithstanding inevitable accusations that "the central bank
is starving the private sector to reach the targets."


8. (SBU) Sufian and Tekewold described the range of tools
available to them to curb inflation including a recent
currency devaluation (with another expected),quantitative
restrictions on credit to control aggregate demand, increases
in bank reserve requirements, and currency controls to limit
imports. Both said all these tools and more will be employed
this year and insisted that Ethiopia's current relative price
stability demonstrate that these aggressive interventions are
working.

...But More Extreme Measures Not Needed
--------------


9. (SBU) Congressman Meeks asked whether either official
could put to rest rumors that Africa was considering
establishment of a single central bank and asked whether
Ethiopia and selected neighbors might consider establishment
of a single currency. Sufian replied that the single bank
idea was a fixture of Libyan President Qadafi tenure as
African Union chief and said he expected the idea likely died
when Qadafi left that position earlier this month. The
minister did not believe Ethiopia and any subset of its
neighbors would develop a single currency because they lacked
a strong regional link such as the historical legacy of
francophone economies in western Africa.

MUSHINGI