VZCZCXRO3271
PP RUEHPA
DE RUEHRY #0709/01 1731252
ZNY CCCCC ZZH
P 221252Z JUN 07 ZDK
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC PRIORITY 1277
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000709 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR OFFICE OF AFRICAN NATIONS 
 
E.O. 12958: DECL: 06/22/2017 
TAGS: ECON PGOV EFIN GV
SUBJECT: CENTRAL BANK WOES; AS GUINEA'S STORY GOES 
 
 
Classified By: Economic Officer Kim Jordan. Reasons 1.4 (b) and (d). 
 
¶1.  (SBU) SUMMARY. The problems facing Guinea as a whole are 
the same problems facing its Central Bank.  Cronyism and 
corruption have been endemic at the Central Bank, as in the 
government.  Prime Minister Kouyate promised reform and to 
clean up the Bank as a key institution of Guinea's 
government.  However, the appointment of the new Central Bank 
Governor and questions about the Governor's independence cast 
doubts about the promised reforms.  With recent price 
increases, many believe that inflationary pressures will 
continue unless the Prime Minister is able to demonstrate 
more stringent controls on key government institutions.  END 
SUMMARY. 
 
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THE PROMISES ARE FAR FROM REALITY 
--------------------------------- 
 
¶2.  (SBU) After being appointed, Prime Minister Lansana 
Kouyate promised to clean up the government, including the 
Central Bank.  The IMF also specified reforms at the Central 
Bank as a requirement for a funded program.  Kouyate promised 
to accomplish several goals:  to bring in new leadership, 
untainted by past corruption; to stop allowing the Central 
Bank to be used as President Lansana Conte's personal 
checking account; and, in order to control inflation, stop 
the practice of "loans" to the Guinean Treasury to finance 
the budget. 
 
¶3.  (C) While President Conte initially agreed to give 
Kouyate the power to clean house at the Central Bank, Conte's 
people remain on the inside to service the Head of State's 
needs.  On May 18, Conte named Daouda Bangoura as the new 
Bank Governor.  Many believe the appointment was just 
replacing one Conte loyalist with another, confirming the 
widespread sentiment that nothing has really changed. 
 
¶4.  (C) Cronyism and corruption at the Bank not only result 
in opaque banking operations, but impact the public through 
increased inflationary pressures.  Recent price increases 
significantly effect the population.  Over the last few 
weeks, there has been a tripling of the cost of a liter of 
water in the interior and a 65% increase in the cost of 
sugar.  Furthermore, while the official exchange rate is 
currently set at 3270 GNF to the dollar, the informal rate 
has climbed back to 4000 GNF to the dollar (last month, the 
parallel rate was the same or lower than the official rate). 
Fatoumata Drame, President of the Money Exchangers 
Association told Econoff that she is pessimistic about 
Kouyate's chances.  Drame told us that the exchange rate, and 
therefore inflation, will go higher unless Kouyate fulfills 
his promises to clean house at the Bank. 
 
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BANK APPOINTMENT AN "INSULT AND A VIOLATION" 
-------------------------------------------- 
 
¶5.  (SBU) The January 28 tripartite agreement ending the 
general strike provided for Kouyate to nominate civilian 
employees and heads of the government agencies, such as the 
Governor of the Central Bank.  However it was President Conte 
who appointed then Vice Governor Daouda Bangoura as the new 
Governor of the Central Bank.  Conte's action caused a storm 
in the independent Guinean press and outrage from the labor 
unions.  The labor unions called the appointment "an insult 
and a violation of the agreements." 
 
¶6.  (C) Governor Bangoura stated that the economic 
development of Guinea was his top priority and that 
restoration of the authority and independence of the Central 
Bank was the first step.  He said the right things and, 
towards that end, he has reportedly instituted limits on the 
amounts the Central Bank can loan to the Guinean Treasury to 
fund government expenditures.  The problem is that Governor 
Bangoura is seen as part of the old guard.  His detractors 
allege that he is close to Conte, part of the old system and, 
thus, part of the problem.  They further allege that as Vice 
Governor, he allowed Conte to use the bank as his personal 
piggy bank, instead of upholding the independence of the 
institution.  With a history of serving Conte, many believe 
Bangoura will be ineffective in limiting the Head of State's 
access to Bank coffers. 
 
¶7.  (C) Bangoura's supporters believe the real problem at the 
Central Bank was former Governor Daffe.  The current General 
Director of Credit at the Central Bank, Tidiane Sylla, told 
Econoff "the reason for the previous problems at the Bank was 
that the Governor and the Vice Governor did not work well 
together," implying that there was a personal animosity 
 
CONAKRY 00000709  002 OF 002 
 
 
between the two.  Bangoura's supporters go on to say that 
Daffe was ill and weak and thus easy to manipulate.  They 
claim that Bangoura actually tried to prevent illicit 
activities at the Central Bank, but was limited by Daffe. 
They also allege that Bangoura cannot be close to Conte since 
it was he who led the legal attack on Mamadou Sylla and 
Futurelec over overdrafts at the Central Bank. 
 
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COMMENT 
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¶8.  (C)  The situation at the Central Bank is a reflection of 
Guinea's current political landscape and inter-group 
struggles.  Kouyate promised reform and to fight corruption, 
beginning at the Central Bank.  It remains to be seen if the 
new directives are actually being followed and whether the 
Central Bank can control and document its transactions.  The 
appointment of the Bank's Governor was supposed to have been 
a strong signal that Kouyate was in a position to effectuate 
his reform agenda.  While the jury may still out on Bangoura, 
the appointments cast doubt on the Prime Minister's ability 
to implement real reforms.  At the Central Bank, Conte still 
has "his people" in positions that count.  Conte recently 
stated in a press interview, "I am Guinea" -- Guinea's 
institutions continue to behave as if this is the reality. 
MCDONALD