VZCZCXRO9091
PP RUEHROV
DE RUEHKH #0313/01 0401121
ZNR UUUUU ZZH
P 091121Z FEB 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 1362
INFO RUCNFUR/DARFUR COLLECTIVE
RUEATRS/DEPARTMENT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KHARTOUM 000313 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR D, AF/SPG, AF/EPS, AND EB/IFD/ODA 
 
E.O. 12958: N/A 
TAGS: PREL ECON EFIN EAID SU
SUBJECT:  IMF COMMENTS ON SUDANESE ECONOMY 
 
Ref:  Khartoum 0276 
 
KHARTOUM 00000313  001.2 OF 002 
 
 
¶1. (U) Summary: Visiting International Monetary Fund (IMF) 
Deputy Director Lorenzo Perez noted that the country faces 
challenges of large arrears, decentralization, lack of 
transparency, and the creation of a dual banking system 
mandated by the CPA.  Perez said, however, that the Central 
Bank has been working constructively with the IMF.  Sudan 
has managed to control inflation and achieve rapid GDP 
growth. Perez agreed that the political challenges of 
implementing the CPA and resolving the Darfur conflict may 
impede economic growth.  End Summary. 
 
-------------------------- 
Arrears limit New Lending 
-------------------------- 
 
¶2. (U) In a February 6 meeting with the Charge and embassy 
officers, Lorenzo Perez, IMF Deputy Director for Middle East 
and Central Asia, accompanied by IMF Resident Representative 
Bruno de Schaetzen, reviewed the economic situation of Sudan 
and the Fund's activities in the country.  The visit came at 
the end of a two-week visit to Sudan as an Article IV 
consultation to review progress on the country's 2005 Staff- 
Monitored Program (SMP). Perez noted that Sudan has arrears 
of $1.5 billion with the IMF, preventing it from new lending 
and keeping it on a series of SMPs since 1997.  Over the 
past few years, the Central Bank has been successful in 
controlling inflation and promoting economic growth.  Perez 
said that Sudan is working toward a long-term program to 
clear its arrears, and grouped Sudan with Somalia and 
Liberia as debtor countries that have received special 
attention by the G-8. 
 
----------------------------- 
CPA And Oil Create Challenges 
----------------------------- 
 
¶3. (U) With the Comprehensive Peace Agreement, (CPA), the 
central bank faces several challenges.  Among these are the 
technical challenges of implementing the CPA required 
establishment of a Branch of the Central Bank in Southern 
Sudan and a dual system of banking.  (Note:  the Government 
of Southern Sudan announced the formation of such a branch 
effective February 1 - see reftel. End note.) 
 
¶4. (U) Decentralization and the growth in oil revenues are 
also causing challenges for the Central Bank.  Perez noted 
that before 2003 there were minimal transfers to the states, 
but that by 2005 large transfers were being made.  This is 
expected to continue in 2006.  These transfers raise a set 
of questions including transparency, capacity, and possible 
waste or misuse of money.  The growth in these revenue flows 
is due to the income from oil, but as Perez observed, 
because of U.S. sanctions, the oil partners of Sudan are 
"not an especially transparent group."  He expressed concern 
that there are many opportunities for oil revenues to go 
astray. 
 
-------------------------------- 
Government Generally Forthcoming 
-------------------------------- 
 
¶5. (U) In response to a question on what information the 
Sudanese provide to the IMF, Perez said that government 
authorities are generally forthcoming in providing 
information requested by the Fund; however, in the past few 
months, there has been some deterioration in the quality and 
timeliness of information provided.  He speculated that this 
might be due to the transition to the new Government of 
National Unity, which was formed in late September 2005. He 
also noted that he had found it difficult to arrange a 
meeting with the Minister of Finance and National Economy, 
and speculated that this could reflect a struggle within the 
government regarding the degree of candor to be permitted 
with international organizations. 
 
¶6. (U) Recent reports in the local press have stated that 
transfers in the range of $700 million were made from the 
central government to the Government of Southern Sudan. 
Perez confirmed that these reports are consistent with the 
information the Fund has received from the central Bank and 
other sources.  However, he added the caveat that it is 
difficult find where the money went after it was transferred 
to the South.  Systems for following the money are not well 
established. 
 
------------------------- 
Political Situation A Mess 
-------------------------- 
 
KHARTOUM 00000313  002 OF 002 
 
 
 
¶7. (U) Perez asked about the political situation of Sudan. 
The Charge enumerated challenges, including the Darfur 
conflict, frictions with neighbors, the CPA implementation, 
the near total lack of development in areas outside of 
Khartoum, and the growing disparity in income between urban 
and rural areas.  Perez responded, "What a mess," but 
conceded that Sudan at least has access to oil revenues as 
it seeks to address its problems. 
 
¶8. (U) Perez ended his meeting abruptly when a call came 
through that the Minister of Finance and National Economy 
would see him immediately.  (Note:  he was scheduled to 
depart Khartoum the same evening.) 
 
HUME