This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 000292 
 
SIPDIS 
 
TREASURY FOR LKOHLER 
 
E.O. 12958: DECL: 02/16/2016 
TAGS: EFIN ECON PGOV CG CIAT EAC ELECTIONS IMF
SUBJECT: IMF MISSION LOOKS AT DRC 2005 PERFORMANCE 
 
REF: 2005 KINSHASA 1774 
 
Classified By: Greg Groth, Econcouns, for reasons 1.4 (b) and (d) 
 
¶1. (SBU) Summary.  An IMF team was in Kinshasa January 24 to 
February 3 to review the DRC's performance in the third and 
fourth quarters of 2005.  The IMF was generally satisfied 
with macroeconomic stability during the last half of 2005. 
Their principal concern was GDRC overspending in some budget 
categories, as well as underspending in the pro-poor sectors. 
 They indicated that the GDRC had not met all of its 
structural reform targets, and that the Congolese Central 
Bank ended 2005 with dangerously low levels of foreign 
exchange reserves.  The IMF team expressed concern that the 
GDRC had operated all of January without a 2006 budget, which 
had yet to be passed by Parliament.  The IMF did not set a 
firm date for the sixth and final review, but indicated that 
a decision would probably be made in March for a review in 
late May or early June. They expressed hope that the DRC 
would submit its Poverty Reduction Strategy Paper in March so 
that implementation might begin in July or August.  End 
summary. 
 
¶2. (SBU) An IMF team from Washington led by African 
Department Division Chief Cyril Briancon began a ten-day 
mission to the DRC on January 24.  An IMF mission led by 
Briancon was last in Kinshasa in mid-October (reftel).  The 
team met with GDRC ministers and officials, as well as with 
Congolese Central Bank (BCC), World Bank (WB), and donor 
country officials.  Briancon and recently-arrived country 
representative Xavier Maret briefed the Ambassador, DCM, and 
Econcouns at a January 31 breakfast.  Briancon and Maret gave 
a public one-hour outbrief on the IMF mission to an assembled 
group of donor country, WB, and UNDP representatives on 
February 2. 
 
----------------------- 
Macroeconomic Stability 
----------------------- 
 
¶3. (SBU) The IMF team made note of macroneconomic stability 
in the DRC during the last half of 2005.  Inflation, which 
had risen to 27 percent by June, was almost zero for the 
second half of 2005 and 21 percent overall for the year.  The 
exchange rate had also been stable, with the Congolese franc 
even appreciating slightly against the dollar at year's end. 
On another positive note, the IMF said that 2005 GDP growth 
of 6.6 percent had been close to expectations and Briancon 
opined that it was possible that GDP growth had been even 
higher, based on anecdotal information from provinces where 
reliable data is not available. 
 
----------------- 
GDRC Overspending 
----------------- 
 
¶4. (SBU) Briancon said that the IMF's main concern was GDRC 
overspending in some 2005 budget categories -- salaries, 
official travel, and "institutions," which means expenses of 
the offices of the President, the four Vice Presidents, and 
the Presidents of the Senate and the National Assembly.  He 
said that this was accompanied by underspending in the 
pro-poor sectors such as health and education.  He noted that 
GDRC expenditures against the donor-supplied budgetary 
support portion of the 2005 budget were below projected 
levels, since some of the foreign-supplied funding had come 
in very late in 2005.  This underspending of foreign 
budgetary support had been covered by overspending on the 
domestically-financed side of the budget, for example on 
wages for teachers, civil servants, and the military. 
Briancon noted that completion of the ongoing civil servant 
and military censuses is urgently required in order for the 
government to pay higher agreed-upon salaries without 
exceeding the budget.  Elimination of "ghost workers" and 
duplications can only occur once the census work has been 
completed. 
 
------------------ 
Structural Reforms 
------------------ 
 
¶5. (SBU)  In addition to incomplete censuses, the IMF mission 
found that the GDRC had not accomplished other structural 
reforms expected of it in 2005.  These included the one-stop 
("guichet unique") customs service, a financial 
accountability system available for public scrutiny, and the 
restructuring of the Congolese Central Bank (BCC) network. 
Briancon said that despite IMF technical assistance and its 
attempts to help reorganize the central bank, the BCC is 
losing money and that its net value is negative due to its 
inability to generate revenue. 
 
--------------- 
The 2006 Budget 
--------------- 
 
¶6. (SBU) The IMF mission indicated that it had no problems 
with the draft 2006 budget and noted that it even contained 
elements of the long-awaited Poverty Reduction Strategy Paper 
(see para. 9).  Briancon, however, expressed "serious 
concern" that there was still no 2006 budget in place at the 
beginning of February, and that there has been little control 
over GDRC spending since January 1. He said that the GDRC was 
apparently operating at 2005 budget levels, but that these 
expenditures would be booked retroactively for the beginning 
of 2006, once the new budget was promulgated. He noted that 
even in the regular GDRC "chaine des despenses" (chain of 
expenditures,) up to half of all spending was approved 
retroactively, but that at least it was done in a more timely 
and transparent fashion.  (Note: The 2006 budget was approved 
by the Parliament on February 9 and sent to the President for 
signature the week of February 12, but as of February 16 was 
still not promulgated.  End note.) 
------------------- 
Central Bank Issues 
------------------- 
 
¶7. (SBU) The IMF's other principal concern was the low level 
of foreign exchange reserves in the BCC.  Briancon said that 
the BCC's foreign exchange reserves at the end of 2005 had 
dropped to the equivalent of less than one month of imports. 
He acknowledged that this was partly because foreign 
assistance funds for 2005 had been lower than expected and 
had not all arrived before year's end.  The bank had been 
forced to draw down its foreign exchange holdings in order to 
make some year-end purchases and payments.  Briancon said 
that this low level of reserves could make it difficult for 
the BCC to intervene if the Congolese franc began to 
depreciate and would be a "major problem" if inflation in the 
DRC began to rise again.  Briancon said that this was also 
problematic because the DRC will not receive the bulk of 2006 
foreign budgetary support funding until after the first half 
of the year. 
 
------------ 
Sixth Review 
------------ 
 
¶8. (C) Briancon said that the prospects for a sixth review of 
the DRC program are "difficult" right now, but that the 
current arrangement could in principle be extended through 
June 11, if necessary.  He said that he hoped to see more 
progress, and that the fund would make a decision in late 
February or early March on whether or not to schedule the 
sixth review for late May or early June.  Briancon 
characterized the current economic program as an informal 
"staff-monitored" approach and said that it was possible the 
IMF might need to initiate a formal six-month 
"staff-monitored program" (SMP) in March if they found little 
or no progress. He said that this might be the best way to 
assure the start of a new economic program with the new 
government, since it would give the IMF a higher level of 
control over the current economic reform program. 
 
----------- 
PRSP Delays 
----------- 
 
¶9. (SBU) Briancon and Maret said that it is essential for the 
DRC to complete its Poverty Reduction Strategy Paper (PRSP), 
have it approved by the IMF, and begin its implementation 
with the new government.  The Ministry of Plan is the lead 
GDRC ministry for this document, but it also needs input and 
acceptance by half a dozen other ministries, many of whom are 
not in cooperation mode.  Briancon predicted that the PRSP 
would be available in draft form by March and that 
implementation would need to begin in the third quarter of 
2006, so that the DRC could then reach completion point 
during the third quarter of 2007, before heavier IMF payments 
would come due. He noted that there were some elements of the 
anticipated PRSP already included in the 2006 draft budget. 
(Note: Ambassador spoke recently to Minister of Plan Thambwe, 
who told him that he was making it a priority to have the 
PRSP ready by March.  End note.) 
 
-------------------------- 
Suggestions for Improvement 
-------------------------- 
 
¶10. (SBU) Briancon said he had suggested the following 
actions to the GDRC to improve their adherence to the IMF 
program in 2006: 
-- The GDRC should create a "commitment plan" for each 2006 
budget line by end February and post it on a GDRC public 
internet site.  This month-to-month plan would provide 
ministry-by-ministry details of salaries, goods and services, 
mission travel costs, capital spending, and other 
expenditures. 
 
-- The GDRC should adhere to the proposed ten percent 
increase in the 2006 budget on expenditures in the 
socioeconomic sectors specified in the HIPC program, 
especially in the health sector.  These pro-poor sector 
expenditures should then be confirmed by audits, first of the 
financial outlays and then of the actual presence and effect 
of the items purchased. 
 
-- The BCC should increase its foreign exchange reserves. 
 
-- Each quarter the Minister of Budget should send a 
simplified copy of the current budget status to the National 
Assembly, including the plan for out-months. 
-- The GDRC must get the "one-stop" customs service up and 
running, now that the Congolese Customs Office (OFIDA) has 
been confirmed as the sole receiver of customs duties. 
 
-- The GDRC should make sure that the military receive their 
salaries, including higher benefits for families, as provided 
for in the recent EUSEC (EU mission to provide advice and 
assistance for security reform) report.  Briancon noted that 
the BCC has been issuing the full amounts but salaries are 
not being disbursed to soldiers in the field. 
 
¶11. (SBU) Comment.  Although not the sixth review mission 
that many, including the GDRC, had expected by now, the IMF 
did send a very clear message about the GDRC program.  The 
GDRC has been put on notice that, despite a return to some 
semblance of macroeconomic stability, there is still a lot 
that must be done, especially on the structural reform side. 
The fund is rightly concerned that with continued 
overspending and the low level of foreign reserves in the 
bank there could be a return to macroeconomic instability in 
the first half of 2006.  Sticking to a budget is difficult 
when there is no budget, as was the case for the entire month 
of January.  Hopefully there will be a budget in place by the 
week of February 20.  Meanwhile, the GDRC can start putting 
into place some of the measures suggested by the IMF during 
this mission, and after a successful sixth review the IMF 
could then initiate a new economic program.  This may require 
an SMP to get them through the current program.  The GDRC's 
next major hurdle, though, is to get the PRSP drafted and 
approved so that the new government can begin implementation 
immediately upon taking office and reach the HIPC completion 
point during the third quarter of 2007.  End comment. 
MEECE