VZCZCXRO6581
RR RUEHDU RUEHJO RUEHMR
DE RUEHLU #0277/01 0801343
ZNR UUUUU ZZH
R 211343Z MAR 06
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC 2631
INFO RUEHFR/AMEMBASSY PARIS 0210
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 03 LUANDA 000277 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR AF/S, EB/ODF 
STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD AO
SUBJECT: ANGOLAS NEW ECONOMIC DIPLOMACY 
 
REF: A. LUANDA 00216 
     ¶B. 05 LUANDA 01591 
 
SUMMARY 
------- 
 
¶1. (SBU) Since the end of Angolas 27-year civil war 
in 2002, the GRAs strategy for international 
economic relations has evolved significantly, 
particularly with respect to multilateral 
institutions like the International Monetary Fund 
(IMF) and the Paris Club.  While the GRA formerly 
viewed the IMF as the gatekeeper to international 
financial resources as well as a donors conference 
to fund the nations reconstruction, the government 
has successfully secured numerous bilateral credit 
lines on its own.  An oil windfall has allowed the 
 the 
GRA to pursue a monetary policy initially opposed by 
the IMF and settle debts with some creditors outside 
the context of the Paris Club.  Rather than seeking 
debt treatment from the Paris Club and grants from a 
donors conference, the GRA is focused on attracting 
private investment and financing through its own 
means by paying off debts and stabilizing the 
economy.  End summary. 
 
FOCUS SHIFTS TO CREDIT LINES AND PRIVATE INVESTORS 
--------------------------------------------- ----- 
 
¶2. (U) In recent conversations with Emboffs and 
through widely disseminated public statements, the 
GRA has begun articulating a new economic policy. 
Following the end of the civil war, a major 
diplomatic and economic objective for the GRA had 
been to secure a Staff-Monitored Program (SMP) with 
the IMF, which would then have paved the way for a 
debt rescheduling with the Paris Club and an 
international donors conference to raise funds for 
Angolas reconstruction. 
 
¶3. (SBU) As repeated attempts to reach agreement 
nt 
with the IMF faltered, the GRA determined that it 
could not wait for an IMF program to begin 
normalizing financial relations with Paris Club 
members.  The GRA has since paid arrears to both the 
United States and Germany and negotiated a USD 51 
million credit line with Hermes, the German export 
finance bank.  Governments around the world, eager 
to help their companies enter the increasingly 
lucrative Angolan market, have been using their 
export finance banks to guarantee lines of credit 
for projects in Angola.  The GRA has secured 
numerous bilateral credit lines for its 
reconstruction projects; of the governments USD 7.1 
billion public investment program for 2006, about 
USD 5 billion will be funded through credit lines. 
 
¶4. (U) Now focused on gaining access to the 
bilateral export credit agencies of Paris Club 
member countries, the GRA appears to be less 
concerned with acquiring Paris Club debt 
restructuring than it is with normalizing financial 
al 
relations with the Clubs members (Ref A).  The GRA 
has also backed away from calls for a donors 
conference in favor of investors conferences, 
conceding that the appropriate time to hold a 
donors conference has passed.  Angolan authorities 
are discussing possible investors conferences with 
the governments of Portugal and Britain and with a 
Canadian business association. 
 
DOES ANGOLA NEED THE IMF? 
------------------------- 
 
¶5. (U) These developments have diminished the 
urgency of establishing an SMP with the IMF, 
previously seen as a prerequisite to a successful 
donors conference and Paris Club negotiations. 
According to a March 7 Voice of America (VOA) 
report, an Angolan official noted, If a program 
with the IMF will not resolve the issue of national 
reconstruction (i.e., assure financial support), it 
 
LUANDA 00000277  002 OF 003 
 
 
does not make any sense to pursue it.  Angolan 
authorities say that they can benefit from the IMFs 
technical advice and assistance on economic policy 
without a formal accord. 
 
accord. 
 
¶6. (U) However, in an interview published in the 
March 9 edition of the state newspaper, Angolas 
Central Bank Governor Amadeu Mauricio asserted that 
the GRA is continuing to seek a program with the 
IMF.  Cooperation between the IMF and GRA continues 
(Ref A).  On March 14, an IMF team began a two-week 
visit to Angola to conduct Article IV consultations 
on the countrys economic and financial situation. 
The Ministry of Finances Director of Studies and 
International Economic Cooperation, Manuel da Costa, 
informed us that the government has also invited the 
IMF to evaluate Angolas financial system by 
conducting a Report on The Observance of Standard 
Codes (ROSC) between May and June of this year. 
 
DEFENDING THE HARD KWANZA 
------------------------- 
 
¶7. (U) A former area of contention between the GRA 
and IMF centered on the issue of Angolas hard 
kwanza policy (Ref B).  The hard kwanza policy 
involved using the governments foreign exchange 
earnings to purchase kwanzas, the Angolan national 
ational 
currency, and taking them out of circulation to 
reduce liquidity and hold down inflation.  The IMF 
and some other economists argued that this policy 
led to a real appreciation of the kwanza, 
disadvantaging local producers by making imports 
cheaper relative to locally made goods while 
depleting Angolas foreign exchange reserves. 
 
¶8. (U) GRA authorities note, however, that the oil 
windfall has actually increased Angolas reserves 
and that their monetary policy has successfully held 
end-of-period inflation down to 18 percent in 2005 
(as opposed to 31 percent in 2004), thereby enabling 
a favorable investment climate.  In the Central Bank 
Governors interview, Mr. Mauricio conceded that the 
kwanza has appreciated, but argued that internal 
production in Angola is so low that it would not be 
significantly affected by competition with cheap 
imports.  He contended that the kwanzas 
appreciation actually benefits most Angolan 
entrepreneurs, who are still in the initial phase of 
 of 
importing prime materials and equipment.  Finally, 
he said, I realize that this [policy] is valid for 
a limited window, for a given period of time, 
suggesting that the GRA will eventually allow the 
kwanza to depreciate in real terms. 
 
COMMENT: OIL BOON UNDERPINNED POLICY CHANGE 
------------------------------------------- 
 
¶9. (SBU) Since the 2002 conclusion of the civil war, 
Angolas economic policymakers have shifted their 
focus from multilateral to bilateral partners and 
have increasingly sought private investment over 
official assistance to finance the nations 
reconstruction.  The GRA has endeavored to settle 
debts bilaterally outside the Paris Club and has 
discarded the idea of an international donors 
conference in favor of bilateral investors 
conferences and trade missions.  With the IMF no 
longer seen as the gateway to greater financial 
resources, the GRA continues to accept advice and 
technical assistance from the IMF but does not view 
an SMP as a necessity.  Finance Minister Jose Pedro 
ro 
de Morais has told us and repeated publicly that 
Angola does not need an IMF loan, but the government 
wants to improve its financial profile to attract 
more funding from private and bilateral sources. 
 
¶10. (SBU) Comment continued: GRA authorities are 
taking advantage of high oil prices and increasing 
oil production to reposition Angolas economic 
 
LUANDA 00000277  003 OF 003 
 
 
diplomacy.  The largest of Angolas bilateral credit 
lines  USD 2 billion with China and USD 580 million 
with Brazil  are backed by oil.  With oil export 
earnings roughly doubling between 2004 and 2006, 
Angolas ability to settle debts, negotiate credit 
lines, and defend its currency increased while its 
willingness to meet the international community and 
international lending organizations requirements 
for an IMF loan, significant Paris Club debt 
restructuring, and a generous donors conference 
diminished.  Although Angola is now seeking to 
jumpstart its reconstruction relying on its own 
means rather than the concessions of creditors and 
rs and 
international donors, the government also recognizes 
the need for international lenders approval and a 
better business climate to attract foreign 
investment.  End comment. 
 
Efird