VZCZCXYZ0015
PP RUEHWEB

DE RUEHLC #0446/01 1861519
ZNY CCCCC ZZH
P 051519Z JUL 06
FM AMEMBASSY LIBREVILLE
TO RUEHC/SECSTATE WASHDC PRIORITY 9196
INFO RUEHLO/AMEMBASSY LONDON PRIORITY 0307
RUEHFR/AMEMBASSY PARIS PRIORITY 0811
RUEHYD/AMEMBASSY YAOUNDE PRIORITY 0688
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L LIBREVILLE 000446 
 
SIPDIS 
 
SIPDIS 
 
LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958: DECL: 07/05/2016 
TAGS: EFIN ECON PGOV GB
SUBJECT: IMF AND GABON TALK OF A 3-YEAR PROGRAM 
 
REF: LIBREVILLE 167 
 
Classified By: Michael Garcia, Economic Officer, for reasons 1.4(d) 
 
¶1. (SBU) Summary: After a June 19-30 visit, the IMF will 
return to Gabon in September to assess the GoG's progress in 
three areas: decreasing the non-oil budget deficit, improving 
public finances, and accelerating the improvement of the 
business climate.  If sufficient progress is made, Gabon may 
have its 3-year precautionary stand-by arrangement by the end 
of 2006.  Many observers believe the GoG will not be able to 
carry out its stated intentions during an election year, and 
an IMF program will be deferred once again.  End Summary. 
 
¶2. (U) An IMF delegation visited Gabon from June 19-30 at the 
GoG's request to re-start negotiations on a 3-year 
precautionary stand-by arrangement.  EconOff met informally 
with a member of the delegation (Anton A.F. Op de Beke, Sr. 
Economist) on June 28 and the head of the delegation (Roger 
Nord) briefed the donor community on June 30.  Both outlined 
the three objectives the GoG must meet before an agreement 
can be reached on a new program. 
 
---------------- 
Three Objectives 
---------------- 
 
¶3. (SBU) The centerpiece of the IMF's engagement with Gabon 
is the need to carry out adjustments so that Gabon can manage 
its own deficit in the expected post-oil economy (Reftel). 
(Estimates suggest that Gabon's oil production will decrease 
by half in 20 years and be depleted in 30 years.)  Gabon's 
budget for 2006 features a non-oil deficit 12.5% of GDP. 
Nord told donors that by the end of a three-year program 
Gabon's non-oil deficit should be only 5.6% of GDP.  To 
demonstrate its commitment to tackle this issue, the GoG 
should make immediate adjustments that will bring this to 
8.5% by the end of 2006.  According to Op de Beke, the GoG 
will provide the IMF data in October that will demonstrate if 
they are on the right track. 
 
¶4. (U) The second objective is improvement in the GoG's 
public finances, with a focus on transparency.  The IMF wants 
to see improvements in three particular areas.  First, the 
state should make public the bidding and awarding of public 
works.  This is particularly true with the "fetes 
tournantes," infrastructure projects awarded with no 
transparency and for which there is little if any 
accountability.  Second, the budget for the national day 
celebrations should be made public and put on the books like 
any other state expenditure.  Finally, the GoG should account 
for its fuel product subsidies in its budget and reduce (if 
not eliminate) this subsidy overtime.  These subsidies cost 
the GoG CFA 70 billion ($140 million) in 2005 and the cost is 
expected to reach CFA 100 billion ($200 million) in 2006 
(Reftel).  Nord stated that it would be up to the GoG to 
decide how best to reduce this subsidy, but suggested they 
could start by eliminating the jet kerosene subsidy that only 
benefits the airlines. 
 
¶5. (U) The final objective is accelerating improvement of the 
business climate.  According to Nord, there is no lack of 
ideas in this respect, just lack of initiative.  He hoped 
that the privatization of Air Gabon and Gabon Telecom would 
make significant progress by September.  He stated that the 
GoG's first EITI report was a good step and that the next 
report (due at the end of this year) would be more complete 
by including profit oil and revenues from the mining sector. 
 
-------------- 
The Road Ahead 
-------------- 
 
¶6. (U) In an informal meeting with EconOff, Op de Beke stated 
an optimistic scenario could provide the GoG its 3-year 
program by the end of 2006.  He said the IMF team will return 
in September for further talks and to assess the GoG's 
progress in the three areas above.  In October the IMF would 
be provided the revised 2006 budget and the 2007 budget.  If 
all looks good, Gabon's program would go to the IMF Board for 
review and could be approved in December with a retroactive 
start date of October 2006. 
 
¶7. (C) Op de Beke doubted that this optimistic scenario would 
be realized.  He said that, while the GoG has exercised 
discipline in the past, the current climate is not optimal 
for restraint.  While spending associated with the "fetes 
tournantes" have always been a problem, Op de Beke pointed to 
the legislative elections in December as a bigger concern. 
Moreover, Op de Beke pointed to the possible collapse of the 
World Bank's forest program as a major concern.  At the 
moment the GoG has a $15 million budget support loan for 
natural resource management on offer from the World Bank 
contingent on forest sector reform (collection of taxes from 
timber companies, dissolution of the state monopoly timber 
company, etc.).  To date the GoG has not made progress on 
these reforms.  According to Op de Beke, if this World Bank 
program collapsed, it would be difficult to imagine the IMF 
approving a program this year. 
 
¶8. (C) Comment: While Gabon's oil production is declining, 
the high price of oil has augmented the government's revenues 
so that it can continue to pay off its debt and overspend for 
political reasons.  Reformers in government wish to use the 
IMF to reign in spending and improve Gabon's position with 
creditors (Paris Club), while preparing Gabon for future 
declines in oil revenues.  The reform agenda is made 
difficult by the fact that there is no pressing need for the 
GoG to reach an agreement with the IMF, or to cut spending; 
in 2005, while the non-oil deficit rose to 12% of GDP, oil 
revenues meant the overall budget was in surplus by 10% of 
GDP, and the balance of payments was in surplus by 16% of 
GDP.  If, against the odds, the GoG is able to show enough 
progress over the next few months to satisfy both the World 
Bank and the IMF, it will indicate that the reformers have a 
great deal more influence than was generally believed. 
WALKLEY