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RR RUEHMR RUEHRN
DE RUEHKI #1396/01 2491128
ZNY CCCCC ZZH
R 061128Z SEP 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4729
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001396 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO OPIC (JEDWARDS) 
 
E.O. 12958: DECL: 09/06/2016 
TAGS: EFIN EAID ECOR PGOV CG
SUBJECT: IMF AND WORLD BANK PROGRAMS IN HOLDING PATTERN 
 
REF: A. KINSHASA 968 
 
     ¶B. KINSHASA 216 
 
Classified By: EconOff W.Brafman for reasons 1.4 b/d. 
 
¶1. (SBU) Summary. Representatives of the IMF and World Bank 
(WB) say their institutions' programs in the DRC are 
essentially in a holding pattern.  IMF Resident 
Representative Xavier Maret said the fund's current focus is 
on helping the DRC maintain macroeconomic stability, while WB 
Resident Representative Jean-Michel Happi said the WB is 
concentrating on more closely monitoring programs and 
projects already launched.  End summary. 
 
IMF - TRYING TO KEEP DRC'S ECONOMIC STATUS QUO 
--------------------------------------------- - 
 
¶2. (SBU) The visiting DRC Desk Officer and EconOffs met with 
the IMF and World Bank resident representatives in Kinshasa 
August 10. IMF resident representative Xavier Maret discussed 
the Staff-Monitored Program, the GDRC's 2006 budget and 
monetary policy, and the impact of these policies and current 
events on exchange and inflation rates. Maret said that the 
SMP, which became effective April 1 (reftel A), focuses on 
maintaining economic stability rather than implementing 
structural reforms or other new measures. He said it will 
give the GDRC a chance to "clean the slate," that is, to 
complete conditionalities left unmet during the Poverty 
Reduction and Growth Facility Program that was suspended 
March 31.   Specific goals include helping the GDRC to keep 
spending within budgetary limits and to avoid recourse to 
domestic bank funding of expenditures.  No Fund disbursements 
will occur during the SMP, which will continue until at least 
the end of 2006.  Some progress has already occurred; the 
GDRC presented its final Poverty Reduction Strategy Paper 
(PRSP) to the IMF and WB in July. 
 
BUDGET 
------ 
 
¶3. (SBU) Maret said the GDRC kept within its budget in May 
and June, following spending overruns in March and April.  He 
expects that heavy election spending will lead to July and 
August budget overruns.  He also noted that the GDRC has not 
yet given the IMF an itemized explanation of overspent budget 
lines, such as military expenditures.  To curb both the 
overspending and its parallel problem, corruption, Maret said 
the GDRC needs to develop administrative reform legislation, 
such as adopting a transparent military procurement process. 
 
MONETARY POLICY, EXCHANGE AND INFLATION RATES 
--------------------------------------------- 
 
¶4. (SBU) Maret was optimistic about the GDRC's inflation rate 
for 2006. According to the IMF's calculation, inflation is 
currently at 6.9 percent cumulative for the year, and at 8 
percent annualized, below the IMF's June 2006 projection of 
9.5 percent. These figures currently only reflect Kinshasa 
prices, but the IMF is trying to obtain price index figures 
from other provinces. However, Maret expressed some 
frustration that the Congolese Central Bank (BCC) has not 
made a decision about adopting a more restrictive monetary 
policy to keep inflation in check, noting that in the past 
few months the monetary base has increased. The BCC has a low 
level of less than three weeks of foreign exchange reserves, 
but Maret said that this amount has held steady since the 
IMF's last disbursement at the end of 2005. 
 
¶5. (SBU) Maret also said that the Congolese franc's (CF) 
recent devaluation is likely due in part to the high demand 
for dollars surrounding heavy spending in the election period 
(comment: a view that Post shares).  Over the past weeks, the 
CF has gone from less than 440/USD to about 470/USD. (Note: 
Despite this demand, local banks have been able to meet their 
USD needs, which are currently about USD 5 million per day on 
the local foreign exchange market rather than through the 
BCC. End note.) 
 
WORLD BANK - NO NEW FUNDING 
--------------------------- 
 
¶6. (SBU) World Bank (WB) Resident Representative Jean-Michel 
Happi discussed the current status of WB projects and funding 
 
KINSHASA 00001396  002 OF 003 
 
 
in the DRC, obstacles to sectoral reform, post-election 
plans, and a recent internal investigation.  He said that 
from his perspective (comment: contrary to other WB 
information) the WB did not decide to suspend funding during 
the transition and election period but rather intentionally 
committed all available funds by early 2006 to avoid giving 
the GDRC the opportunity to engage in ill-considered spending 
around the election period.  He said the WB has increased 
financial controls on ongoing projects as another check on 
spending. 
 
SECTORAL REFORM SLOW 
-------------------- 
 
¶7. (SBU) Happi explained that sectoral reforms have moved 
slowly for legislative, political and internal reasons.  One 
cause for delay, he said, is that Parliament did not pass 
draft legislation to implement good governance measures.  He 
noted that, while the WB has been emphasizing good 
governance, the GDRC has resisted extensive involvement of 
the international community in this issue.  Happi also said 
that he expects that vested interests in specific sectors 
will try to block reform, although he did not provide 
specific examples. 
 
¶8. (SBU) A pending internal WB investigation has also slowed 
sectoral reform, Happi said.  For example, the WB postponed 
support for the GDRC's program to reduce or eliminate school 
fees, a project that Happi described as "ambitious" because 
of the investigation of BCECO, the GDRC's main implementer of 
WB-funded projects.  WB internal affairs investigators were 
in Kinshasa in March 2006 conducting the investigation. Happi 
said he expects the results of the investigation soon, but is 
not yet party to the exact subjects investigated or the 
findings.  (Note: Within the diplomatic community in the DRC, 
the BCECO is widely considered to be mismanaged and corrupt. 
End note.) 
 
¶9. (C) Happi responded rather vaguely in response to EmbOffs' 
inquiry about the WB's plans to provide additional support 
for the DRC's Disarmament, Demobilization, and Re-integration 
program (DDR). Although nearly USD 50 million remains 
available for the program, these funds are not currently 
being disbursed. As a partial explanation for the delay, 
Happi claimed the WB is more concerned about evaluating 
whether DDR, particularly reintegration, has been effective 
in light of the limited capacity of some areas to support new 
economic activities that the program helped many demobilized 
soldiers launch. (Note: At a separate, later meeting, Happi 
admitted to USAID that overspending has occurred in the 
disarmament and demobilization portions of DDR and that 
substantial fraud and funding misuse is occurring, such as in 
the field of air transport contracting. End note.) 
 
MINING AND TELECOMMUNICATIONS SECTORS 
------------------------------------- 
 
¶10. (SBU) Reform in extractive industries and 
telecommunications sectors has stalled, primarily because 
these are lucrative fields over which Congolese officials are 
loathe to cede control.  The telecommunications sector has 
received over half of total foreign direct investment in the 
DRC during the last four years, according to Maret, and 
accordingly generates substantial regulatory fees and other 
income for the GDRC. Hence, the GDRC and the 
telecommunications parastatal, OCPT, resist reform that would 
ultimately reduce their revenue.  Nevertheless, Happi and 
Maret both seemed to think that, despite the challenges (such 
as the expense of paying for employees' severance packages), 
OCPT should be disbanded.  Maret noted that OCPT provides 
little actual service, in a country where  landlines 
essentially no longer exist. The regulatory fees that the 
major companies pay only serve to subsidize OCPT. 
 
¶11. (SBU)  Some reform has already occurred in the mining 
sector, but it has been slow.  COPIREP, the World Bank-funded 
GDRC agency developed post-transition to reform parastatals, 
delayed for many months the installation of a new, expatriate 
management in Gecamines (the DRC's copper/cobalt mining 
parastatal), permitting many mining agreements to be signed 
during the delay.  One of the WB's goals in installing the 
new Gecamines management was to freeze the signing of 
contracts to allow for a review and analysis of prior mining 
 
KINSHASA 00001396  003 OF 003 
 
 
agreements. (Note: The WB did manage, however, to commission 
financial and legal assessments of Gecamines' existing 
contracts, and it is reviewing, but has not publicly 
released, that recently completed report. End note.) 
 
¶12. (C) Happi tried to put in a positive light the difference 
between the WB's reform goals for Gecamines and those of 
Gecamines' current CEO, Paul Fortin, who assumed his duties 
in January 2005 (reftel B). The WB's intent - and that of 
much of the international community - was for Gecamines to 
transform from a mining company to a holding company for 
Gecamines' assets and liabilities, including the transfer of 
its "social infrastructure"  (e.g. ceding control of its 
hospital to the City of Lubumbashi). However, Fortin 
continues to say publicly that his (comment: unrealistic) 
goal is for Gecamines to increase its mining operations 
rather than terminate them.  Happi claimed that Fortin's 
goals are merely part of a medium-term strategy to utilize 
Gecamines' existing assets, such as its equipment. (Comment: 
However, Happi's comment seemed to be a revisionist attempt 
to harmonize the clear difference between Gecamines' 
management goals and the WB's. End comment.) 
 
COMMENT 
------- 
 
¶13. (SBU) Despite ongoing problems with GDRC overspending and 
the possible misuse of Bank funds, both resident 
representatives were hopeful that when a newly-elected 
government is in place, the DRC will be in a position to 
negotiate a new PRGF and to once again use WB funds to 
implement the GDRC's recently completed Poverty Reduction 
Strategy Paper.  In the meantime, the GDRC must adhere to its 
budget, while the WB should resolve its internal problems, 
ensure better program management, and focus on sectoral 
reform. End comment. 
MEECE