VZCZCXRO3857
PP RUEHMA RUEHPA
DE RUEHDK #2614/01 3031103
ZNR UUUUU ZZH
P 301103Z OCT 06
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 6746
INFO RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 002614 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EB/IFD, AF/EPS AND AF/W 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN ETRD EINV SG
SUBJECT: SENEGAL'S DONORS GIVE IMF MISSION AN EARFUL 
 
REF: DAKAR 2460 
 
DAKAR 00002614  001.2 OF 002 
 
 
¶1.  (SBU) SUMMARY: On October 26, a visiting IMF Mission, on its 
first day in Senegal for Article 4 consultations, invited key donors 
to present their view of Senegal's economic situation and the policy 
performance of the Wade Government.  The donors highlighted many 
issues of concern, a number of which have been noted in similar 
discussions for more than a year.  Underlying the frustrations 
expressed regarding Senegal's economic situation was the consensus 
that the Wade Administration will postpone difficult policy 
decisions that might restrict the government's current fungible use 
of budget allocations until after presidential and legislative 
elections scheduled for February 25, 2007.  This concern was 
reinforced by President Wade's refusal to sign a long-awaited decree 
reforming public procurement.  Senegal's lack of an IMF program, 
having completed its previous Poverty Reduction and Growth Facility 
(PRGF) in April 2006 makes it difficult for some bilateral donors 
extend new loans to the GOS, compounding Senegal's budgetary 
difficulties.  END SUMMARY. 
 
OLD CONCERNS 
------------ 
¶2.  (SBU) The IMF Chief of Mission, Mr Reza Vaez- Zadeh, opened the 
session by highlighting the three major themes for the team to 
examine over the two week consultation: 
 
-- the Wade administration's commitment to policies of economic 
stability, particularly in the face rapidly increasing budget 
deficit (and the temptations for campaign-driven public 
expenditures); 
 
-- the government's program for accelerated economic growth, 
particularly in light of recent projects that Senegal's 2006 GDP 
growth could fall significantly below four percent; 
 
-- the need for Senegal to improve its public finance management and 
rationalize its budget allocations, while facing a budget deficit of 
a minimum of seven percent of GDP.  The final report will be 
submitted to the IMF Board of Directors and posted in the IMF 
website in January 2007. 
 
¶3.  (SBU) Vaez-Zadeh asked the assembled donor representatives for 
their opinions on these and other matters that the IMF team should 
consider and the donors did not disappoint.  Among the issues raised 
by the donors that have been on the agenda for at least one year 
were: 
 
-- the continued uncertainty about the GOS' "Accelerated Growth 
Strategy," which has not yet been finalized, nor have final 
consultations with donors been held; 
 
-- the lack of progress between the Government and its Indian 
partners on negotiations for recapitalizing and restarting 
Industries Chimiques du Senegal (ICS), Senegal's huge phosphate 
mining company, which, historically when fully operational, accounts 
for more than two percent of Senegal's GNP; 
 
-- an on-going lack of transparency on major public works projects, 
including Dakar's proposed new international airport and the 
expanded Dakar Corniche road, with the slow pace of construction 
creating massive traffic problems while draining Senegal's budget; 
 
-- the continued lack of implementation of public procurement 
reform, and, with President Wade's refusal to sign the current 
draft, the likelihood of this process restarting from scratch. 
 
MORE RECENT ISSUES 
------------------ 
¶4.  (SBU) The donors also raised topics that, while perhaps not new, 
are compounding Senegal's economic and investment woes.  Topping 
this list are Senegal's on-going energy difficulties, not only with 
supply and distribution problems, but also the government's apparent 
retreat to more state control of the sector (as reported in reftel). 
 Another dynamic that appears to be putting a drag on growth and 
reform is the fact that public investment in grand projects, without 
clear accountability, is absorbing much of the country's available 
capital and diminishing private-sector confidence.  The ability of 
the GOS to create an effective AGS was also questioned, especially 
given that many of the clusters considered under the AGS are not 
performing well, including fish, textiles and garments, and tourism. 
 Finally, deep disappointment was voiced over the apparent total 
lack of activity by Senegal's Anti-Corruption Commission, despite 
being established and funded (meeting an important IMF program 
condition). 
 
AND A BIT OF GOOD NEWS 
 
DAKAR 00002614  002.2 OF 002 
 
 
---------------------- 
¶5.  (SBU) While the overall tone of the meeting was of concern about 
Senegal's recent economic performance, a couple of positive items 
were also offered, including Senegal's continued strong performance 
in the ICT sector and the GOS' apparent commitment to fund 
improvements at Dakar's Leopold Sedar Senghor International Airport 
even as it raises funds and makes plans to build its replacement. 
Another accomplishment under Senegals' last IMF program was the 
privatization of Sonacos, the country's largest nut and vegetable 
oil marketer.  However, the actual performance of new Sonacos has 
yet be determined. 
 
NO IMF PROGRAM IS ALSO A PROBLEM 
-------------------------------- 
¶6.  (SBU) The other overarching issue raised was Senegal's lack of 
an IMF program, having completed its previous Poverty Reduction and 
Growth Facility (PRGF) in April.  A number of bilateral donors 
explained that it is difficult for their governments to extend new 
loans to the GOS in the absence of an IMF program, potentially 
compounding Senegal's budgetary difficulties.  The IMF Chief of 
Mission responded that Senegal had not yet requested negotiations on 
the possibility of a new PRGF or a non-financial Policy Support 
Instrument (PSI).  He noted that the IMF could provide a "letter of 
support" to encourage bilateral donors to continue their budget 
support.  Vaez-Zadeh added that program negotiations are separate 
from Article Four consultations, but that he would be willing to 
discuss the process with the Ministry of Finance.  In response to a 
question on whether a new program could be in place before 
February's elections, he responded that it is possible if the GOS 
makes its request soon -- that is, within the next two weeks. 
 
COMMENT 
------- 
¶7.  (SBU) We share the concerns raised by the donors.  Economic 
performance and reform are both slowing despite a coordinated effort 
by the IMF, World Bank, and other donors to keep the GOS focused on 
the steps necessary for positive economic news.  While historically 
economic issues have not played a major role in national election 
campaigns, the convergence of so many economic encumbrances is 
likely contributing to a growing sense of unease among the 
Senegalese public in the run-up to what will no doubt be a very 
heated campaign.  END COMMENT. 
 
¶8.  (U) Visit Embassy Dakar's classified website at 
http://www.state.sgov/gov/p/af/dakar/. 
 
Jacobs