VZCZCXRO1340
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0249/01 0600925
ZNR UUUUU ZZH
P 010925Z MAR 07
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC PRIORITY 5691
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY

UNCLAS SECTION 01 OF 02 KINSHASA 000249 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OWHYCHE-SHAW 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV CG
SUBJECT: DRC IN ROUGH ECONOMIC SHAPE AS GOVERNMENT IS 
INSTALLED AND IMF REVIEW BEGINS 
 
REF: KINSHASA 1608 
 
 ¶1. (SBU) Summary.  The DRC is facing renewed macroeconomic 
problems and budgetary uncertainty as the new government is 
being installed and an IMF Staff-Monitored Program review 
begins.  Inflation and the exchange rate have risen sharply 
in the first two months of 2007, and there has been 
significant government overspending in January and February. 
End summary. 
 
-------------------------------- 
Macroeconomic Woes Worsen, Again 
-------------------------------- 
 
¶2. (U) Following a month-long period of creeping devaluation 
of the Congolese franc (FC) that began in mid-January the 
exchange rate has risen rapidly in the last half of February, 
soaring to over 560 FC/USD.  This, following a brief period 
at the end of 2006 and the beginning of 2007, after the 
inauguration of President Kabila, during which the CF 
remained at about 500 FC/USD.  Since mid-January, during the 
period of uncertainty surrounding the formation of the new 
Gizenga government and the absence of a 2007 budget, the 
exchange rate has crept up, slowly at first and more rapidly 
during the past two weeks.  Inflation has also risen 
significantly during January and February, after December 
2006 deflation of over two percent.  Economic Section market 
basket calculations indicated a nearly four percent inflation 
rate for January, and this trend appears to have continued 
throughout February. 
 
------------------------- 
Prospects for 2007 Budget 
------------------------- 
 
¶3. (U) There has been no visible progress yet on a 2007 
budget.  An extraordinary session of the newly-elected 
National Assembly in January and February was organizational 
in nature and did not deal with budget issues.  A government 
was formed and confirmed on February 24.  According to 
pronouncements by PM Gizenga and other new GDRC ministers, 
the 2007 budget is a top priority and is on the agenda of the 
National Assembly when it begins business officially in 
mid-March. (Note:  The DRC Senate is not fully operational 
yet and will also have to sign off on the 2007 budget, 
meaning another possible delay in its passage.  End note.) 
Meanwhile, the GDRC is operating on the Congolese version of 
a CBR, referred to here as "provisional credits" ("credits 
provisoires").  Last year's budget figure (just under two 
billion dollars) was divided into equal monthly allotments, 
and this amount is assumed to be sufficient for ongoing, 
normal operations. 
 
---------------------- 
How Much Overspending? 
---------------------- 
 
¶4. (SBU) Unsubstantiated media reports say that the total 
amount of GDRC overspending for the months of January and 
February 2007 amounted to over 26 billion Congolese francs, 
nearly USD 50 million at current exchange rates.  Local IMF 
sources would only confirm to Econcouns that the GDRC was 
over budget for the two months by at least FC 20 billion, or 
around USD 40 million.  The IMF felt that this overspending, 
whether USD 40 or USD 50 million, was the main reason for the 
rapid devaluation of the FC observed in February.  By the end 
of the two-week review of the Staff-Monitored Program (SMP) 
on March 13, the IMF's first visit since October 2006 
(reftel), we should know what the actual GDRC overspending 
was, and in which budget categories, for January and February 
¶2007. 
 
------- 
Comment 
------- 
 
¶5. (SBU) The latest decline in the macroeconomic situation in 
the DRC, along with the continuing uncertainty over the 2007 
budget, comes at a crucial point for the GDRC.  The new 
government must begin immediately to put its economic house 
in order if it hopes to negotiate a new program with the IMF 
before June.  Only by doing so will it have a chance of 
 
KINSHASA 00000249  002 OF 002 
 
 
getting the new program reviewed by December and achieving 
HIPC completion point.  With significant external debt 
falling due in the second half of 2007, the time factor is 
critical.  It appears to us, however, the June target may 
simply be too ambitious.  If new program implementation slips 
to September, a distinct possibility, it will have 
significant consequences.  The post-election expectations of 
Congolese citizens are very high, and the new government can 
only deliver on its promises by getting on the right track 
with the Bretton Woods institutions.  We will use every 
opportunity to underscore the importance and urgency of this 
issue with the new GDRC officials, and other major donors 
have indicated that they will do likewise.  End comment. 
MEECE