VZCZCXRO6300
PP RUEHPA RUEHRN
DE RUEHYD #0382/01 0861051
ZNY CCCCC ZZH
P 271051Z MAR 07
FM AMEMBASSY YAOUNDE
TO RUEHC/SECSTATE WASHDC PRIORITY 7504
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 YAOUNDE 000382 
 
SIPDIS 
 
SIPDIS 
 
STATE ALSO FOR EB AND AF/C 
TREASURY PLEASE PASS TO U.S. EXECUTIVE DIRECTORS AT THE 
WORLD BANK AND IMF 
LONDON AND PARIS FOR AFRICA ACTION OFFICERS 
EUCOM FOR J5-A AFRICA DIVISION AND POLAD YATES 
 
E.O. 12958: DECL: 03/21/2017 
TAGS: EFIN ECON PREL KCOR ECPS CM EPET
SUBJECT: IMF/WORLD BANK MISSION GIVES CAMEROON HALF-HEARTED 
OKAY 
 
REF: A. YAOUNDE 132 (NOTAL) 
 
     ¶B. YAOUNDE 289 (NOTAL) 
 
Classified By: Pol/Econ Officer Tad Brown for reasons 1.4 b and d. 
 
PARAGRAPHS MARKED SENSITIVE BUT UNCLASSIFIED (SBU) NOT FOR 
DISTRIBUTION OUTSIDE USG CHANNELS. 
 
¶1.  (C)  Summary.  IMF Mission Chief Dan Ghura said publicly 
on March 15 that Cameroon's performance is "globally" on 
track, but the IMF's bland public pronouncements obscure some 
shortcomings in Cameroon's financial governance.  Most 
troubling was the relapse in 2006 of extra-budgetary spending 
of $48 million in national oil receipts.  Execution of the 
investment budget remains problematic, but has improved in 
absolute terms since FY2005.  Lower-than-projected oil prices 
in 2007 have meant that FY07 GRC revenues might need to be 
revised downward by around $400 million, or roughly 9 percent 
of the total budget.  Cameroon's business climate and 
official planning functions continue to cripple the economy, 
and there is reason to worry about the completion of the 
long-awaited privatization of state telecom CAMTEL.  End 
summary. 
 
¶2.  (SBU)  In separate conversations with the donor community 
and Cameroonian press on March 15, IMF Mission Director Dan 
Ghura previewed the conclusions of a March 1-15 joint 
IMF-World Bank review of Cameroon's DSRP performance for the 
period July to December 2006 (ref b).  Ghura concluded that 
"globally" Cameroon's performance is on track, but his review 
of more detailed discussion revealed a number of significant 
problems. 
 
------------------------------------------- 
$48 Million Off the Books; A Costly Relapse 
------------------------------------------- 
 
¶3.  (C)  In a follow-up meeting with Poloff on March 20, a 
World Bank official explained that the IMF Mission was most 
troubled by the discovery that upwards of $48 million in 
receipts from the National Hydrocarbons Company (SNH) had 
been transferred directly to select individual ministries in 
contravention of standard financial procedures and a 
long-standing commitment from the Government of Cameroon 
(GRC) to the IFIs.  According to the World Bank official, the 
Mission's counterparts at the Ministry of Economy and Finance 
(MINEFI) professed to have been kept out of the transaction, 
which was ordered directly by the Presidency, purportedly to 
finance greater than expected security operations in the 
newly acquired Bakassi Peninsula and the troubled regions 
along the borders with Chad and the Central African Republic. 
 
 
¶4.  (C) According to the World Bank official, the IFIs had 
long worked with the GRC to rectify past practice whereby SNH 
receipts were treated like the President's personal slush 
fund.  After many years of negotiations, including an 
"interim period" that allowed for direct transfers to the 
"sovereign" ministries (Defense, Foreign Affairs, Justice, 
and the Police), the Presidency had finally stopped effecting 
such extra-budgetary transfers.  In response to this relapse, 
the IMF will include a prohibition on extra-budgetary 
expenditures as one of its performance criteria for Cameroon. 
 
--------------------------------------------- -------- 
CHEAPER OIL MAY COST CAMEROON GOVERNMENT $400 MILLION 
--------------------------------------------- -------- 
 
¶5.  (SBU)  Cameroon's FY07 budget projected about $1.4 
billion (or one-third of total GRC receipts) from oil 
revenues (ref A).  The IMF Mission believes that the 
unexpected dip in world oil prices will reduce actual 
receipts by about $400 million.  Although this shortfall 
would be substantial (almost 10 percent of the total budget 
and 2.5 percent of GDP), the World Bank believes the 
immediate impact on Cameroon's short-term development will be 
negligible because most of the petroleum receipts had already 
been earmarked to pay down domestic debt, which could be 
rolled over at minimal cost. 
 
--------------------------------------------- ----------- 
INVESTMENT EXPENDITURE EXECUTION LAGS, COULD DRAG GROWTH 
--------------------------------------------- ----------- 
 
YAOUNDE 00000382  002 OF 003 
 
 
 
¶6.  (SBU)  The IMF Mission found that execution of public 
investment expenditures continued to be problematic and 
warned that projections of economic growth and poverty 
reduction might need to be revised downward.  The World Bank 
official agreed that the GRC's inability to bring investment 
plans to fruition was troubling, but countered that the GRC 
investment spending was 21 percent higher in FY06 than in 
FY05, a commendable achievement. 
 
------------------- 
END OF THE HIPC ERA 
------------------- 
 
¶7.  (SBU)  Ghura pointed out that, having achieved completion 
point, the GRC is no longer bound to maintain the separate 
budgetary procedures that had singled out the disposition of 
funds going to pro-poor "HIPC" purposes.  The HIPC process, 
which is better known in Cameroon by its French acronym PPTE, 
has created separate budget tracking and auditing procedures 
that allow donors and Cameroonian citizens more transparency 
in how HIPC funds are spent.  Ideally, this transparency 
would ensure better results.  To date, however, the increased 
transparency has meant only that donors and select members of 
civil society have a better understanding of how GRC (and 
donor) resources are squandered on peripheral costs like 
vehicles, fuel, travel expenses for domestic and 
international trips, and office furniture.  According to the 
World Bank official, transparency will eventually help 
rectify these problems, but it would be wiser to address the 
entirety of the budget than to continue with a second, costly 
set of processes to track only HIPC spending priorities. 
 
--------------------------------------------- ----- 
CAMEROON'S BUSINESS CLIMATE: BAD AND GETTING WORSE 
--------------------------------------------- ------ 
 
¶8.  (C)  Despite the rosy tinge on the IMF's public 
statements, Ghura identified structural problems that are 
strangling Cameroon's economic growth and development, 
including dropping national levels of productivity and the 
cumulative effects of Cameroon's business climate, one of the 
worst in the world.  Officials with the World Bank's Doing 
Business unit told the IMF Mission and donors that there was 
nothing to be done at this late date to improve Cameroon's 
score in the next Doing Business rankings.  In fact, since 
Cameroon has not made any noticeable improvements in its 
business climate while other countries have taken important 
strides, Cameroon can expect to drop further in the rankings 
than the 5 slots it slipped in last year's report (from 147 
to 152).  In order for the changes to register in the 2008 
report, according to the World Bank officials, Cameroon would 
have to post notable improvements by June 2007.  (Comment: 
Not likely.) 
 
---------------------------------------- 
Hot Button Issue: Civil Service Salaries 
---------------------------------------- 
 
¶9.  (SBU)  The perceived need to raise civil service salaries 
remains a hot button issue in Cameroon, especially in 
discussions with the IMF and World Bank, which are widely 
believed to be responsible for crippling salary cuts during 
mid-90s conditionalities (ref b).  At the March 15 briefing 
with donors, Ghura said that the IMF Mission pointed to 
continuing structural problems as the true impediments to 
increasing salaries.  First, the GRC is squandering millions 
of dollars each month on CAMAIR and other parastatals that 
have long been slated for privatization.  Second, the public 
service rolls are still bloated with the existence of ghost 
workers (though upwards of 5,000 have supposedly been 
identified and their removal initiated) and the complete lack 
of salary tracking, which enables individuals to receive 
sometimes 10 times their appropriate salary.  The savings 
from these rationalizations, said Ghura, would be more than 
sufficient for substantial increases in public service 
salaries. 
 
----------------------------------------- 
CAMTEL PRIVATIZATION ON TRACK BUT AT RISK 
----------------------------------------- 
 
¶10.  (SBU)  The IMF Mission said that the privatization of 
 
YAOUNDE 00000382  003 OF 003 
 
 
state telecom CAMTEL is still on track and needs to be 
concluded smoothly for the good of Cameroon's business and 
investment climate and to free up public resources for more 
pressing development priorities.  According to the World Bank 
official, of the more than 12 companies that pre-qualified 
for the CAMTEL tender process in the fall of 2006, five 
prospective bidders remain interested and have attended 
February meetings in Paris and in-country inspections of 
CAMTEL that are currently on-going.  No American companies 
are believed to be among the five, which are said to include 
French, South African and Indian firms. 
 
¶11.  (C)  The media and rumor circuits in Yaounde (not that 
there is a clear distinction) have been buzzing with 
allegations that Finance Minister Polycarpe Abah Abah 
colluded with Franck Biya (President Biya's eldest son from 
his first marriage) and others to defraud Cameroon's treasury 
out of tens of millions of dollars by manipulating CAMTEL 
shares (septel).  Even if proven untrue, these charges 
threaten to scare off investors and derail the privatization. 
 The prospective bidders for CAMTEL have apparently requested 
a full audit of CAMTEL's 2006 transactions in an effort to 
better ascertain the parastatal's financial position.  (Note: 
 Separately, Embassy inquiries with a Deputy Director at 
CAMTEL to find out why a U.S. businesswoman supplying 
services could not collect revealed that CAMTEL is not paying 
any of its contractors -- some have been waiting four years. 
According to our source, CAMTEL's financial position 
continues to worsen; he advised against dealing with the 
firm.  End Note) 
 
------------------------------------------ 
IMF MISSION SCORES ANTI-CORRUPTION VICTORY 
------------------------------------------ 
 
¶12.  (C)  Despite initial reticence to focus on issues of 
corruption and governance (ref b), Ghura said his team 
pressed the GRC "many times" to follow through on the 
promised establishment of the National Anti-Corruption 
Commission (CONAC) and the implementation on the 
constitutionally required asset declaration for senior 
officials (Article 66 of the constitution).  On March 15, the 
final day of the IMF Mission, President Biya nominated the 
11-member commission (septel).  According to the World Bank 
official, Prime Minister Inoni told the Mission that the 
nomination process took so long (CONAC was announded in March 
2006, as HIPC Completion Point was under final discussion) 
because of the extensive background checks the GRC undertook 
to ensure CONAC members would be free from allegations of 
corruption.  Additionally, Inoni promised the IMF Mission 
that the provisions for asset declaration would be 
implemented later in 2007. 
MARQUARDT