VZCZCXRO8909
RR RUEHMA RUEHPA
DE RUEHRY #0497/01 1281340
ZNR UUUUU ZZH
R 081340Z MAY 07
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC 1046
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 03 CONAKRY 000497 
 
SIPDIS 
 
TREASURY FOR OFFICE OF AFRICAN NATIONS 
TREASURY FOR USED IMF AND USED WORLD BANK 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12598:  N/A 
TAGS: EFIN ECON IMF PGOV GV
SUBJECT: GUINEA MAKES FAVORABLE IMPRESSION DURING IMF TECHNICAL TEAM 
VISIT 
 
Ref: Conakry 1718 
 
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Summary 
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¶1.  (SBU) Summary.  A nine-day visit by an IMF technical team ended 
May 4 with the new IMF team leader, Jean Le Dem, expressing optimism 
that Guinea may be on track to negotiate its return to a funded 
program.  Le Dem and resident IMF representative Alvin Hilaire 
believe Guinea's FY 2007 macroeconomic objectives are both 
attainable and reasonable:  1.5 percent growth; inflation at or 
below 15 percent, and closing Guinea's 31 million USD funding gap. 
The donor community was decidedly less optimistic than the technical 
team, expressing concern over Guinea's exchange rate, which has 
fluctuated wildly for the past month, and raising questions about 
lingering corruption issues at the Central Bank.  The next IMF 
technical team visit is not firmly scheduled, but a technical expert 
is to be dispatched to Guinea to provide assistance before the end 
of May.  If directed by IMF headquarters, the full technical team 
may return as soon as late June or early July.  End Summary. 
 
------------ 
A for Effort 
------------ 
 
¶2.  (SBU) In a May 4 meeting with members of donor community and the 
World Bank, new IMF team leader Jean Le Dem  shared the findings of 
what he characterized as a "diagnostic mission."  The visit was the 
first since November 2006 (reftel), so the effects of the 
January-February 2007 strike and state of siege were factored into 
the team's assessment.  The visit was also the first under the new 
Guinean government of broad consensus.  The team's key interlocutors 
within the Ministry of Economy, Finance and Planning were led by 
Minister Ousmane Dore, a former IMF official.  The four-member team 
evaluated the objectives of the new government, particularly in the 
areas of monetary and fiscal policy, transparency and good 
governance. 
 
¶3.  (SBU) Le Dem said the technical team was optimistic that 
Guinea's stated FY 2007 macroeconomic goals are reasonable and 
attainable.  (Note: Le Dem replaced the former IMF team leader 
Israel de la Piedra, whose November 2006 assessment of Guinea's 
macroeconomic performance was terse and far less optimistic.  See 
reftel.)  Three macroeconomic markers outline Guinea's basic 
monetary policy goals for FY 2007: 1.5 percent growth; inflation 
below 15 percent, and closing Guinea's 31 million USD financing gap. 
 
 
¶4.  (SBU) On May 7, Econoff spoke with Guinea's resident IMF 
representative, Alvin Hilaire, who shares Le Dem's optimism.  Citing 
Le Dem's written report, Hilaire gave the finer details of Le Dem's 
briefing. 
 
----------------------------------- 
Budget Remains An Outstanding Issue 
----------------------------------- 
 
¶5.  (SBU) Guinea's Budget is in shambles.  There are two major 
issues that hinder Guinea's ability to present a balanced or even 
feasible budget:  financing and balance of payments.  Characterized 
as a "budget of transition," Guinea's FY 2007 budget does not yet 
exist, even in draft form.  The government will operate under a 
Continuing Resolution until at least June 2007.  Although the 
government told the IMF team the donor community has pledged some 10 
million USD for electoral assistance, the projected income has not 
been accounted for.  Stated priorities like necessary repairs for 
strike-related damaged infrastructure throughout the country have 
not been accounted for in projected spending.  The Guinean 
government is in the process of prioritizing spending targets, but 
currently the Minister of Finance and Prime Minister address ad hoc 
appeals for money as they are brought before them. 
 
------------------------- 
Closing the Financing Gap 
------------------------- 
 
¶6.  (SBU) The financing gap is a simple budget deficit that has 
historically been caused by undisciplined government spending which 
the new government has curbed, but not stopped.  Previous 
governments have made a habit of financing their high expenditures 
-- particularly on the military -- through the Central Bank. 
Complicating these matters is the fact that spending often occurs 
outside of the budget and budgetary process.  Paying extra-budgetary 
expenditures from the Central Bank in is a breech of both the budget 
source, and process.  The government told the IMF it has now 
 
CONAKRY 00000497  002 OF 003 
 
 
implemented more state control over spending. 
 
¶7.  (SBU) The gap is being closed partially by higher receipts from 
the mining sector which had sufficient stores to continue export 
even during the strike.  Tax revenue has also increased as the 
bauxite prices have increased worldwide.  Still, there remains a 31 
million USD gap that Guinea must bridge in order to be fiscally 
solvent.  Until these issues are addressed, the Central Bank will be 
obliged to maintain a heavily managed currency float, a longstanding 
Guinean monetary policy the Minister of Finance wants to abandon. 
 
¶8.  (SBU) The government is establishing a system to have a daily 
diagnostic process to assess the reserves of the treasury.  This is 
necessary as the Central Bank still has a tendency to debit the 
treasury in its accounting, which in turn upsets the reported 
balance of payments.  There is a newly implemented commission to 
regularize all accounts and consolidate the debt at the Central 
Bank. 
 
---------------------------- 
Monetary Policy Remains Weak 
---------------------------- 
 
¶9. (SBU) As for general monetary policy, the Central Bank lacks 
control of its balance sheet, that is to say, there are expenditures 
that are unaccounted for various reasons, including invocations of 
national security.  The Finance Minister has deployed internal 
auditors to control this process, but some sectors, particularly the 
military, are resistant and have kept records closed.  There is 
still a need for the "cleaning" of accounts within the Central Bank. 
 The new government wishes to respect international conventions and, 
to that end, they have established a commission of experts to change 
the Central Bank statutes and methods of operation.  However, 
Hilaire concludes that President Lansana Conte's influence is still 
strong and that he resists any action that hinders his unfettered 
access to money. 
 
¶10.  (SBU) With regard to the exchange rate, the Minister of Finance 
wants to abandon "managed float," but it is unfeasible to do so at 
this time.  After the IMF team's insistence, Dore conceded that any 
temporary benefits of the overvalued GNF are not in the long-term 
best interests of the economy.  Le Dem reported that recent 
fluctuations are due to "technical problems" the details of which, 
for now, remain the purview of the Guinean government, the IMF and 
World Bank.  The team concluded that, in addition, there in an 
insufficiency of physical currency.  The current official rate does 
not necessarily reflect the actual value of the currency.  They 
confirm that there are sufficient liquid reserves.  The IMF believes 
the recent fluctuation is a temporary issue, partly caused by the 
strong demand for GNF.  Le Dem told the donors they government is 
planning to import new bank notes and the problem should "resolve 
itself." 
 
--------------------------- 
Lingering Economic Concerns 
--------------------------- 
 
¶11.  (SBU) The February reduction of the gas tax (to lower the price 
at the pump) remains in place.  With the market price of oil down 
and the fixed price of fuel still relatively high, the government 
continues to take advantage of these receipts to make accelerated 
payments on the arrears owed Shell and Total.  The February rice 
subsidy is also still in place.  The government said it plans to 
contractualize this process, working with the importers and 
distributors to develop a plan of action.  Authorities accept the 
idea that they should not be using their budget to pay for rice 
subsidies and report that they are not sure if they will apply the 
promised reduction of customs tariffs for the rice importers.  The 
IMF realizes these concessions were used to broker an end to the 
strikes and concede it will be difficult to repeal or amend them in 
the short term. 
 
--------------------------------------------- ----- 
Guinean Reaction: That Went Well, Don't You Think? 
--------------------------------------------- ----- 
 
¶12.  (SBU) On May 7, Econoff spoke with Ministry of Finance senior 
advisor Oumar Diakite.  Diakite was ebullient about the IMF team 
visit and final assessment and asked Econoff "Yes, that went well, 
don't you think?"  Econoff asked Diakite what the government of 
Guinea would do in the aftermath of the team's visit.  Diakite said 
the team left the government specific targets and structured goals, 
but declined to say what they were.  When asked if all this positive 
news meant Guinea is moving towards a funded program, Diakite said 
he is hopeful.  He also said the IMF team offered a shadow program, 
but the Minister of Finance refused such, preferring to wait for a 
 
CONAKRY 00000497  003 OF 003 
 
 
reassessment in June or July in hopes of reinstating a 
Staff-Monitored Program.  Citing the IMF's comfort with the new 
government and the new Minister of Finance in particular, Diakite 
concluded, "Credibility was our problem, but that's not a problem 
anymore." 
 
------------------------------ 
Potential For A Funded Program 
------------------------------ 
 
¶13.  (SBU) When asked by the donors if Guinea was close to a funded 
program, Le Dem emphasized that the IMF team was in Guinea on a 
diagnostic mission, not to negotiate a funded program.  However, he 
conceded that they are technically able to react quickly and, if 
headquarters directed the start of negotiations, the IMF could 
theoretically return by the end of June for negotiations.  Le Dem 
emphasized that this would all depend on the Prime Minister's visit 
to Washington at the beginning of June.  Le Dem said the government 
will have the opportunity to explain its views and current position 
in Washington and any decision on a formal program would be made 
accordingly.  Several of the G-8 Ambassadors urged the team to 
support Guinea's reform process by re-establishing a Staff Monitored 
Program or moving directly toward a formal program with the IMF. 
 
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COMMENT 
------- 
 
¶14.  (SBU) The IMF's assessment was both an admonition of Guinea's 
still weak fiscal and monetary policies, and a legitimization of the 
new direction of this government.  Since 2003, the IMF has presented 
Guinea with a series of targets, and Guinea has generally complied. 
The notable exceptions were Guinea's stubborn adherence to managed 
float and its inability to bring transparency into the spending 
because of endemic corruption and entrenched interests.  It is 
notable that this new team leader made no mention of the "prior 
actions" such as resolving the saga of accounts between the 
goverment and Futurelec.  Perhaps the position of a former IMF 
colleague as Minister of Finance and the key arbiter of economic 
reforms has helped Guinea on its return to a funded program. 
Although many obstacles remain, clearly the IMF and World Bank feel 
they have a credible partner in Guinea's new government 
 
McDONALD