VZCZCXYZ0003
PP RUEHWEB

DE RUEHJB #0657/01 2550749
ZNR UUUUU ZZH
P 120749Z SEP 07
FM AMEMBASSY BUJUMBURA
TO RUEHC/SECSTATE WASHDC PRIORITY 0577
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY

UNCLAS BUJUMBURA 000657 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/C 
 
E.O. 12958: N/A 
TAGS: PINR PREL BY PGOV
SUBJECT: IMF COMMITTED TO EVENTUAL BURUNDI BUDGETARY 
ASSISTANCE, BUT IN THE MEANTIME... 
 
REF: BUJUMBURA 564 
 
¶1. (SBU) SUMMARY: International Monetary Fund (IMF) 
representative Israel de la Piedra briefed a small number of 
the diplomatic corps on a proposed IMF budget review in a 
September 11 meeting.  A positive review of the Government of 
Burundi (GOB) budget will allow for the release of $93 
million in much needed donor budgetary assistance.  (Note: It 
is widely reported that the GOB is having liquidity problems, 
and civil servants went unpaid for August salaries until 
September 10. End Note) Piedra said the IMF will no longer 
review the 2007 revised budget and instead will move to the 
2008 budget, eliminating the possibility of President 
Nkurunziza's proposed 34% civil servant salary increase 
taking place this year. 
 
¶2. (SBU) Piedra cited a lack of time and a desire to start 
with a clean slate as the principal reasons for moving on to 
the 2008 budget.  The IMF representative suggested there may 
be a way for the GOB to obtain short term financing from the 
central bank, but stressed that non essential programs will 
have to be cut and that the GOB will be working on a "cash 
budget" for the next several weeks.  Several members of the 
diplomatic corps pointed out the negative potential a cash 
strapped government can have on Burundi's stability, and 
vowed to take preventative measures to avoid potential 
problems.  The World Bank and the Government of Norway 
representatives proposed exploring alternative methods 
outside IMF budget review as a means to disperse their donor 
money.  Attendees at the meeting vowed to communicate a 
common message to assure that the government, the media, and 
the public understand the IMF's decision. END SUMMARY 
 
¶3. (SBU) In a September 11 meeting, International Monetary 
Fund (IMF) representative Israel de la Piedra briefed a small 
number of the diplomatic corps on the proposed IMF budget 
review.  Upwards of $93 million in budgetary assistance from 
the World Bank (WB) and other donors hinges on a positive 
review.  Piedra informed the diplomatic corps that the IMF 
will not review the 2007 revised budget but will instead 
start with a fresh slate and review the 2008 budget at the 
conclusion of the annual IMF and WB meetings in Washington, 
DC., October 19-21.  The budget review will then move to the 
IMF board in Washington for approval at the beginning of 
January.  Dispersal of funds could follow seven days later if 
the IMF board approves the budget. 
 
¶4. (SBU) The immediate impact of the IMF's decision to drop 
the 2007 revised budget is that President Nkurunziza's 
proposed salary increase of 34% to civil servants will go 
unrealized this year.  The revised budget was to include the 
salary increase announced in a May 1 public speech by 
Nkurunziza.  To offset the salary increase, the Government of 
Burundi (GOB) intended to demobilize a certain number of 
soldiers. Piedra acknowledged that the Government of Burundi 
(GOB) now finds itself in a difficult political position, but 
said that the IMF finds it impractical to attempt to review 
the revised budget in light of the short amount of time 
before the end of the year.  The promise of a salary increase 
proved to be politically popular for Nkurunziza when he made 
the announcement in May, but now he will be obliged to delay 
the increase until at least 2008.  The possibility of a 
retroactive increase does exist. 
 
¶5. (SBU) Piedra highlighted another issue of critical 
importance to the IMF, the Interpetrol scandal (reftel), and 
the inadequate time for the GOB to address the issue.  Piedra 
mentioned that the IMF expects the GOB to recover some of the 
$17 million that allegedly was misallocated to local 
petroleum import company Interpetrol.  Additionally, the IMF 
insists that the GOB establish criminal responsibility for 
misappropriation of funds to Interpetrol.  Also the IMF 
wishes to complete an audit of all the oil companies 
importing oil to Burundi over the last several years to avoid 
a reoccurrence of the same problem.  Finally the IMF desires 
that the GOB establish processes and safeguards within the 
government and the central bank to increase transparency and 
prevent further corruption. 
 
¶6. (SBU) The GOB has made progress on the judicial process 
and in recovering some of the money, according to Piedra.  An 
IMF technical team will be here at the end of the month to 
work with the central bank and the Ministry of Finance on 
strengthening operating procedures and protocol.  Piedra 
stressed that the IMF wants to disperse the budgetary 
assistance to the GOB, and that is why they are moving 
forward with a review rather than dropping its planned review 
all together.  Piedra praised the GOB for its open 
communication with the IMF but cautioned that the GOB should 
 
be making a greater effort to confront the owner of 
Interpetrol company to recover funds and resolve the 
disagreement. 
 
¶7. (SBU) In order for the GOB to address its liquidity 
problems in the period between now and mid-January, Piedra 
suggested the GOB, with IMF support, will seek out a bridge 
loan from the Burundi Central Bank.  According to Piedra, 
 
although the GOB has reached its limits on borrowing from the 
Central Bank, he believes the IMF can come up with a creative 
financing option that will allow them to borrow between $30 
and $40 million to see them through the lean times.  Piedra 
continued that the GOB will also be required to cut all 
non-essential programs and likely work on a cash money 
budget.  For example, the GOB only recently paid its civil 
servants for August, while normally civil servants are paid 
at the end of each month for the preceding month. 
 
¶8. (SBU) Representatives of the Government of Norway and the 
WB said that their organizations might release funds if signs 
from the budget review at the end of October are positive. 
The WB stressed that in order for them to disperse funds, a 
stable macro economic framework must be in place.  It is 
usually IMF board approval, he stated, that the WB uses as 
evidence of that framework.  In light of the special 
circumstances in Burundi however, the WB might be willing to 
use alternative evidence to fulfill that requirement.  The 
representative from Norway echoed the WB rep, adding that 
suspension of budgetary assistance this year could jeopardize 
future Norwegian budgetary assistance. 
 
¶9. (SBU) The WB rep added that the WB is optimistic that the 
GOB will fulfill the requirements set forth by the IMF to 
conclude a positive budget review.  However, he countered 
that the WB does not want to send the message that the WB is 
"soft" on good governance requirements. Otherwise, he said, 
this problem will only continue. 
 
¶10. (SBU) Some members of the diplomatic corps pointed out to 
Piedra that not providing money for 2007 could lead to 
serious political unrest in this already shaky post conflict 
country.  In response, Piedra recommended that the 
international donors find a way to address the most serious 
weaknesses to avoid a return to conflict.  In response, 
representatives stressed a need to immediately undertake 
preventative measures that they see as stabilizing the 
country in the near term. 
 
¶11. (SBU) The UN rep at the meeting advised that the IMF and 
diplomatic community in Burundi coordinate a common 
communication strategy aimed at combating negative 
impressions held by some at the UN towards the IMF.  The UN 
rep requested that each mission work diligently to educate 
its representatives in New York that the IMF's intent is not 
to sacrifice the average Burundian because of the bad actions 
of a few.  Indeed not, replied Piedra, the IMF wants to 
insure that donor money is not immediately siphoned away by 
corrupt officials. 
 
¶12. (SBU) COMMENT:  The political impact of a delay in the 
34% salary increase for civil servants is problematic for 
President Nkurunziza's administration.  Because the delay is 
directly linked to the Interpetrol scandal and the corruption 
in the government, the media and the public will continue to 
criticize the incumbent administration for its 
ineffectiveness.  Additionally, the announcement of the delay 
comes at a difficult time for the President, since he is 
already trying to salvage negotiations with rebel group 
PALIPEHUTU-FNL and overcome a political impasse in the 
National Assembly.  To date, President Nkurunziza has yet to 
take a strong role in leading Burundi out of its current 
quagmire; unless this short term budget crunch is carefully 
managed, it may permanently damage the President's 
reputation. END COMMENT 
MOLLER