VZCZCXRO6664
PP RUEHPA
DE RUEHAB #1209/01 3411755
ZNY CCCCC ZZH
P 071755Z DEC 07
FM AMEMBASSY ABIDJAN
TO RUEHC/SECSTATE WASHDC PRIORITY 3809
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHZK/ECOWAS COLLECTIVE
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 001209 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO USTR C.HAMILTON 
EEB FOR T.HASTINGS 
TREASURY FOR D.PETERS, R.HALL 
 
E.O. 12958: DECL: 12/03/2017 
TAGS: EFIN ECON EAID PREL PGOV IMF IBRD IV
SUBJECT: COTE D'IVOIRE: GOVERNMENT MEETING 2007 BUDGET 
TARGETS BUT OUAGA SUPPLEMENTAL ACCORD PRESENTS PROBLEMS FOR 
2008 BUDGET 
 
REF: ABIDJAN 1176 
 
Classified By: Econ Chief EMassinga, Reasons 1.4 (b,d) 
 
¶1.  (C)  Summary.  A Joint International Monetary Fund, World 
Bank and African Development Bank team briefed the 
donor community on its initial findings on November 26.  The 
assessment team was broadly complimentary of the 
government's efforts to remain within budget targets and to 
adopt more transparent fiscal expenditure procesess. 
However, the team found the government has not been able to 
reign in Presidential expenditures, hold the line on 
political decisions with budgetary implications, (such as 
giving in to striking teacher's demands for a salary 
increase) or improve the management of oil and gas revenues. 
The result is that spending on social sector 
needs has been suppressed. The IFIs are pushing the GoCDI to 
make a stronger commitment for 2008, as they move 
towards a mid-December WB staff decision on whether to 
recommend that its Board accept Cote d'Ivoire's progress on 
fiscal governance as sufficient to approve a USD 60 million 
IMF budget support package.    End Summary. 
 
Joint IMF, WB, AfDB Team Presents Findings on Structural 
Reforms 
-------- 
¶2.  (C)  The IMF, WB and AfDB sponsored a joint team to Cote 
d'Ivoire to assess progress in implementing governance 
reforms and repayment of WB and AfDB arrears.  On November 
26, Mr. Zeljko Bogetic, Chief Economist at the Fund and 
chief of the joint mission reported broad satisfaction in a 
briefing to the principal donor community.  For the 2007 
budget, the bottom line is being respected.  Government 
expenditures through September are one percent over the 
January-September budget target, making meeting the 2007 
budget goal a realistic possibility.  Additionally, the 
government is mobilizing its own resources to pay 50 percent 
of its USD 480 million arrears to the WB and 33 
percent of its USD 560  million arrears to the AfDB (reftel). 
 Bogetic also expressed general satisfaction with 
the progress in implementing structural reforms to promote 
greater transparency in fiscal expenditures, particularly 
in the cocoa/coffee sectors and in oil and gas revenue. 
 
¶3.  (C)  Despite overall satisfaction with the direction of 
government reform, Bogetic noted several significant 
weaknesses in the government's performance.  First, Sovereign 
spending, the account controlled directly by the 
Presidency and Prime Minister (with 3/4 belonging to the 
former), is running at the same high levels seen in 2006, 
despite government promises to the IFIs' to reduce the level 
of expenditures. (Note: a local IMF economist told 
Emboff that the sovereign account is some USD 100  million 
out of a total budget of USD 4 billion). As a result, 
desperately needed investments in the health and education 
sectors, for example, have not been made. Bogetic also said 
that the government's decision to incorporate 4,000 so-called 
"New Recruits" into the armed forces had put 
unanticipated pressure on the budget. (Note: The "New 
Recruits" were brought on after the start of hostilities in 
2002, and were promised regular status and the same "war 
bonuses" other soldiers and gendarmes, but were not 
integrated into the government's armed forces until 
mid-2007.)  Similarly, raises for teachers who went on 
strike and expenditures for elections preparation had not 
been incorporated into the 2007 budget.  Looking to the 
2008 budget, these new commitments, combined with the 
government's apparent intent to continue paying "war 
bonuses" (despite Gbagbo's having declared the war 'over') 
will make it difficult for Cote d'Ivoire to meet the 
established budget targets.  Further clouding the budget 
outlook are government plans to establish a "service 
civique" early in 2008 to provide training to armed elements 
who agree to disarm. The WB Country Director had 
previously told the Ambassador that the Bank would not 
support this program, but would support communities 
affected by disarmament. How the government plans to finance 
the service civique is still a question mark. 
 
¶4.  (C)  Turning to government receipts, Bogetic said that 
the pace of receipts was strong, running at or slightly 
above projections.  In particular, offee/cocoa revenues 
remained solid, and oil and gas continue to provide 
reliable income.  For 2008 and beyond, Bogetic said the IFIs 
are pushing for the state-owned oil company PETROCI to 
 
ABIDJAN 00001209  002 OF 002 
 
 
contribute to the national treasury, something it does not do 
currently.  The IFI team reported that the results of 
the oil, gas and electricity production audits will be 
completed soon, and provided to donors' missions in 
Washington by the end of 2007.  (Comment:  IMF Country 
Director Phillipe Eugume told Emboff privately that Fund 
projections for the government's petroleum-related revenue is 
approximately USD 400 million annually, while several 
private banking and oil industry sources separately indicate 
such revenues are closer to USD 750 million.  End 
Comment) 
 
¶5.  (C)  Discussing priorities for the 2008 budget, Bogetic 
said the international community should demand increased 
baseline expenditures on social programs and the country's 
deteriorating infrastructure base, along with a concomitant 
decrease in sovereign spending to close an anticipated USD 70 
million budget shortfall.  The IMF representative mused 
that electricity subsidies would have to be trimmed (a step 
we doubt the government will take in an election year), and 
that keeping the military budget solvent with the upcoming 
integration of Forces Nouvelles troops will be essential. 
Cote d'Ivoire's adoption of a published 2008 budget will be a 
sine qua non for IFI engagement in 2008.   IMF Country 
Director Eugume declined requests to share the results of the 
cocoa/coffee and oil/gas audits, as well as assessments 
of the 2007 budget and 2008 projections (with hard figures 
straight from the IMF's interface with the Ministry of 
Finance's fiscal control system), indicating such information 
will be provided to the donors through their Board 
representative, probably in February 2008. 
 
¶6.  (C)  The IFI team indicated that the WB Board will meet 
in December to decide on several Ivorian issues - the 
effectiveness of fiscal governance measures; disbursal of the 
second USD 60 million tranche of post conflict 
assistance and a possible USD 275 million Economic Governance 
and Recovery Grant. The grant, combined with the 
government's own funds, would finally put to rest Cote 
d'Ivoire's WB arrears. This in turn would open the door to 
reviving USD 104 in old WB credits and loan programs (in 
transportation improvement, land tenure and education and 
training projects) that are currently suspended. 
 
Budgetary Implications of the Supplementary Ouagadougou 
Accord, Signed November 28 
---------- 
¶7.  (C)  In the wake of the Ouaga Supplementary Accord, even 
great uncertainty reigns over the budget with the 
prospect of even more substantial, new costs that could cause 
serious disruptions.  These costs include: a renewed 
disarmament effort, the integration into the civil service of 
thousands of "volunteer" teachers who, since 2002, have 
filled the gap left by regular teachers who fled their usual 
place of residence; pay to Forces Nouvelles troops 
who are to be integrated in the country's regular armed 
forces; the "service civique" and infrastructure 
improvements promised by the President during his recent 
swing through the north.  Initial reaction by the donor 
community to the Supplementary Ouaga has been cool in light 
of the technical difficulties the government will face in 
trying to finish the audiences foraines and conduct an 
identification program so that elections can be held in 
June, 2008. 
 
¶8.  (C)  Comment:  Despite grumbling from the donor community 
over imperfect transparency, the IFI appear to be 
making some progress in terms of persuading the government of 
the need for greater social spending and transparency. 
The big picture is not, however, particularly encouraging in 
that the investments needed for long term improvement 
- most notably in health, education and infrastructure, are 
evidently being sacrificed to meet short term, political 
imperatives. The IFIs envision an aggressive timetable 
leading to a large assistance package in 2008. Other donor 
representatives in Abidjan are eager to see exactly what 
cards IFI staff are holding (oil/gas revenues estimates, 
assessment of the 2007 and 2008 budgets) before passing 
judgment on progress made so far.  End Comment. 
NESBITT