VZCZCXRO2776
PP RUEHPA
DE RUEHAB #0166/01 0721420
ZNY CCCCC ZZH
P 121420Z MAR 08
FM AMEMBASSY ABIDJAN
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 4077
INFO RUEHZK/ECOWAS COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 000166 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF EPLUMB, EREPTKO, KDIZOGLIO 
USAID FOR CGARRETT, SSWIFT 
DEPARTMENT PASS TO USTR CHAMILTON 
ACCRA FOR USAID PRICHARDSON, KMCCOWAN 
DAKAR FOR FCS SMORRISON, FAS RHANSEN 
 
E.O. 12958: DECL: 03/07/2018 
TAGS: ECON EFIN PGOV PREL IMF IBRD IV
SUBJECT: COTE D'IVOIRE PAYS WORLD BANK ARREARS;  IMF SEES 
AGRESSIVE HIPC TIMETABLE 
 
Classified By: EconChief EMassinga, Reasons 1.4 (b,d) 
 
¶1.  (C)  Summary.  The World Bank announced in late February 
that the Government of Cote d'Ivoire has paid its portion of 
its arrears clearance package, paving the way for renewed 
assistance.  The IMF announced that with the arrears 
clearance package in hand, it will proceed aggressively with 
a Poverty Reduction Strategy Paper (PRSP) and to negotiate a 
Poverty Reduction Growth Facility (PRGF) with the aim of 
reaching a HIPC decision point much more quickly than most 
donor country representatives had thought possible.  End 
Summary. 
 
Cote d'Ivoire Pays Last Tranche of Arrears Package 
-------- 
¶2.  (SBU) The World Bank reported that the government has 
paid in full its portion of an arrears clearance package 
negotiated in July 2007, at a meeting of international donors 
on February 29.  This action clears the way for the Bank to 
pay its portion of the package, 50 percent of the total stock 
of approximately $500 million in arrears.   Bank Country 
Representative Harbone said a vote by the Bank Board is being 
scheduled for sometime in late March. 
 
¶3.   (SBU)  Harbone reported that the Bank will immediately 
enter into intense negotiations on how to spend USD 104 
million in old credits.  Bank staff envision USG 50 million 
going immediately to education (particularly in the north 
where government schools have been effectively shut for the 
past five years) and USD 20 million to improve degraded 
transportation routes.  In May/June, four new urban 
infrastructure projects concentrating on access to water and 
road reconstruction will begin in the two biggest cities in 
Cote d'Ivoire, Abidjan and Bouake. 
 
¶4.  (C)  The USD 120 million Post Conflict Assistance 
Program, approved in July 2007 but never tapped due to the 
manifest failure of the Prime Minister's office remains an 
embarrassment.  The Prime Minister's office has still failed 
to comply with rules related to selection of a public auditor. 
 
HIPC Negotiations to Proceed on an Aggressive Pace 
-------- 
¶5.  (C)  IMF Country Director Philippe Eugume said that now 
that the World Bank arrears clearance package is complete, 
the next step is completion of a PRGF and PRSP, assuming 
fiscal performance remains acceptable.  This needs to be done 
relatively quickly, possibly this calendar year (the timing 
was not specified) while Cote d,Ivoire remains eligible for 
HIPC.  This was a point that needed clarification for the 
assembled donor country representatives - in order to keep 
its HIPC eligibility, Cote d'Ivoire's debt-to-annual export 
ratios must stay above 250%.  With expected modest debt 
relief associated with World Bank and African Development 
Bank arrears clearance packages, that threshold will be 
breached sometime in late 2008 or early 2009.  Thus, IFI 
staff anticipate a HIPC schedule,  governed by the completion 
of the PRSP, could go forward on a faster track than many 
donor country representatives had understood. 
 
¶6.  (C)  Eugume said that progress on PRSP and a PRGF are all 
the more important because of the elections timetable 
described by Independent Electoral Commission President 
Mambre at a briefing for donor country representatives on 
February 28.  Mambre said elections could technically take 
place 11 months after the audiences foraines process comes to 
its completion.  If the CEI's technical calendar is 
maintained, elections would take place in February of 2009. 
 
Assessment of Budget Support Package To Date 
------------ 
¶7.   (C)  A visiting IMF assessment team lead by Arend 
Kouwenaar looking into the government's performance during 
the period of a July 2007-approved, USD 120 million budget 
support package reported broad satisfaction with fiscal 
management.  The team expressed particular satisfaction with 
the substantial numbers of new employees in the health and 
education ministries (at least 700 new doctors and other 
health care workers, and even more educators) to be created 
in the new budget.  However, as the IMF team reported to a 
group of representatives from major donor countries, funding 
to cover an anticipated 2008 budget gap will have to be 
identified.  The IMF found no immediate takers among the 
assembled donor community.  The IMF team noted that regional 
financial markets remain liquid, despite heavy recent 
 
ABIDJAN 00000166  002 OF 002 
 
 
borrowing by the Ivoirian government, indicating some 
additional sources of cash could probably be accessed through 
that route. 
 
¶8.   (C)  One large expenditure that is not adequately 
accounted for in the 2008 budget is the anticipated cost 
associated with disarmament (DDR).  The IMF team said it 
finds that the process is moving forward, but largely without 
the structure (cantonment, stocking of arms, well-designed 
reinsertion programs, etc.) envisioned by the international 
community and as seen in other post-conflict scenarios.  The 
already-approved DDR budget of approximately USD 55 million 
was structured to integrate 2000 troops from the Forces 
Nouvelles (FN), but the IMF team noted a recent political 
decision was made to expand that to 5000 troops.  The EC 
representative complained that the DDR budget (which 
ostensibly will cover the reportedly tens of thousands of 
militiamen in the west and the Abidjan environs claiming 
equal treatment) is grossly insufficient.  According to the 
EC's representative, the promised demobilization payments of 
approximately USD 650 promised to each demobilized member of 
the 37,000 FNs alone would break this budget. 
 
¶9.  (C)  The second large expenditure that the IMF said is 
likely to cause a budget shortfall is funding for the voting 
identification card "operator" SAGEM, a French company.  The 
2008 budget has an approximate USD 55 million line item for 
this program, but the IMF team said this will not be enough 
for the company to accomplish its ambitious mission.  The EC 
representative rebutted the notion that SAGEM would need more 
than USD 100 million to do the job.  The EC representative 
said that the current funding for SAGEM is more than 
sufficient, and that the formal scope of work set by the 
government and that guides more detailed contract negotiation 
should be further restricted to allow greater oversight of 
the company's expeditures. 
 
¶10.  (C)  The IMF team said the government's revenues and 
expenses outside of DDR and identification are as expected. 
While revenues could be enhanced by requiring that more 
profits from 100-percent state-owned petroleum company 
PETROCI be shared with the government treasury, 
realistically, not much additional revenue is expected.   On 
the expense side of the ledger, the President's "sovereign 
account" could be trimmed, as could the implicit subsidies 
involved in lower-than-world-average electricity and petrol 
prices.  Again, not much is expected in these realms. 
 
¶11.  (C)  Comment.   The Government of Cote d'Ivoire appears 
to have taken advantage of resilient liquidity in the 
regional financial market to put an end to the World Bank 
arrears saga, and may very well take advantage of the same 
source to finance budget gaps created by bigger than 
anticipated DDR and identification costs.  The announcement 
of an aggressive drive towards HIPC surprised most in the 
international community.  Embassy Abidjan will pay close 
attention to this process as it unfolds.  End Comment. 
NESBITT