VZCZCXRO3338
OO RUEHGI RUEHMA RUEHROV
DE RUEHKH #1578/01 2981153
ZNR UUUUU ZZH
O 241153Z OCT 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2166
INFO RUCNFUR/DARFUR COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 02 KHARTOUM 001578 
 
DEPT FOR A/S FRAZER, SE WILLIAMSON, AF/SPG, AND EEB/IFD 
NSC FOR PITTMAN AND HUDSON 
DEPT PLS PASS USAID FOR AFR/SUDAN 
DEPT PLS PASS TREASURY FOR OIA, USED IMF AND USED WORLD BANK 
ADDIS ABABA ALSO FOR USAU 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAID PGOV PREL SU
SUBJECT: CENTRAL BANK GOVERNOR CONFIRMS INTERIM AGREEMENT ON FOREIGN 
EXCHANGE DISPUTE, BUT SAYS PROBLEM "NOT RESOLVED" YET 
 
REF: KHARTOUM 1566 
 
¶1.  (SBU) SUMMARY:  Central Bank of Sudan Governor Sabir Hassan 
confirmed that there is an interim agreement with the GoSS on the 
transfer of foreign exchange (FX) held by Bank of Southern Sudan 
(BOSS), but that the issue "is not resolved."  The BoSS is to resume 
its pre-April transfers of excess FX to the Central Bank, but 
Governor Hassan evaded questions about what will happen to the $500 
million in FX that reportedly already has accumulated in the BoSS. 
By the end of the year, the two sides are to have formed a 
joint-committee and hired teams of experts to finally resolve the 
problem, as well as other disputes.  END SUMMARY. 
 
¶2.  (SBU) On October 22, Central Bank of Sudan (CBOS) Governor Dr. 
Sabir Mohammed Hassan provided his perspective on the dispute with 
the Government of South Sudan over foreign exchange  reserves to 
Assessment and Evaluation Committee (AEC) Chairman Derek Plumbly and 
Working Group Coordinators, including CDA Fernandez.  Hassan 
confirmed that Government of National Unity (GNU) Finance Minister 
Al Jaz and GoSS Finance Minister Mawein had reached a provisional 
agreement on October 20 to return to the pre-April 2008 FX 
operations, under which the BoSS transfers its excess FX into 
Central Reserve Account at the CBOS (reftel).  Hassan complained 
that at the October 20 meeting, the GoSS also had raised "new 
issues" involving CBOS restructuring and management changes, 
separate from the question of foreign exchange.  (Note: These "new 
issues" refer to Minister Mawein's reftel complaint that Hassan is 
both CBOS Governor and head of its Management Committee, and his 
call for further CBOS reorganization to clarify the separation 
between the Islamic banking system in the north and the conventional 
system in the south.  End note.) 
 
¶3.  (SBU) Hassan explained that under the Comprehensive Peace 
Agreement (CPA), on instructions of the GNU Finance Ministry in 
Khartoum, each month CBOS transfers into the GoSS' account at the 
BoSS one half of the revenues derived from oil produced in the 
south.  These revenues are denominated in foreign currency, since 
they derive  primarily from foreign oil sales.  Until April, the 
BoSS would maintain a working reserve (about US$300 million) of FX, 
and exchange the rest for local currency from the CBOS.  The BoSS 
then stopped these exchanges on the order of the GoSS Finance 
Ministry and held on to all of the FX. 
 
¶4.  (SBU) Hassan said the CPA clearly states (Article 14.2) that the 
Bank of Southern Sudan is a branch of the CBOS.  As such, the BoSS 
reports to and takes direction solely from the CBOS Board of 
Governors (on which the BoSS Governor sits as a Deputy Governor). 
The GoSS has no authority to issue instructions to the BoSS, as it 
had done in ordering the BoSS to stop transferring foreign exchange 
to the CBOS' reserve account.  Hassan called this a clear "violation 
of the CPA." 
 
¶5.  (SBU) According to Hasan, the Central Reserve Management Unit of 
the CBOS manages FX reserve policy for all of Sudan, including the 
South.  Because the Sudanese Pound is not convertible, the CBOS must 
maintain a significant stock of FX in its Central Reserve Account. 
While the GoSS receives half of the state revenues produced in its 
territory, foreign exchange such as that held by the BoSS does not 
belong to the GoSS.  The GoSS "wants to have its cake and eat it 
too" Hassan said. 
 
¶6.  (SBU) Pressed by CDA Fernandez on whether the October 20 
agreement includes the transfer of the US$500 million that is 
reported to have accumulated in the BoSS in the interim, Hassan was 
evasive.  Hassan left the impression that, while the BoSS will now 
start transferring FX back to the CBOS as it had been doing until 
April, the CBOS and the GoSS have agreed to disagree for now about 
the disposition $500 million. 
 
¶7.  (SBU) When asked, Hassan said emphatically that the dispute is 
"not resolved."  He said the GNU and the GoSS now will form a 
joint-committee, including participants from the Naivasha talks that 
led to the CPA, to finally resolve the question.  Each side will 
hire outside experts to advise them.  In addition, the committee 
will examine the "new issues" of CBOS restructuring and management 
raised by the GoSS on October 20.  AEC Chairman Plumbly expressed 
the hope that the interim agreement will hold and said that the AEC 
will continue to follow the issue closely. 
 
¶8.  (SBU) COMMENT:  The GoSS appears to have taken a page from the 
NCP's book and employed  a reading of the often-less-then-clear CPA 
most favorable to its own interests.  The CBOS and GoSS had worked 
out an earlier agreement that promptly collapsed.  We can expect 
this dispute to continue to drag on while the two sides argue over 
 
KHARTOUM 00001578  002 OF 002 
 
 
their differing interpretations; meanwhile, it appears that the 
current agreement has appeased the CBOS temporarily. Some of the 
heat of the argument seems to be Dr. Hassan's view that he has 
personally been undercut by the GOSS exercising untoward 
interference of the BOSS. 
 
FERNANDEZ