VZCZCXRO3000
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0918/01 2961525
ZNR UUUUU ZZH
R 221525Z OCT 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8651
INFO RUEHBJ/AMEMBASSY BEIJING 0107
RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS SECTION 01 OF 02 KINSHASA 000918 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN EINV PGOV PREL CH CG
SUBJECT: THE DRC AND CHINA: WE CAN HAVE OUR CAKE AND EAT IT TOO 
 
REF:(A) KINSHASA 426 
(B) BEIJING 3996 
 
KINSHASA 00000918  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  Recent public statements by the IMF, China 
(PRC)'s Ambassador to the Democratic Republic of Congo (DRC), and 
the Government of the Democratic Republic of Congo (GDRC) on the 
multi-billion dollar Sino-Congolese agreement concluded in early 
2008 (ref A) share several common themes, and a few important 
differences.  All parties agree that the DRC's infrastructure needs 
remain enormous and that the GDRC can and should simultaneously 
pursue the Chinese agreement and assistance, including debt relief, 
from traditional donors.  The key sticking point reflects differing 
views on whether or not the Chinese agreement includes implicit or 
explicit guarantees of the GDRC.  The IMF indicated during its 
September 10-23 Staff Mission to the DRC that some progress has been 
made with the GDRC in addressing concerns over the Chinese 
agreement's impact on the DRC's debt sustainability, but will wait 
until the conclusion of a mining feasibility study, now slated for 
March 2009, for any clarifications or possible adjustments to the 
agreement.  The GDRC has stated both publicly and in discussions 
with the IMF its desire to pursue both a new IMF program and the 
Chinese agreement, but has been non-committal about its willingness 
to revise the terms of the agreement.  While the Chinese clearly see 
a need to address suspicion about the agreement, they have provided 
no public indications that they are willing to revisit the agreement 
in light of IMF concerns.  End Summary. 
 
IMF:  PROGRESS, BUT NOT THERE YET 
--------------------------------- 
 
¶2. (SBU) A press release issued by the IMF Staff Mission to Kinshasa 
from September 10-23 stated that "The mission supports the 
government's twin objectives of accelerating infrastructure 
development and achieving substantial debt relief from its 
traditional creditors."  A key concern of the IMF and Paris Club 
members remains whether the agreement includes implicit or explicit 
guarantees of the GDRC.  Until this issue is clarified, the DRC 
cannot qualify for a new IMF Poverty Reduction and Growth Facility 
program (PRGF). 
 
¶3. (SBU) During a September 23 briefing with donor country 
representatives, the IMF noted that that there had been some 
progress in discussions with the GDRC, particularly in the area of 
improved communications and a greater understanding by GDRC 
officials of IMF/Paris Club concerns.  Specifically, the IMF told 
donors that the GDRC now accepts that the agreement includes 
guarantees.  However, the GDRC continues to insist that these are 
"residual guarantees" covered by profits from the joint venture 
established under the agreement.  From the GDRC perspective, the 
agreement would not impact debt sustainability since it is the joint 
venture, not the Congolese state, that would be responsible for 
repayment, and additional resources or concessions could be found if 
the original concessions did not produce sufficient revenues to 
cover the investments.  (Note: In the first phase of the agreement, 
revenues from the joint venture will be used to repay mining sector 
investments totaling approximately USD 3 billion.  In the second 
phase of the project, 66 percent of the net profits will go towards 
paying off the loans for infrastructure projects.  End Note.) 
 
¶4. (SBU) The IMF further told donors that while it will continue to 
provide technical assistance to the GDRC on the 2009 DRC draft 
budget and 2008 economic program, it will wait for the conclusion of 
the mining feasibility study, now slated for March 2009, for 
specific discussions on clarification or re-visitation of provisions 
in the Chinese agreement. The feasibility study will also be an 
opportunity to review concerns over the concessionality of the 
loans.  Based on the timing of the feasibility study, the IMF 
presented two possible scenarios for DRC reaching Heavily Indebted 
Poor Countries (HIPC) Completion Point.  The optimistic scenario 
would have a new IMF program presented to the Board in July 2009, 
with Completion Point reached by May 2010.  The less optimistic 
scenario would have Completion Point slip until 2011, at the 
earliest. 
 
 
CHINA:  ALL CAN PARTICIPATE IN DRC'S DEVELOPMENT 
--------------------------------------------- --- 
 
¶5. (U) During an October 8 panel held as part of an  international 
infrastructure conference in Kinshasa (iPAD Central Africa 2008), 
China's Ambassador to the DRC, Wu Zexian, outlined China's role in 
the DRC and directly addressed questions concerning the 
compatibility of the Chinese agreement and an IMF program.  Zexian's 
presentation was the latest in a series of recent public statements 
on China's engagement in the DRC and was clearly aimed at addressing 
 
KINSHASA 00000918  002.3 OF 002 
 
 
suspicions about the agreement. 
 
¶6. (U) During his October 8 presentation, Ambassador Zexian 
highlighted three principals of Chinese engagement in the DRC. 
First, China supports the DRC as a fellow developing country with 
shared challenges.  Second, China has long-standing relations with 
the DRC, including past assistance in infrastructure development 
projects such as the Parliament building  and Marytrs sports 
stadium.  Finally, China continues to support the DRC's development 
through both official assistance and the recently concluded 
mining/infrastructure agreement. 
 
¶7. (U) Ambassador Zexian acknowledged public skepticism about the 
recently concluded agreement. He stressed that the agreement should 
not be considered an exclusive deal for China - all other partners 
were welcome to cooperate similarly with the GDRC.  Turning to the 
IMF's concerns over possible sovereign guarantees in the agreement, 
Zexian stated that the agreement would not add additional debt for 
the DRC since the infrastructure projects would be paid for from the 
eventual profits from the mining concessions.  In the event that the 
revenues from the concessions cannot cover the investment costs, the 
GDRC would either simply find other natural resources or concessions 
for payment, or the joint venture would be liquidated and China's 
Eximbank would take over control. 
 
GDRC: DEBT RELIEF, CHINESE AID ARE BOTH PRIORITIES 
--------------------------------------------- ----- 
 
¶8. (U) Speaking at the same October 8 infrastructure panel as 
China's Ambassador, GDRC Minister of Plan Olivier Kamitatu stated 
that the DRC requires USD 14 billion for infrastructure development, 
of which USD 9 billion will be provided through the Chinese 
agreement.  Kamitatu noted that the DRC plans to work with both new 
partners, such as China, as well as traditional donors.  When asked 
specifically by an audience member how the GDRC plans to reconcile 
IMF concerns about provisions in the Chinese agreement with the need 
for debt relief under HIPC, Kamitatu stated that both HIPC and the 
Chinese agreement represent priorities for the GDRC at the highest 
level.  The Chinese have been accepted as a partner by the 
Congolese, Kamitatu noted.  To ensure both processes proceed, the 
GDRC stands prepared to work through technical issues in the Chinese 
agreement. 
 
¶9. (SBU) Comment. It is encouraging that the GDRC at a senior level 
has publicly stated its desire for both the Chinese agreement and 
HIPC to move forward, and that the IMF feels that progress has been 
made, if only at a superficial level, on the sticking point of 
whether the Chinese agreement includes implicit or explicit 
guarantees of the Congolese government.  It is also noteworthy that 
the Chinese are participating in open forum-type meetings to discuss 
these issues, even before Assistant Foreign Minister Zhai Jun 
indicated willingness to do so two weeks later in a meeting in 
Beijing with AF A/S Frazer (ref B).  The proof is in the pudding, 
however, and it remains unclear whether the GDRC and the Chinese 
government are really willing to revisit the agreement and bring 
problematic provisions in line with IMF requirements on debt 
sustainability. The Chinese and GDRC are correct that the DRC's 
needs are enormous and that all partners are welcome at the table. 
At the same time, infrastructure alone will not address the DRC's 
broader development challenges.  The resources from debt relief 
remain critical to the provision of basic services and pro-poverty 
spending. The IMF Staff Mission has encouraged Paris Club members to 
engage the DRC and China at a senior level to convey the importance 
of ensuring that the Chinese agreement does not preclude a new IMF 
program and forward movement toward HIPC Completion Point.  Post 
will seek opportunities to send this message to the GDRC and 
encourages Washington to do the same.  End Comment. 
 
BROCK