VZCZCXRO7543
PP RUEHMA RUEHPA
DE RUEHDK #1431/01 3511452
ZNR UUUUU ZZH
P 161452Z DEC 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1573
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0076
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 001431 
 
SENSITIVE 
 
SIPDIS 
 
DEPARTMENT FOR EEB/EPPD, AF/W AND AF/EPS 
TREASURY FOR RHALL, DPETERS, GCHRISTOPOLUS 
ABU DHABI FOR OTA/GRIFFERTY 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD SG
SUBJECT:  SENEGAL'S LATEST TREASURY BONDS; A CREATIVE APPROACH 
 
REF: A) Dakar 1298, B) Dakar 0813 
 
DAKAR 00001431  001.2 OF 002 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¶1.  (SBU) SUMMARY: In early December, Senegal launched a USD 40 
million treasury bond offering as one part of the government's plan 
to pay off the debt it owes to private sector contractors.  In 
marketing the bonds, the regional central bank and the Ministry of 
Finance reportedly promised subscribing banks that their client 
companies to whom the government owes money will be paid on a 
priority basis, allowing those companies to pay back debts owed to 
the banks.  Hopefully, this arrangement will not only contribute to 
diminishing the GOS's budget deficit, but will also add some 
much-needed liquidity to Senegal's banking sector.  END SUMMARY. 
 
¶2.  (U) In an effort to honor its commitment to pay its internal 
debt by January 2009 (Ref A), on December 3, Senegal launched a CFA 
20 billion (USD 40 million) short-term treasury bond offering 
through the WAEMU/UEMOA regional central bank (BCEAO).  The bonds' 
face value is USD 2,000.  They are to be sold under the "Dutch 
Auction" system to determine the payable interest, which is expected 
to average six percent, payable in advance, and exempted from taxes. 
 
 
¶3.  (U) The main target for the bonds are local commercial banks. 
Insurance companies and other financial institutions that maintain 
current accounts at the BCEAO, as well as intermediate banks located 
within the WAEMU region can also purchase the bonds. 
 
CREATIVE MARKETING 
------------------ 
¶4.  (SBU) There was wide-spread initial skepticism that this 
 
DAKAR 00001431  002.2 OF 002 
 
 
issuance would succeed, particularly given the current lack of local 
liquidity and after Senegal's previous treasury bond issuance in 
June was under-subscribed (Ref B).  However, our contacts believe 
this latest offer, which is significantly smaller, will be fully 
subscribed or better due mostly to creative marketing by Senegal's 
Ministry of Finance and the BCEAO.  According to banking sources, 
the BCEAO polled local banks on the credit they have outstanding 
(and likely overdue) from private clients who are suffering from the 
large stock of official arrears.  These banks were pushed to 
purchase bonds equal to the amount these companies owe, with the 
promise that the Treasury will pay those companies first from the 
bond proceeds, allowing the companies in return to repay their 
outstanding debts to the local banks.  In theory, this approach 
should create some much needed liquidity in the commercial banking 
sector in the coming months. 
 
¶5.  (U) Though the bond issuance reflects only a small portion of 
the government's current arrears to the private sector, which is 
estimated to be USD 350 million at a minimum, it is part of the 
MinFin's action plan to close the current budget deficit as required 
under the country's Policy Support Instrument (PSI) agreement with 
the IMF.  The government is continuing to look for other sources of 
financing in order to pay off its arrears to the private sector by 
the end of January 2009 as promised by President Wade and Finance 
Minister Diop. 
 
¶6.  (SBU) Ministry of Finance contacts confirm that they hope to 
gain BCEAO and IMF approval for a similar issuance before the end of 
January 2009.  The approval for such action will depend in part on 
the treasury bonds being planned by other WAEMU member states, and 
also the recommendations of the IMF Board's second review of 
Senegal's PSI. 
 
BERNICAT