VZCZCXRO7709
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0168/01 0510946
ZNR UUUUU ZZH
R 200946Z FEB 09
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 9226
INFO RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS SECTION 01 OF 02 KINSHASA 000168 
 
SENSITIVE 
SIPDIS 
 
E.O.  12958: N/A 
TAGS: ECON ETRD EAID EINV PGOV PREL CG
SUBJECT: CENTRAL BANK GOVERNOR OUTLINES PRECARIOUS 
      FINANCIAL SITUATION, APPEALS TO DONORS FOR 
      EMERGENCY ASSISTANCE 
 
REF:     (A) KINSHASA 1105; 
         (B) KINSHASA 1100 
 
¶1.  (SBU) Summary:  The Central Bank Governor said on February 18 
that the DRC has been in a recession since the second quarter of 
2008, due to both a contraction in the mining sector and the effects 
of the global financial crisis.  He said the DRC needs USD 667 
million in foreign assistance immediately in order to prevent the 
Government from going bankrupt.  With Central Bank reserves down to 
less than one day of import cover and the recent devaluation of the 
Congolese franc (FC), the Central Bank has run out of options for 
correcting its balance of payments issues by itself.  The IMF will 
soon decide whether to grant a USD 200 million Exogenous Shocks 
Facility for balance of payments assistance, and the World Bank and 
others may also contribute funds.  Without immediate assistance, the 
Central Bank may be forced to print money in order to make already 
much-delayed salary payments to its civil servants.  End Summary. 
 
DRC CENTRAL BANK RAISES THE ALARM 
---------------------------------- 
 
¶2.  (U) DRC Central Bank Governor Jean-Claude Masangu Mulongo held a 
press conference on February 18 to make a statement about the 
economic crisis and answer questions.  Masangu said the DRC had not 
escaped the effects of the global financial crisis and officially 
declared that the DRC's economy has been in a recession since the 
second quarter of 2008, the first recession since 2001.  He said 
overall growth in 2008 has slowed to 5.9 percent, with growth only 
in the first quarter and down from 6.3 percent in 2007.  A decline 
in commodity prices, the prolonged mining contract review in the 
DRC, and a subsequent tightening of international credit markets 
combined to drive down mining exports in 2008. 
 
¶3.  (SBU) Masangu described the Central Bank's two critical 
concerns: a weaker balance of payments has driven inflation up and 
lowered the purchasing power of most Congolese; and the economy is 
not likely to rebound until the second quarter of 2009.  The 
official exchange rate has been slowly and steadily increasing since 
December 2008, going from 500 Congolese francs (FC) up to today's 
rate of 746 FC per 1 USD.  The unofficial rate in the parallel 
markets is currently between 775 FC and 785 FC to the dollar.  A DRC 
Central Bank representative told econoff its reserves amount to USD 
32.8 million today (February 19), which amounts to less than one day 
of import coverage. 
 
NEW 1,000 CF NOTES TO HIT THE STREETS 
-------------------------------------- 
 
¶4.  (SBU) The Central Bank had planned to introduce a new 1,000 FC 
note at the end of March.  (Note: The 500 FC note is currently the 
largest denomination in circulation.  End note.)  Some local 
newspapers said the Central Bank may also issue new notes in 5,000 
FC and 10,000 FC denominations, but the Central Bank representative 
told econoff this was not true.  The representative also said the 
GDRC may apply pressure to issue the 1,000 FC note sooner than the 
end of March, presumably to pay for mounting civil service and armed 
forces salary arrears. 
 
¶5.  (SBU) Masangu said approximately 90 percent, or USD 1.2 million, 
of savings accounts in the DRC's banking system is held in foreign 
currency, and the Central Bank has no plans to forcibly convert 
these holdings into Congolese francs.  (Note: Former President 
Laurent Kabila enacted such a requirement, but President Joseph 
Kabila overturned the law requiring conversion into Congolese francs 
soon after taking over power in 2002.  End note.) 
 
HOW DO WE FIX THE PROBLEM? 
--------------------------- 
 
¶6.  (SBU) Masangu said the only solution is for the international 
community to provide USD 667 million in budget assistance, and 
quickly.  He said the IMF must approve its USD 200 million Exogenous 
Shocks Facility (ESF) to support the DRC's balance of payments (Refs 
A and B).  The World Bank will consider a separate USD 100 million 
package on February 26, and the EU and African Development Bank may 
also provide approximately USD 50 million each.  The Central Bank 
has already increased their interest rate to 65 percent from 28 
percent since the beginning of the year to shore up the value of the 
franc, and has no further assets at its disposal to correct the 
problem. 
 
¶7.  (SBU) Comment:  The DRC is in dire need of foreign assistance in 
order to prevent the government from falling into complete 
 
KINSHASA 00000168  002 OF 002 
 
 
bankruptcy.  While the USD 200 million ESF may only buy a month or 
two of time and some critics argue this only delays the inevitable, 
without immediate assistance the DRC will be forced to either 
increase the money supply by printing money or stop paying the 
already much-delayed salaries of police, armed forces, and civil 
servants.  The GDRC has otherwise been making steady progress toward 
reestablishing the IMF's Poverty Reduction and Growth Facility 
program, but hyper-inflation due to currency flooding the market or 
further disruptions in salary payments could derail efforts to 
achieve recovery.  End Comment. 
 
 
GARVELINK