VZCZCXRO0607
PP RUEHMA RUEHPA
DE RUEHCO #0095 0751016
ZNR UUUUU ZZH
P 161016Z MAR 09
FM AMEMBASSY COTONOU
TO RUEHC/SECSTATE WASHDC PRIORITY 0813
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 1414
RUEHLO/AMEMBASSY LONDON 0428

UNCLAS COTONOU 000095 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/W ACOOK 
LONDON FOR PETER LORD 
PARIS FOR BKANEDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL BN
SUBJECT: IMF ANALYSIS OF EFFECTS OF WORLD FINANCIAL CRISIS ON BENIN 
 
¶1. (U) SUMMARY: The Resident Representative (resrep)of the 
International Monetary Fund (IMF) Koffi Yao presented the IMF report 
on the world financial crisis, its impact on Sub-Saharan Africa and 
the probable avenues of transmission of negative effects on Benin at 
 the World Bank's Cotonou headquarters on March 2.  While not 
particularly vulnerable through the international banking system, 
Benin will likely feel the effects of the world-wide crisis through 
decreased exports to its more exposed trading partners. Yao also 
suggested ways that the Government of Benin (GOB) and the 
international community could manage these risks. END SUMMARY. 
 
¶2. (U)Koffi Yao presented results of the IMF's January 2009 World 
Economic Outlook at a meeting of representatives of donor countries 
at the World Bank's Cotonou mission.  IMF estimates project falling 
growth rates of GDP around the world - but remaining positive for 
all but the most industrialized countries. 
 
¶3.  U)Benin's ties to the international banking system are weak 
particularly with respect to US banks.  Beninese banking ties are 
generally closer to French banks, whereas British and South African 
banks are also more closely linked to Sub-Saharan Africa in general. 
 The banking sector will have a limited role as an avenue of 
transmission for negative effects of the economic crises on Benin. 
 
 
¶4. (U)Benin's single most important export is cotton (47% of the 
total). Nigeria and China each account for 20% of cotton exports. 
Both recipient countries are greatly exposed to the effects of the 
crisis, Nigeria through the oil slump and China through the weakened 
world market for manufactured goods.  Although the percentage of GDP 
directly tied to exports is low, this exposes Benin to indirect 
negative impact. 
 
¶5. (SBU)Benin is also exposed to the effects of the crisis through 
decreased aid, remittances and foreign direct investment.  In 
particular, individuals remitting foreign earnings live primarily in 
heavily exposed countries: EU, US and ECOWAS.  Yao mentioned one IMF 
suggestion that aid be increased to Gleneagles levels to off-set 
decreases in other flows.  (NOTE: Participants were not enthusiastic 
about this suggestion and pointed to the GOB's inability to absorb 
current levels of aid.  END NOTE.) 
 
¶6. (U)Yao suggested ways that the GOB could mitigate the local 
effects of the crisis.  He said that improved collection and 
administration of public revenues would allow them to reduce the tax 
rate while mobilizing additional resources.  The GOB could also 
manage the budget to prioritize spending on the most effective 
sectors and reduce spending on the least productive items. 
 
¶7. (U) Yao encouraged the central bank to work with the financial 
sector to monitor potential vulnerabilities.  He also recommended 
that the CFA zone focus on medium-term stability as the weakening 
GDP growth rate leads to reduced demand for money. 
 
¶8. (SBU) COMMENT.  While the IMF's suggestions seem well-reasoned 
they are not yet part of the GOB's program.  As the crisis unfolds, 
it may move the GOB in that direction.  Participants at the meeting 
noted that IMF statistics omit the informal sector which is likely 
bigger than the formal one.  Yao conceded that point but noted that 
as much of the informal sector is linked to cross border trade with 
Nigeria (a heavily exposed country) it may be more vulnerable than 
the official statistics predict. END COMMENT. 
 
BROWN