VZCZCXRO7547
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0317/01 0921123
ZNR UUUUU ZZH
R 021123Z APR 09
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 9416
INFO RUCNSAD/SADC COLLECTIVE
RUEHQRWANDA 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
RUEHBJ/AMEMBASSY BEIJING 0122

UNCLAS SECTION 01 OF 02 KINSHASA 000317 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID EINV PGOV PREL CG
SUBJECT: IMF STAFF MISSION PRESENTS MIXED PICTURE TO DONORS 
 
REF:     KINSHASA 271 
 
¶1.  (SBU) Summary:  The IMF Staff Mission presented donors on March 
31 with a mixed picture of their two-week visit (Reftel) to the DRC 
to conduct Article IV consultations and engage in technical 
discussions on a formal IMF program (Poverty Reduction and Growth 
Facility, PRGF).  Positive developments included the quick 
mobilization of emergency resources to help cover the DRC's fiscal 
and balance of payments gaps, open discussions with Parliamentarians 
and civil society on the DRC's economic challenges, improved public 
financial management, and progress on technical discussions on the 
PRGF.  At the same time, the IMF noted a residual budget gap of 
approximately $100 million that will need to be closed before the 
PRGF can be approved, and continuing macroeconomic and fiscal 
pressures.  In a clear indication that the economic downturn 
continues to be the central challenge for the GDRC in the near-term, 
the IMF team announced a revised GDP growth rate for 2009 of 2.7 
percent, down from a December projection of 4.4 percent.  End 
Summary. 
 
DONORS PROVIDE KEY SUPPORT, BUT GAPS REMAIN 
------------------------------------------- 
 
¶3.  (SBU) IMF Staff Mission leader Brian Ames told donors on March 
31 that recently approved emergency assistance would cover 
approximately 60 percent of the DRC's budget gap.  Approved 
assistance includes $100 million from the World Bank and $200 from 
the IMF (Note: IMF emergency assistance under the Exogenous Shock 
Facility, ESF, will be provided to the Central Bank to augment 
international reserves. It will not be used as budget support. End 
Note) An additional $150 to $200 million in emergency assistance is 
anticipated from the EU and African Development Bank (AfDB). An EU 
representative described planned emergency assistance as totaling 
around EUR 50 million.  The assistance will be provided as line-item 
budget support and disbursed in two tranches, planned for mid-July 
and September.  EU assistance will be targeted towards food security 
and related activities; the EU is still working to identify specific 
line-items in the budget to be supported.  AfDB plans to provide 
$100 million in emergency assistance, with the first $50 million 
tranche anticipated before June. 
 
¶4.  (SBU) During the December 2008 Staff Mission visit, the IMF had 
identified a budget gap of approximately 220 billion FC 
(approximately $275 million at the current exchange rate).  However, 
additional expenses, lower GDP growth and a significantly 
depreciated exchange rate have led to an increase in the previously 
projected gap.  Ames estimated the residual gap at 80 billion FC or 
approximately $100 million at the current exchange rate.  Ames noteQ 
two options for the GDRC to close the budget gap: a) increase 
revenues and/or obtain additional external financing or b) reduce 
spending.  The GDRC's position, according to Ames, is to ensure 
macroeconomic stability and contain expenditures.  The IMF plans to 
use the April 25/26 Spring IMF/World Bank meetings to discuss 
measures to close the remaining budget gap. 
 
 
PRGF TECHNICAL DISCUSSIONS MOVE FORWARD 
-------------------------------------- 
 
¶5.  (SBU) Ames stated he was generally pleased with the results of 
the technical discussions with the GDRC on the PRGF.  The IMF team 
devoted considerable time to these discussions and was pleased by 
the GDRC's willingness to put "all issues on the table."  This was a 
break from the past.  While Ames acknowledged that the team did not 
finalize all technical aspects of the agreement, and expressed 
disappointment that the GDRC was not better prepared to take 
concrete steps on specific measures during the visit, the work ahead 
for the GDRC is now clear.  The remaining, critical step is for the 
authorities to take necessary political decisions on specific 
measures.  Ames promised to share with donors the draft matrix on 
structural reform measures that would be included in a new PRGF.  He 
was open to donor input on specific reforms to be included. 
 
 
CHALLENGES AHEAD 
---------------- 
 
¶6.  (SBU) Ames outlined several specific challenges facing the GDRC 
in the areas of the budget, public financial management and 
emergency spending.  An immediate problem facing the government is 
the lack of a system of arbitrage in the budget and expenditure 
process.  For example, the "Plan de Tresorerie" or Treasury 
cash-flow plan, includes expenditures in both Congolese Francs and 
US dollars.  The recent depreciation of the CF against the dollar 
 
KINSHASA 00000317  002.2 OF 002 
 
 
has exacerbated this problem, despite what Ames described as 
significant progress by the Ministry of Finance in public financial 
management, including improved adherence to mandated procedures 
governing emergency spending.  Ames therefore called on the GDRC to 
immediately put in place a system of arbitrage to be overseen by the 
Prime Minister's Office (noting that many line ministries would not 
necessarily be responsive to a decree issued by the Minister of 
Finance).  Another problem related to the monthly Plan de Tresoreie 
is that recurring, administrative costs (such as salaries) are 
usually paid at the end of the month, when credit may not longer 
exist. As a result, the government has frequently postponed the 
payment of salaries. 
 
¶7.  (SBU) Another challenge continuing to face the GDRC is the lack 
of coordination among key ministries on the government's economic 
program.  Improved coordination among and increased participation by 
line ministries such as the Ministries of Agriculture, Education and 
Health will be critical as the DRC moves towards HIPC completion 
point. 
 
¶8.  (SBU) Finally, implementation of the 2009 budget's wage bill 
(masse salaire in French) was noted as another area of increased 
fiscal pressure on the budget.  The GDRC's 2009 budget calls for a 
harmonization of Kinshasa and provincial salary levels.  The IMF has 
discussed the possible delayed or phased-in implementation of what 
amounts to a salary increase for many civil servants.  The issue is 
politically sensitive for the GDRC, but they may be forced to delay 
full implementation of the provisions by a month or two given the 
lack of available current resources. 
 
CHINA AGREEMENT-NO COMMENT 
-------------------------- 
 
¶9.  (SBU) Despite donor inquiries, the IMF team kept to its now 
standard practice of limiting its discussion on the China agreement 
to the broad linkages with HIPC and debt sustainability.  Ames did 
note, however, that the completion of the planned feasibility study 
on the agreement had been slightly delayed, from the end of March to 
early April. He also stated that while he did not have any 
information on the status of the $250 million signing fee ("pas de 
porte") included in the agreement, the IMF had urged the GDRC not to 
use these funds until after the conclusion of the feasibility study. 
The economic and fiscal crisis would likely continue through 2010 
and 2011; resources needed to be conserved. 
 
¶10.  (SBU) Comment:  Unlike past IMF Staff Mission briefings which 
have included a greater focus on recent macroeconomic developments, 
the March 31 briefing to donors was more forward looking, including 
measures to address the DRC's significant economic challenges.  Key 
macroeconomic data will be available as part of the IMF's Staff 
Report on the Article IV consultations and donors are already keenly 
aware of worrisome state of the economy.  The focus now is on 
ensuring continued macroeconomic stability, the adoption of key 
measures and reforms as discussed with the IMF, and continued 
positive movement toward a PRGF.  The Spring IMF/World Bank meetings 
will be critical to resolve several key issues for PRGF approval, 
foremost among them measures to close the budget gap. 
 
GARVELINK