VZCZCXRO6876
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0479/01 1381242
ZNR UUUUU ZZH
R 181242Z MAY 09
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 9615
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
RUEHBJ/AMEMBASSY BEIJING 0129

UNCLAS SECTION 01 OF 02 KINSHASA 000479 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID EINV PGOV PREL CG
SUBJECT: IMF DISCUSSES PRGF TECHNICAL DISCUSSIONS, MACROECONOMIC 
PROGRAM 
 
REF: A) KINSHASA 331 
 B) KINSHASA 317 
 
¶1. (SBU) Summary: DRC technical discussions with the IMF on a new 
Poverty Reduction and Growth Facility (PRGF) are virtually complete, 
but IMF Board approval of a new program is unlikely until there is a 
solution to address the debt-sustainability aspects of the 
Sino-Congolese mining and investment deal.  The IMF projections for 
DRC's growth rates remain at 2.7 percent, but inflation estimates 
are revised upwards to 41 percent for 2009.  International Financial 
Institution and donor support will help to close the fiscal and 
balance of payment gaps for 2009.  The GDRC has outlined measures to 
fill the outstanding gap that was identified during the April 
negotiations with the IMF.  Recent G-20 announcements on increased 
resources for the IMF are unlikely to have a direct bearing on 
financing for the DRC.  IMF Managing Director Dominique Strauss-Kahn 
is expected for a visit May 23-25, though formal negotiations with 
the GDRC are not expected to be part of his agenda.  End Summary. 
 
Macroeconomic Program 
---------------------- 
 
¶2. (SBU) IMF Resident Representative Samir Jahjah briefed the 
international community in Kinshasa on May 8 and met with the 
Ambassador on May 11 to discuss the IMF's recent talks with the 
Congolese authorities in Washington.  IMF Staff and GDRC officials 
have reached broad agreement on the macroeconomic program for 2009, 
building on the IMF Team visit in April.  GDP growth projections for 
2009 remain at 2.7 percent, driven largely by agriculture and 
construction.  Inflation projections have been increased to 41 
percent for the year, based on 55 percent annualized inflation in 
the first quarter.  Higher inflation will have an adverse impact, 
particularly on the poor.  The average exchange rate assumption for 
the year has been increased from Franc Congolais (FC) 740 per US 
Dollar to FC 820/USD.  Government revenues have increased but so 
have expenditures, due largely to currency depreciation and 
associated inflation. 
 
¶3. (SBU) The GDRC has decided on several one-off measures to close 
the fiscal gap that was discussed during the April Mission.  First, 
central government transfers to the provinces will be reduced to 24 
percent, compared to the original provision of 40 percent, in 2009. 
Second, the GDRC plans to accelerate privatization of state 
enterprises (including the cement company, CIMAT), under a program 
with the World Bank.  Jahjah noted that if privatization were to 
lag, so might associated investments by donors.  One unanticipated 
outlay was a transfer of FC 20 billion (USD 24.4 million) to the 
national railway company (SNCC); this was, however, preceded by 
discussions with the IMF and World Bank. 
 
¶4. (SBU) IMF and GDRC officials have also agreed on a monthly 
treasury expenditures plan.  The plan calls for FC 2.6 trillion (USD 
3.2 billion) in public expenditures in 2009, compared to the 
official budget of USD 4.7 billion.  April targets were largely met, 
though there were arrears of FC 10 billion (USD 12.2 million) in 
public salary payments, to be made up in early May.  Overall, 
between the GDRC's actions and actual or anticipated funding from 
the IMF (USD 200 million), World Bank (USD 100 million), African 
Development Bank (USD 97 million) and European Commission (Euros 
48.6 million or approximately USD 63 million), the fiscal and 
balance of payments plans are considered sound. 
 
¶5. (SBU) A March evaluation of the impact of the global financial 
crisis on the DRC's banking system found no systematic risk, though 
it did identify individual banks at risk.  The Central Bank is 
undertaking an audit of these banks.  Results were to be released in 
the coming days and the Central Bank is expected to lend to these 
banks in order to shore up their capital reserves.  Additional 
structural measures to be addressed in the PGRF include stems to 
improve customs collections, other public financial management 
reforms and introduction in 2011 or 2012 of a value-added tax. 
 
6.(SBU) All of the technical aspects of a macroeconomic program to 
underpin a new PRGF are in place and a program could go to the IMF 
Board as soon as June.  However, the issue of the DRC's investment 
and mining contract with China is still a stumbling block for a new 
PGRF.  Paris Club creditors are concerned with loan guarantee 
provisions of the Sino-Congolese deal.  IMF staff have little 
insight into the April round of discussions between the GDRC and the 
Chinese, but understand that the Chinese are still awaiting the 
outcome of a feasibility study.  If and when the loan guarantees are 
renegotiated, Paris Club members will expect a revised debt 
sustainability analysis.  There was a Paris Club meeting on May 13, 
 
KINSHASA 00000479  002 OF 002 
 
 
and the next scheduled meeting will be at the end of June.  If the 
loan guarantee issue is resolved swiftly, Paris Club could convene a 
special session in order for the IMF Board to be able to consider 
the PGRF before the end of June. 
 
G-20 Commitments on IMF Funding 
-------------------------------- 
 
7.(SBU) Jahjah explained that recent G-20 announcements on increased 
funding for the IMF may not have a direct impact upon the DRC. 
Higher quotas would allow countries such as the DRC to increase 
drawings in response to new balance of payments shocks.  There is no 
evidence of this need for the DRC at this time.  In contrast, 
funding for the PGRF Trust Fund comes from sales of gold reserves 
and the Trust Fund has grown due to higher gold prices.  This may 
have an impact on the size of the PRGF in the future. 
 
Upcoming IMF Managing Director Visit 
------------------------------------- 
 
8.(SBU) IMF Managing Director Dominique Strauss-Kahn is expected to 
visit the DRC May 23-25 and the Ivory Coast May 25-28.  The focus of 
his trip is on fragile post-conflict states, and it is not designed 
to send the message that all has been resolved with the DRC.  The 
rationale for his visit is not linked to the PGRF negotiations and 
it is not linked to the China issue.  Strauss-Kahn will visit only 
Kinshasa and meet with the President, Prime Minister, Ministers of 
Finance and Budget, Governor of the Central Bank, the Commission SP, 
civil society, private sector and economic faculties of the 
universities.  He will also visit a health center and hold private 
meetings.  Apart from a scheduled meeting with MONUC, no meetings 
are planned with international community. 
 
Comment 
-------- 
 
9.(SBU) The rapid approval of a PGRF and the subsequent Highly 
Indebted Poor Countries debt relief that would follow are highly 
dependent on resolution of the loan guarantees in the China deal. 
Jahjah noted that the decision on whether or not to maintain 
debt-sustainability criteria is ultimately a political one among 
Paris Club creditor nations, specifically the U.S., France, Belgium, 
and Japan.  The USG may come under increasing pressure to moderate 
our position, given that some Paris Club creditors, including 
France, appear willing to moderate the preconditions for a PRGF, for 
instance, allowing the program to go ahead, with resolution of the 
China issue as a condition for later disbursements. 
 
¶10. (SBU) Comment continued: Rising inflation, tight government 
expenditures, privatizations, and reduced transfers from the 
Treasury to the provinces are potential sources of political 
backlash, though Post has yet to see any significant fall-out along 
these lines.  The mention of a value-added tax in future years will 
also increase political vulnerabilities, particularly because the 
GDRC will have to manage the timing of VAT introduction, knowing 
that national elections are to take place in 2011.  End Comment. 
 
 
GARVELINK