VZCZCXRO8185
RR RUEHMA RUEHPA
DE RUEHRY #0490/01 2331237
ZNR UUUUU ZZH
R 211237Z AUG 09
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC 3945
INFO RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHMFISS/HQ USAFRICOM STUTTGART GE

UNCLAS SECTION 01 OF 02 CONAKRY 000490 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EMIN PGOV PREL GV
SUBJECT: GUINEA'S ECONOMY FALLING FAST 
 
¶1. (U) Summary: Guinea's notoriously poorly governed economy 
is now starting to feel the chokehold of the global economic 
crisis and the inexperience of the ruling junta. While 
consumer prices have slightly decreased, so have the prices 
of the mining commodities on which the GOG,s budget relies. 
International aid isolation has removed access to several 
external sources of funding and the GOG is facing massive 
budget shortfalls. Though the inflation rate has remained 
stable, the government will have to continue to implement 
prudent monetary policies and start cutting government 
spending significantly to maintain monetary stability. The 
GOG doesn't seem to have any clear plan on how to improve the 
current economic situation and may be spending well beyond 
its budget. END SUMMARY. 
 
 
--------------------------- 
DECREASING COMMODITY PRICES 
--------------------------- 
 
 
¶2.  (U) The health of Guinea's economy relies primarily on 
its mining sector. A mineral-rich country, Guinea has nearly 
one-third of the world's known bauxite (eventually processed 
into aluminum) reserves as well as large deposits of gold, 
diamonds, iron, nickel, and graphite. The global economic 
crisis has spurred a drop in global demand and commodity 
prices. Aluminum alone has lost nearly 60% of its value since 
this time last year.. Guinea's export revenues, of which at 
least 90% come from the mining sector, are expected to 
decrease by 50% in 2009. The Central Bank claims that the 
production of bauxite, diamonds, aluminum and gold decreased 
9%, 20%, 21%, and 36% respectively during the first five 
months of 2009. The precipitous drop in commodity prices has 
seen a decrease of nearly 50% in revenue from mining. 
 
 
¶3. (SBU) Since taking power, the CNDD has waged contract 
campaigns against several large international mining 
companies including Rio Tinto, Rusal, and Ashanti Gold. The 
GOG is instituting populist policies and many solid 
international investors are hesitant to enter into the 
unstable political situation. Companies already operating in 
Guinea have slowed down exploration efforts considerably in 
fear that falling prices and government intervention could 
precipitate massive investment losses. 
 
------------------ 
BUDGET CONSTRAINTS 
------------------ 
 
¶4. (SBU) International donors, including the G-8, the 
International Monetary Fund (IMF), and the World Bank (WB), 
cut their development programming significantly in response 
to the coup. The 2007 three-year IMF poverty reduction and 
growth facility has also been suspended, since multilateral 
donor assistance was cut. With a nearly $3 billion USD 
external debt burden and a country in dire need of 
infrastructural reform and development, it is unclear where 
the government will find the necessary capital to support 
public projects. One way the government is attempting to 
limit revenue shortfalls is by collecting unpaid taxes, and 
in some cases advance tax revenue, from the mining sector. In 
March, Ashanti Gold mining company paid the GOG $20 million 
USD in taxes, temporarily alleviating some budget 
constraints. 
 
¶5. (SBU) The GOG remains current on its debt payments. 
However, the GOG will be faced with a twice annual payment of 
$7 million USD in November of this year. Unless the GOG finds 
another source of outside funding, it will be difficult to 
meet the required payment, which would officially put them in 
arrears. Though the government has cut expenditures in 
several sectors, program spending appears to have increased 
substantially within the Ministry of Defense. These defense 
expenditures remain opaque, and it is unclear how the 
government plans to control and direct these funds. 
Government spending may be unsustainable if world commodity 
prices do not rise drastically. The WB estimates a fiscal 
deficit of nearly 1.2% of GDP for 2009, mandating cuts in 
spending, domestic borrowing and possibly domestic debt 
rescheduling. 
 
----------------------------------- 
GDP, INFLATION, AND MONETARY POLICY 
----------------------------------- 
 
CONAKRY 00000490  002 OF 002 
 
 
 
 
¶6. (U) The World Bank projects that the GDP growth rate will 
lower to 0% by the end of the year due to decreased activity 
in the mining sector as well as the cut in donor funding and 
FDI. Last year, the GDP growth rate was around 4.5%. 
 
¶7. (SBU) The official inflation rate remains stable around 
14% due to sound monetary policy and low oil and food prices. 
The informal exchange shows the Guinean Franc losing value 
quickly against the dollar. While the official exchange rate 
hovers around 5000, the unofficial market is currently 
selling dollars for up to 7000. The government seems to be 
maintaining the sound monetary policies that decreased 
Guinea's inflation level substantially in 2008. However, it 
is possible that the GOG will print money to support their 
fiscal deficit and continue their extensive military 
expenditures. While the Embassy has heard several rumors 
suggesting that such a monetary policy is already quietly 
taking place, there have been no official pronouncements to 
indicate expansive monetary policy. 
 
------- 
COMMENT 
------- 
 
¶8. (SBU) The combination of poor governance, international 
aid suspension, and the global economic crisis has created a 
precarious environment under which the government budget must 
operate. For now, it is unlikely that FDI and international 
donor funding levels will increase. International economists 
also do not predict a swift rise in commodity prices or 
demand for Guinea's mineral resources. The current government 
has little experience in managing economic affairs, and it 
appears that economic technocrats are slowly being pushed to 
the sidelines (septel). With a annual per capita GNI of $432, 
Guinea's population is extremely poor. The need to cut the 
GOG's already limited non-military spending and the 
possibility of expansionary policy could bring about an even 
more dire economic situation for Guinea's poorest. At the 
moment, the GOG does not seem to have a concrete plan to 
address the economic situation. 
BROKENSHIRE