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DE RUEHLU #0746/01 3441804
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R 101804Z DEC 09
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC 5834
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 LUANDA 000746 
 
SIPDIS 
 
E.O. 12958: DECL: 12/08/2024 
TAGS: AO ECON EFIN PGOV
SUBJECT: IMF APPROVES FIRST STAND-BY AGREEMENT FOR ANGOLA 
 
Classified By: Ambassador Dan Mozena, Reasons 1.4(b) and (d). 
 
¶1. (C) SUMMARY.  On 23 November, the IMF approved a $1.4 
billion dollar financing package for Angola, the first IMF 
deal to be signed with Angola since the end of the civil war 
in 2002 and the largest IMF financing package to date for a 
sub-Saharan African country during the current global crisis. 
IMF support is being given under a 27-month Stand-By 
Agreement (SBA) to support policy adjustments that aim to 
restore macroeconomic balances and rebuild international 
reserves. Angolan officials have tried to give the impression 
that the loan is condition-free, but behind the bravado, IMF 
officials expect Angola to comply with loan conditions, 
including increased transparency regarding oil revenues.  The 
Angolans believe this SBA will boost international investor 
confidence.  END SUMMARY. 
 
--------------------------------- 
IMF APPROVES FIRST LOAN TO ANGOLA 
--------------------------------- 
 
¶2. (U) The IMF approved on 23 November its first financing 
package with Angola since the end of the civil war.  The $1.4 
billion dollar deal will be delivered under a 27-month 
Stand-By Agreement (SBA) to support policy adjustments that 
aim to restore macroeconomic balances and rebuild 
international reserves.  While the immediate goal is to 
mitigate repercussions of adverse terms of trade shocks, the 
program will also include a reform agenda aimed at 
medium-term structural issues on which long-term sector 
growth will ultimately depend. The IMF also hopes the loan 
will provide a foundation for non-oil sector growth over the 
medium-term, though it notes that deeper structural reforms 
are still needed to enhance private sector development. 
 
------------------------------- 
ANGOLAN AND IMF VERSIONS DIFFER 
------------------------------- 
 
¶3. (C) There is some disconnect, however, between how Angolan 
authorities and IMF officials portray the loan. The IMF has 
publicly commended Angolan authorities for their strong 
commitment to a comprehensive reform program that will 
address macroeconomic imbalances, which include restraining 
discretionary public expenditures, while providing adequate 
resources for social spending and vital infrastructure 
projects. More specifically, the SBA has been approved on the 
condition that the Angolan government makes the following 
structural reforms: 
 
     -- Improve fiscal transparency by publishing quarterly 
budget execution reports and ensure greater transparency and 
better oversight of major state-owned enterprises, especially 
state-owned oil company Sonangol; 
 
     -- Develop an institutional framework that de-links the 
fiscal stance from volatile short-term oil revenues and set 
up a sovereign wealth fund along the lines of the Norwegian 
oil fund to cushion against future oil boom-bust cycles; and 
 
     -- Develop a tax reform strategy to move toward a 
consumption-based tax system and to simplify the current tax 
system to improve efficiency and reduce evasion. 
 
¶4. (C) Angolan Minister of Economy Manuel Nunes Junior, 
however, has portrayed the loan privately as unconditional 
and a sign of international confidence.  In late October, 
Nunes told US officials that the package was the biggest loan 
in recent years to Africa, and that it would come with "zero 
conditionalities."  Later in the conversation, though, he 
said that the IMF had asked the government to correct the 
imbalance between the official and parallel exchanges rates 
(which they did), and to set up a sovereign wealth fund. 
Most interesting, Nunes never mentioned anything about 
improving fiscal transparency. (COMMENT: Nunes said that 
President Dos Santos himself initiated the conversation with 
IMF officials about a potential financing package on the 
sidelines of the G8 summit in July. The process, Nunes said, 
went quickly after that with almost all details worked out by 
September. END COMMENT) 
 
-------------------- 
BITE WORSE THAN BARK 
-------------------- 
 
¶5. (C) Resident World Bank senior economist Ricardo Gazel 
(protect) brushed aside any disconnect between IMF and 
Angolan characterizations of the SBA.  Gazel agreed that 
Angolan officials like to give the impression they do not 
need IMF assistance, but the reality is that they have been 
quietly following the IMF's advice for years. As an example, 
he said though Angola rejected an IMF loan in 2007, they 
 
LUANDA 00000746  002 OF 002 
 
 
never stopped engaging with them, taking seriously 
cooperation with IMF missions for Article 4 consultations. 
Citing another example of Angolan bite being worse than its 
bark, he pointed out that Angolan officials love to criticize 
EITI as a "Blair initiative," but at the same time publish 
more data about their extractive industries than some 
signatory countries. 
 
¶6. (C) Gazel does not believe Angola accepted the loan simply 
for the money, though they desperately need it. Gazel noted 
that the amount of the loan, spread out over a 27 month 
period, is actually not that significant given the size of 
Angola's economy.  Instead, he believes they signed the loan 
to increase its international credibility and to build 
greater confidence. Therefore, Gazel concludes Angola will 
adhere to the conditions of the SBA, regardless of what some 
officials may say publicly. 
 
------------------------- 
IMF STILL UNDER SOME FIRE 
------------------------- 
 
¶7. (C) The IMF has come under criticism by some international 
watchdog organizations for agreeing to the loan. Global 
Witness in particular has been quite vocal, urging the IMF in 
October not to approve the loan without stringent conditions 
given Angola's high levels of corruption. "The IMF has a 
public duty not to bail out a corrupt government without 
requiring much greater transparency in return," said Gavin 
Hayman, Global Witness' Campaigns Director. Specifically, 
Global Witness expressed concerns regarding transparency in 
the oil sector, namely a lack of confidence in publicly 
published government data about oil revenues, and the opaque 
nature of Sonangol, which does not disclose fully its 
financial transactions. Gazel dismissed Global Witnesses 
arguments, saying Angola already publishes much of its 
revenues and public expenditures, and that NGOs often simply 
do not know how to analyze the data. 
 
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COMMENT 
------- 
 
¶8. (C) Angola's engagement with the IMF represents a 
significant shift, given its highly publicized rejection of a 
proposed IMF loan in 2007 over IMF insistence on more 
transparency in the oil sector, which is a key condition of 
the current loan. Angola's newfound willingness to engage 
with the IMF is borne in large part out of necessity given 
the sharp decline in oil revenues, its impact on Angola's 
reserves (which plummeted from $20 billion to $12 billion), 
and the GRA's seriously over-leveraged position at the start 
of the financial crisis.  Whether it reflects a genuine 
change of attitude towards greater transparency and adherence 
to international standards or proves ephemeral once oil 
revenues rebound remains to be seen. 
MOZENA