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UNCLAS SECTION 01 OF 02 ADDIS ABABA 000395 
 
SENSITIVE 
SIPDIS 
 
H PASS TO CONGRESSMEN GREGORY MEEKS AND MELVIN WATT 
 
E.O. 12958: N/A 
TAGS: PREL PGOVECON EAGR AF ET
SUBJECT: ETHIOPIA: CODEL MEEKS HEARS GOE'S 
WHIP-INFLATION-NOW PHILOSOPHY 
 
¶1. (SBU) SUMMARY. Visiting Congressmen Meeks and Watt asked 
Finance Minister Sufian and National Bank Governor Teklewold 
to comment on the impact of the world financial crisis on 
Ethiopia and on the state of relations between the ministry 
and the bank.  Sufian said the crisis had largely passed 
institutionally isolated Ethiopia by, although exports, 
remittances, and development assistance all decreased as 
foreign funds dried up.  The minister had high praise for 
International Monetary Fund (IMF) efforts to mitigate those 
secondary impacts and almost equal criticism of the World 
Bank.  Sufian and Teklewold agreed that both the ministry and 
the bank focus on price stability with an arsenal of weapons 
and consider deficit budget financing only when inflation is 
firmly in hand, a shared preoccupation that he said tends to 
maximize operational coordination.  END SUMMARY. 
 
¶2. (SBU) Congressmen Gregory Meeks and Melvin Watt joined 
Charge John Yates in a February 17 meeting with Ethiopian 
Minister of Finance and Economic Development Sufian Ahmed and 
National Bank Governor Teklewold Atnafu in the minister's 
Addis Ababa office.  P/E Couns and Poloff also participated 
along with Codel staffers. 
 
Silver lining of Stifled Development: Worst Effects of 
Financial Crisis Spare Ethiopia 
------------------------------------- 
 
¶3. (SBU) Congressman Watt told the Ethiopians that the Codel 
multi-stop mission to Africa was to get a sense of the impact 
of the financial crisis and to foster multilateral 
relationships in Africa and between African states and the 
U.S.  Addressing the first point, Minister Sufian said 
Ethiopian banks and interests were not highly exposed because 
they were not linked to any significant degree to the world 
economy and that the crisis had frankly "passed us by."  He 
quickly qualified that conclusion, however, by adding that he 
was talking about direct impacts and that Ethiopia had felt 
strong indirect effects of the foreign difficulties in three 
respects: export growth had dived from a recent  annual 
average of 25-30 percent to zero; remittances passing through 
the banking system had decreased precipitously with an 
attendant reduction in foreign exchange; and bilateral 
development assistance had decreased significantly, 
particularly from the EU and more particularly from Ireland. 
 
¶4. (SBU) Minister Sufian volunteered that the IMF's response 
to Ethiopia's difficulty had been "unprecedented" as the fund 
immediately provided $250 million to rehabilitate reserves, 
adding that the "quality of technical advice provided by the 
IMF was wonderful."  He said Ethiopia continues to benefit 
from the IMF's "exogenous shock" facilities under which 
further funds are expected to arrive in Addis Ababa in coming 
weeks.  The minister also praised recent African Development 
Bank efforts to foster accountability in African banks. 
 
¶5. (SBU) The World Bank, however, did not fair so well in 
Sufian's assessment.  He said the bank "should have played a 
prominent role but did not."  He sees the bank as hindering 
its own ability to foster development in Africa by 
application of pointless rules like the one mandating that 
"regional" projects eligible for World Bank funds must 
involve at least three countries.  He complained that 
potentially worthy Ethiopia-Djibouti and Ethiopia-Kenya 
development projects have never gotten off the ground as a 
result, singling out hydropower projects whose fruition he 
said could have seen Ethiopia taking advantage of its 
comparative advantage in this area by generating electricity 
at $3 per unit and selling it to a neighbor at $6-7 per unit. 
 
Finance Ministry-Central Bank: Comrades in War Against 
Inflation ... 
----------------------------- 
 
¶6. (SBU) Congressman Watt asked National Bank Governor 
 
ADDIS ABAB 00000395  002 OF 002 
 
 
Teklewold about relations between the bank and Sufian's 
ministry.  Teklewold replied that the bank is operationally 
independent with its budget approved by a board of directors 
and not the government's council of ministers.  He said 
Ethiopian law charges the bank with spearheading 
anti-inflation efforts, particularly by setting annual price 
index targets, and precludes the GOE from seeking deficit 
budget financing, absent a parliamentary waiver, unless those 
targets are met.  He candidly added, however, that the bank 
is not politically independent of the GOE because the prime 
minister appoints the board of directors and sets their 
salaries under the Ethiopian Constitution. 
 
¶7. (SBU) Governor Teklewold insisted, however, that Prime 
Minister Meles Zenawi, the National Bank, and the entire GOE 
are in full agreement that the poor suffer most from 
inflation and that getting and keeping inflation under 
control will remain their collective goal.  He said 
Ethiopia's inflation target for 2010 is eight percent. 
Minister Sufian said the National Bank is the primary 
inflation fighter "and I help."  He said his ministry has 
determined to this end to cut nonpriority expenditures 
notwithstanding inevitable accusations that "the central bank 
is starving the private sector to reach the targets." 
 
¶8. (SBU) Sufian and Tekewold described the range of tools 
available to them to curb inflation including a recent 
currency devaluation (with another expected), quantitative 
restrictions on credit to control aggregate demand, increases 
in bank reserve requirements, and currency controls to limit 
imports.  Both said all these tools and more will be employed 
this year and insisted that Ethiopia's current relative price 
stability demonstrate that these aggressive interventions are 
working. 
 
...But More Extreme Measures Not Needed 
--------------------------------------- 
 
¶9. (SBU) Congressman Meeks asked whether either official 
could put to rest rumors that Africa was considering 
establishment of a single central bank and asked whether 
Ethiopia and selected neighbors might consider establishment 
of a single currency.  Sufian replied that the single bank 
idea was a fixture of Libyan President Qadafi tenure as 
African Union chief and said he expected the idea likely died 
when Qadafi left that position earlier this month.  The 
minister did not believe Ethiopia and any subset of its 
neighbors would develop a single currency because they lacked 
a strong regional link such as the historical legacy of 
francophone economies in western Africa. 
 
MUSHINGI