VZCZCXYZ0007
OO RUEHWEB

DE RUEHSB #0098/01 0360952
ZNR UUUUU ZZH
O R 050951Z FEB 10
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0013
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGV/USMISSION GENEVA
RUEHSA/AMEMBASSY PRETORIA 0005
RUEHSB/AMEMBASSY HARARE

UNCLAS HARARE 000098 
 
SENSITIVE 
SIPDIS 
AFR/AA FOR EGAST 
AFR/SA FOR JHARMON AND LDOBBINS 
AFR/GC FOR KD'ABOVILLE 
PRETORIA FOR JSANDEFUR AND MFISCHER 
AF/S FOR BWALCH AND SBROWN 
TREASURY FOR OFFICE OF AFRICAN NATIONS DPETERS AND LPARTUSCH 
NSC FOR SENIOR AFRICA DIRECTOR MGAVIN 
 
E.O. 12958: N/A 
TAGS: EAID EFIN PHUM PREL ZI
SUBJECT: Status and Concerns: Establishment of P-MDTF in Zimbabwe 
 
THIS IS AN ACTION CABLE.  See paras 3 and 13 below. 
 
 
 
------- 
 
SUMMARY 
 
------- 
 
 
 
¶1.  (SBU) The donor community in Harare has been in consultations 
with the World Bank (WB) since April 2009 regarding the 
establishment of a Programmatic Multi-Donor Trust Fund (P-MDTF) for 
the purpose of implementing recovery projects in support of the 
transitional government.  There is collective agreement among the 
donors in Harare that the P-MDTF is a crucial vehicle to pool 
bilateral resources for high-cost social infrastructure 
rehabilitation projects that would have a high return in terms of 
lives and assets saved and demonstrate good will toward the 
Zimbabwean people. 
 
 
 
¶2.  (SBU) Agreement has been reached between the donors and the WB 
on both the governance parameters and the programmatic scope of the 
P-MDTF; however, continued lack of resolution on how to ensure that 
funding does not inadvertently benefit sanctioned individuals and 
companies threatens to scuttle the establishment of the trust fund. 
Donors in Harare have been working with the World Bank to consider 
the feasibility of alternative ways to structure the P-MDTF to 
enable it to come to fruition but have been unable to resolve the 
problem, putting into question the entire effort.  Post believes 
that the P-MDTF continues to have an important role in Zimbabwe, 
and requests the USG's Executive Director (USED) at the WB to 
consult with his bilateral counterparts on the issue and take up 
with senior-most leaders in the WB and the Board the seriousness of 
the current impasse for not only the establishment of Zimbabwe's 
MDTF but for the establishment of trust funds in other countries 
where donors have similar concerns as those that arise in Zimbabwe. 
 
 
 
 
¶3.  (SBU) We believe that it is in the interest of the WB's Board 
to consider carefully the implications of the WB's current policy 
of not accommodating donor restrictive measures in the legal 
arrangement of programmatic MDTFs.  Without the necessary 
assurances from the WB that it will make every effort to ensure 
that donor resources are programmed in line with bilateral 
restrictions and legislative requirements, the P-MDTF is dead in 
the water.  ACTION REQUEST:  Post requests USED's assistance in 
raising this issue to the appropriate decision makers in 
consultation with the EDs from other like-minded countries.  END 
SUMMARY. 
 
 
 
------------------------ 
 
Advantages of the P-MDTF 
 
------------------------ 
 
 
 
¶4.  (U) MDTFs are an integral part of many post-crisis transitions. 
They can provide targeted resources for recovery and reconstruction 
efficiently and effectively.  MDTFs reduce transaction costs by 
achieving economies of scale in the administration, planning, and 
overall management of the funds, and by harmonizing rules and 
procedures for disbursing and using the funds.  As such, MDTFs 
provide an opportunity for practical application of the Paris 
Principles.  They also promote accountable use of resources aligned 
with Zimbabwe's 2010-2012 budgets and national ownership of 
post-conflict recovery efforts with reduced transaction costs for 
the Government of Zimbabwe (GOZ).  In the case of Zimbabwe, the 
 
P-MDTF would allow the WB to re-engage with Zimbabwe despite the 
outstanding arrears. 
 
 
 
¶5.  (U) The WB has developed significant experience as an 
administrator of MDTFs, and is uniquely placed to establish 
coherent and qualified management of the trust fund based on 
lessons learned.  These lessons include the need for a dedicated, 
well-staffed secretariat; quick mobilization of sector specialists; 
a clear communications strategy; and an awareness of political, 
operational, and governance risks.  Furthermore, the WB has 
extensive experience with large infrastructure projects and has a 
long-standing and rapidly growing presence in Harare capable of 
managing the trust fund. 
 
 
 
¶6.  (SBU) Currently, there are no large-scale rehabilitation and 
reconstruction projects being funded.  The P-MDTF would provide a 
means to pull donor resources together to fund such projects, which 
are by their nature very expensive and require very specific 
technical expertise seen to be a comparative advantage of the WB. 
Donors have agreed to fund water supply and sanitation 
infrastructure rehabilitation throughout the country as the first 
priority of the P-MDTF.  Other potential areas of funding include 
rehabilitation of electrical and information and communication 
infrastructure. 
 
 
 
-------------------- 
 
Restrictive Measures 
 
-------------------- 
 
 
 
¶7.  (SBU) All donor countries that are considering contributing to 
the P-MDTF (EU member states - UK, Netherlands, Germany, Sweden, 
Denmark, and Norway - the EC, Australia, Canada, and the USA) 
currently have restrictive measures targeted against specific 
individuals and a limited group of companies in Zimbabwe.  These 
restrictive measures prohibit these donors from entering into 
direct contracts with these individuals/entities.  If the WB, 
through the P-MDTF, entered into a contract with one of the 
restricted individuals/companies using donor funds it would be a 
breach of these measures and in some cases a violation of the laws 
of the donor country.  It is therefore imperative that the P-MDTF, 
in its design, accommodates these restrictive measures. 
 
 
 
¶8.  (SBU) However, the WB has indicated that it can only implement 
and enforce UN Security Council sanctions and cannot accommodate 
targeted measures from individual member countries in the 
administrative arrangements with the respective donors.  Over the 
last several months the donor community and the WB have explored 
all possible avenues to accommodate the targeted measures while at 
the same time respecting current WB policy.  The only available 
option, which would allow the WB to retain oversight of the P-MDTF, 
would be to change WB policy or make an exception for Zimbabwe. 
Alternatively, the WB will have a very limited role to play in the 
reconstruction of Zimbabwe at this point in time. 
 
 
 
------------------ 
 
Possible Solutions 
 
------------------ 
 
 
 
¶9.  (SBU) The following solutions to the above impediment have been 
considered.  However, none of them have proven feasible. 
 
--Implicit or explicit language added into the administrative 
agreement:  Under this option, a standard MDTF would be used but 
with implicit or explicit language in the administrative agreement 
that excludes the possibility of the WB entering into a contract 
with a banned individual or company.   This is against current WB 
policy. 
 
 
 
--Establish a trust fund administered by a bilateral donor:  Under 
this option, a commercial financial management agent would be 
hired, with the Bank providing technical advice.  While the WB 
could provide general advice on sector policies, priorities, and 
investment needs, it would not be possible to separate procurement 
from project oversight and thus the WB's role with respect to 
implementation would be limited.  None of the bilateral donors have 
expressed an interest in being the manager of such a trust fund. 
 
 
 
--Creation of a revolving fund:  A third option considered was the 
use of a revolving fund in which an entity (without restrictions) 
provides an initial "float" to enable a procurement action to take 
place.  Upon satisfaction that the selected contractor is a 
permissible partner, the donors with restrictive measures would 
apply their funding toward the project.  Under such an approach, 
the donor providing the "float" would have a legal agreement with 
the WB.  That legal agreement would not reference any restrictions. 
It would be through a holding account, under the trusteeship of one 
of the participating donors, from which other bilateral resources 
would flow when adequate assurances have been made that the 
contractor is acceptable.  The donors would articulate in an MOU 
among themselves the rules governing this holding account.  The MOU 
would include explicit language referring to the restricted lists. 
(NOTE: See para 10 for an explanation of why this option will not 
work.  END NOTE.) 
 
 
 
--WB procurement without funds:  In this set-up, the WB would 
provide US$1 million of seed money and proceed with procurement, 
without the funds in the MDTF, under the understanding that funds 
would be transferred from the donor holding account.  In the case 
of a banned entity being selected, the GOZ would take over the 
contract.  This option is not feasible since there would not be 
upfront funding for the full amount of the contract to be let. 
 
 
 
--Government advance:  A final option would be for the GOZ to 
proceed independent of the P-MDTF with advance procurement.  If an 
award recipient were unacceptable to donors, the GOZ would incur 
the full cost of the contract.  The difficulty of this option is 
that donor funds could not reimburse the GOZ for its initial 
outlay.  This option also would not work for a project with 
multiple contracts because the process would become impossibly 
complicated. 
 
 
 
¶10.  (SBU) Under a revolving fund, the initial funds for the MDTF 
account could come from three potential sources: 
 
 
 
--the GOZ:  This would require the GOZ to deposit an initial 
guarantee amount of approximately US$25 million into a WB account, 
which, as with any trust fund, would be returnable (perhaps plus 
interest) at the closure of the MDTF, if no contractors on the 
banned lists have been selected.  If and when the restricted lists 
are withdrawn, donors would contribute directly to the P-MDTF. 
Though this option appears workable, if government funds are 
transferred to the WB trust fund, the WB would become vulnerable to 
lawsuits from vulture funds or other creditors or claimants. 
 
--Special Drawing Rights (SDRs):  The donors have discussed the 
possibility that the WB could use SDRs put into its trust but not 
cashed in.  Apart from the problem of vulnerability to vulture 
funds, SDRs are not really equivalent to cash and this would 
complicate arrears clearance. 
 
 
 
--Donor money provided by a non-traditional donor:  Several 
non-traditional donors (i.e., China, South Africa, and South Korea) 
have expressed interest in becoming members of the P-MDTF.  These 
countries do not have the same restrictions as Western countries 
and therefore could enter into direct agreement with the WB.  This 
option, which is the WB's preferred solution, is not considered 
appropriate by donors for two reasons: 1) it is counter-intuitive 
to rely on countries without targeted measures for the 
implementation of restrictive measures, as this creates 
reputational risk, and 2) it is unlikely that any donor country 
will be convinced to provide a "float" that will not be used for 
direct project implementation.  An additional complication would be 
the likely delay that would result from bringing non-traditional 
donors on board.  The Japanese have been consulted and they have 
indicated that they are not yet ready to contribute to the P-MDTF. 
 
 
 
----------------------- 
 
Implications for the WB 
 
----------------------- 
 
 
 
¶11.  (SBU) With the above options explored and exhausted, donors 
are close to ruling out the WB as the trustee of a P-MDTF in 
Zimbabwe at this point in time.  This may have serious implications 
for the WB as an institution in Zimbabwe, as it will be unable to 
implement activities with donor financing until such time that 
restrictive measures are lifted.  The inability of the WB to 
accommodate the restrictive measures raises questions about the 
WB's ability to administer MDTFs effectively in other contexts 
where similar requirements may arise, particularly in fragile and 
failing states.  The importance of solving this issue therefore 
goes beyond Zimbabwe. 
 
 
 
----------- 
 
Way Forward 
 
----------- 
 
 
 
¶12.    (SBU) At this juncture, the only way forward is for the WB 
to reconsider its policy of not being able to accommodate targeted 
measures. 
 
 
 
¶13.    (SBU) Donors are keen to see the P-MDTF come into existence 
under the administrative oversight of the WB.  However, this would 
require donors to collectively approach the WB Board and President 
to pressure them to change policy or make an exception for 
Zimbabwe.  Post requests the USED to discuss this issue with his 
counterparts from other countries and collectively raise the 
unresolved concern at the highest levels of the WB in a final 
attempt to make the P-MDTF possible under the management of the WB. 
(COMMENT:  We understand that ED Netherlands has been fully briefed 
and may be willing to lead the consultations.  END COMMENT.) 
 
 
 
RAY 
RAY