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Viewing cable 06KINSHASA968, IMF REVIEWS PROGRESS, SETS UP DRC STAFF-MONITORED

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Reference ID Created Released Classification Origin
06KINSHASA968 2006-06-20 10:52 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kinshasa
VZCZCXRO4614
RR RUEHDU RUEHGI RUEHJO RUEHMR
DE RUEHKI #0968/01 1711052
ZNR UUUUU ZZH
R 201052Z JUN 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4152
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
UNCLAS SECTION 01 OF 02 KINSHASA 000968 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR LKOHLER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV CG
SUBJECT: IMF REVIEWS PROGRESS, SETS UP DRC STAFF-MONITORED 
PROGRAM 
 
REF: KINSHASA 292 
 
1. (SBU) Summary: An IMF team was in Kinshasa for five days 
May 27 to June 1 to look at the DRC's performance since 
February 2006 and to finish setting up a Staff-Monitored 
Program (SMP).  The SMP will provide a bridge between the 
PRGF program that lapsed on March 31 and the new PRGF the 
GDRC hopes to negotiate before the end of 2006.  The Fund 
delivered a strong message to the GDRC against government 
overspending and on the need to complete structural reforms 
sought under the lapsed PRGF program. End summary. 
 
2. (U) An IMF team from Washington led by African Department 
Division Chief Cyril Briancon began a five-day visit to the 
DRC on May 27.  An IMF mission led by Briancon was last in 
Kinshasa in early February, shortly before the demise of the 
DRC Poverty Reduction and Growth Facility (PRGF) program on 
March 31 (reftel).  The team met with GDRC ministers and 
officials, as well as with Congolese Central Bank (BCC), 
World Bank (WB), and donor country officials.  Briancon and 
IMF country representative Xavier Maret briefed the 
Ambassador, DCM, and Econcouns at a June 1 breakfast at the 
EMR.  Briancon and Maret gave a public one-hour outbrief on 
the IMF mission to an assembled group of donor country, WB, 
and UNDP representatives later that afternoon. 
 
---------------------- 
Situation: "Difficult" 
---------------------- 
 
3. (SBU) Briancon described the DRC's economic and financial 
situation at end May as "difficult" and said that he had 
delivered strongly-worded messages to GDRC officials 
regarding government overspending and incomplete structural 
reforms. He said it was clear that despite low levels of GDRC 
spending during the first quarter of 2006, when the GDRC was 
still operating on the 2005 budget, GDRC expenditures for 
April had been well over budget.  (Note: The Ministry of 
Budget website, www.ministeredubudget.cd, shows total 
overspending for April of nearly USD 29 million, including 
USD 14 million by the Defense Ministry, USD 4 million by the 
presidency, and nearly USD 2 million by the Independent 
Electoral Commission.  End note.)  Briancon did note, 
however, that preliminary figures for May indicated that 
spending had been more in line with the budget for the month. 
 
4. (SBU) IMF representatives noted that the macroeconomic 
stability of late 2005 and early 2006 has begun to slip a bit 
and attributed this to Central Bank financing of overspending 
in April.  Twelve-month inflation, which had dropped to 
almost 6.5 percent in April, has now risen to over 7.5 
percent and annualized inflation is at nearly 13 percent. 
The Fund has raised its projected inflation rate for the year 
to 9.5 percent, and the GDP growth rate has been revised 
downward from 7.0 to 6.5 percent.  Briancon noted that due to 
higher crude oil prices, and despite slightly reduced 
production, DRC oil revenues were better than expected in the 
first quarter of 2006, averaging USD 50 million per month. 
He said, however, that these unexpected revenues would be 
needed later in the year to offset the probable loss of 
direct budgetary support from donors. 
 
----------------------- 
Staff-Monitored Program 
----------------------- 
 
5. (SBU) In addition to looking at DRC's performance since 
February, the IMF team worked to finish setting up the 
interim Staff-Monitored Program (SMP), which will provide 
continued IMF technical support and allow the DRC to 
establish a track record that hopefully would lead to a new 
PRGF program. (Note: The SMP is an IMF administrative entity 
and does not require IMF board approval.  Talks on the 
establishment of an SMP began during the spring IMF/WB 
meetings in April.  End note.)  Once established, the SMP 
will date from April 1, 2006, and the first quarterly review 
is expected in early July, with subsequent reviews at 
three-month intervals.  The SMP, which will be in place for 
between six and eighteen months, will be working on the same 
conditionalities, including macroeconomic targets and 
structural reforms, as the Poverty Reduction and Growth 
Facility (PRGF) program that ended on March 31, 2006. 
 
KINSHASA 00000968  002 OF 002 
 
 
 
--------------------------- 
Teachers and Civil Servants 
--------------------------- 
 
6. (SBU) Briancon and Maret noted that nationwide censuses of 
public school teachers and civil servants are still not 
complete.  Not having yet removed ghost workers from the 
rolls, the GDRC cannot now afford to increase salaries for 
actual employees. Briancon estimated that the ongoing civil 
servant census might reduce the rolls by anywhere from five 
to ten percent, citing the figure of 30,000 ghost workers 
among 450,000 currently being paid.  (Note: This figure does 
not include public school teachers, estimated at 280,000 
nationwide, because under Congolese law they are not 
considered civil servants.  End note.)  Briancon, perhaps 
repeating assurances by Finance Minister Banguli, said that 
the GDRC expected to have these two censuses completed within 
a month or two. 
 
----------------------- 
Civil Service Backdoor? 
----------------------- 
 
7. (SBU) Briancon said that the IMF has learned that public 
school teachers can be hired by the Ministry of Education 
without approval by the Civil Service Ministry, and that 
these teachers can then transfer into civil service 
positions, again without the approval of the Civil Service 
Ministry.  Briancon expressed concern that this could undo 
any progress accomplished by the census in reducing civil 
servant numbers. 
 
----------------- 
Military Salaries 
----------------- 
 
8. (SBU) IMF reps said that the GDRC's plan to raise the 
minimum salary for a Congolese soldier to USD 50 per month 
would exceed the 2006 budget allotment of USD 59 million for 
military salaries.  Briancon said that any salary increase 
must be within budget and based upon the reduction of the 
effective number of soldiers, verified in a completed census. 
 (Note: Even current best estimates of 150,000 soldiers would 
push the salary envelope to nearly USD 90 million at USD 50 
per month.  End note.)  That census, like those for public 
school teachers and civil servants, has yet to be completed. 
 
-------------------------------- 
Poverty Reduction Strategy Paper 
-------------------------------- 
 
9. (U) Briancon noted that the achievement of Heavily 
Indebted Poor Country (HIPC) completion point by the DRC 
depends upon having a new PRGF in place for at least six 
months, as well as the implementation of the Poverty 
Reduction Strategy Paper (PRSP) for twelve months. He said 
that he had encouraged the GDRC to deliver the PRSP to the 
IMF and World Bank by the end of June so that Completion 
Point, and the resulting debt forgiveness, could be achieved 
by the third quarter of 2007. (Note: The final GDRC draft of 
the PRSP was presented to international partners the week of 
June 5, and should be adopted officially by the end of June. 
Septel to follow.  End note.) 
 
10. (SBU) Comment: The strong IMF message of fiscal 
responsibility and increased attention to needed structural 
reforms may be falling on deaf ears.  The current 
preoccupation of most members of the GDRC is the upcoming 
July 30 elections.  This is despite the possibility that 
nearly USD 190 million of outside budget support, 
representing nearly 10 percent of the 2006 budget, may not be 
forthcoming due to the lack of a new PRGF before year's end. 
The first six months of the SMP will almost certainly pass 
before a new government is installed, and the new government 
will be hard-pressed to negotiate a new PRGF before the end 
of 2006.  The GDRC, in anticipation of much-reduced revenue, 
needs to stick to prudent, "quality" expenditures for the 
rest of 2006.  End comment. 
 
MEECE