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Viewing cable 06KINSHASA1473, IMF RES REP VIEWS ON DRC ECONOMIC SITUATION

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Reference ID Created Released Classification Origin
06KINSHASA1473 2006-09-20 16:04 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kinshasa
VZCZCXRO4814
PP RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #1473/01 2631604
ZNR UUUUU ZZH
P 201604Z SEP 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC PRIORITY 4822
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
UNCLAS SECTION 01 OF 02 KINSHASA 001473 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OWHYCHE-SHAW 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV CG
SUBJECT: IMF RES REP VIEWS ON DRC ECONOMIC SITUATION 
 
REF: A. KINSHASA 968 
 
     B. KINSHASA 1465 
 
1. (SBU) Summary.  The IMF resident representative to the DRC 
said that there will be no review of the current Staff 
Monitored Program (SMP) until the end of 2006, due mainly to 
the ongoing electoral process, security concerns, and a lack 
of data.  He suspected that DRC government over-budget 
spending, observed in April of this year, had recurred in the 
months of June, July, and August.  He expressed concern that, 
in addition to government overspending, uncertainties over 
the results of elections and security concerns might 
contribute to continuing macroeconomic instability for the 
remainder of 2006.  He hoped, however, that the SMP, due to 
conclude by end 2006, could be followed within a few months 
by a new Poverty Reduction and Growth Facility (PRGF) 
program, negotiated with the next government.  The Poverty 
Reduction Strategy Paper (PRSP), submitted on July 17, is 
meanwhile being implemented.  End summary. 
 
2. (SBU) Econcouns met with International Monetary Fund (IMF) 
resident representative Xavier Maret September 12.  Maret 
said that a formal IMF review team would not visit the DRC 
until late in the year, despite the fact that the IMF 
Staff-Monitored Program has been in place since April and 
would normally need to be reviewed on a quarterly basis. 
Instead, he said, a team from Washington will travel to the 
DRC in October to meet with GDRC officials on an informal 
basis. Maret admitted that the security situation in Kinshasa 
and the ongoing election season were factors that had 
contributed to the IMF decision not to conduct a full-scale 
SMP review at this time.  He noted also that economic data 
from September, vital to any SMP review exercise, would not 
be available anytime soon.  (Note: The Ministries of Budget 
and Finance websites have posted budget and treasury 
cash-flow information for May 2006, projections for June, and 
no  figures yet for July and August.  End note.) 
 
3. (SBU) Maret said that there was reason to believe that 
GDRC overspending in April (ref A), which contributed to a 
slight depreciation of the Congolese franc (CF) in early May, 
was likely the case again for the months of June, July, and 
August during the leadup to and aftermath of the first round 
of elections.  He emphasized the need for the GDRC to limit 
government spending to the amount of revenue taken in.  He 
noted that if the assumed GDRC overspending for the months of 
June, July, and August was on items budgeted for the last 
quarter of 2006, then the Fund would expect to see 
under-budget levels of spending during the last quarter of 
2006.  Otherwise, he said, the GDRC would find itself in 
greater difficulty and that the recent, more serious 
depreciation of the CF and the associated inflation could be 
expected to continue. (Note: Maret mentioned that the 
Congolese Central Bank had just taken measures in an attempt 
to control the recent spike in depreciation of the Congolese 
franc (septel).  End note.) 
 
4. (SBU) Maret attributed recent macroeconomic instability 
not only to GDRC overspending, but also to the elections and 
the violence of August 20 - 22.  He noted that there was the 
potential for even more disruption because of the 
constitutional requirement that any government employee who 
had been elected to the National Assembly, including some 
EcoFin ministers and high level parastatal authorities (ref 
B) would be required to step down.  This, he noted, could 
make it more difficult to maintain control of GDRC finances 
and make it necessary for the IMF to work with 
less-experienced individuals in key ministries and 
parastatals.  When asked if the SMP would continue past the 
end of 2006, whether or not a new government was in place by 
January, Maret indicated that there might be a limbo period 
in early 2007 when there would be no SMP, but also not yet a 
re-negotiated Poverty Reduction and Growth Facility (PRGF) 
program in place.  He said, however, that this did not 
represent a problem, and that IMF technical assistance to the 
DRC would be able to continue informally. 
 
5. (SBU) Maret expressed hope that a new government could be 
seated before the end of the year, and that one of the first 
orders of business would be the formalization and adoption of 
the 2007 budget.  (Note: the transitional government has 
created a draft 2007 budget, basically flat-lining the 2006 
budget.  End note.)  He noted that the 2007 budget, at least 
 
KINSHASA 00001473  002 OF 002 
 
 
initially, would not include outside budget assistance, since 
a formal IMF program would likely not be in place until late 
in the first quarter of 2007.  He feared that the new 
government and the IMF would be unable to quickly negotiate 
the next PRGF, but that once in place, it could be reviewed 
once before the end of the third quarter of 2007.  This, he 
noted, would be in time to achieve Heavily Indebted Poor 
Country (HPIC) completion point before significant 
multilateral debt payments would again come due by the fourth 
quarter of 2007. 
 
6. (SBU) Despite uncertainties over elections and the 
security situation, Maret said that the Poverty Reduction 
Strategy Paper (PRSP), officially handed over to the IMF and 
World Bank on July 17, was moving ahead and could be 
considered as now being implemented.  He explained, though, 
that a joint IMF/WB commission had reviewed the document 
recently and that it is now going up the chain of approval at 
both institutions.  Ultimately, he said, it would need to be 
apprved by both the IMF and WB boards before being 
cnsidered official. 
 
7. (SBU) Comment.  Maret is rghtly concerned about the 
effects that the curret electoral campaign, suspected GDRC 
overspendin during the second quarter of 2006, uncertainties 
about the timing of the installation of the next overnment, 
and growing macroeconomic instability ay have on the current 
IMF Staff Monitred Program and the prospects for negotiating 
a new PRGF with the next government.  Security concerns and a 
dearth of data for the third quarter of 2006 are perhaps 
understandable reasons not to conduct an SMP review in 
October, but having to wait until the end of 2006 or the 
beginning of 2007 to decide whether the DRC has made any 
progress towards renegotiating a program with the Fund is 
also problematic.  While the transition government is either 
not fully engaged or distracted by other events, the DRC's 
compliance with IMF targets and objectives may get so far off 
course that the next government could find itself unable to 
rapidly negotiate a new program with the IMF, thereby turning 
a difficult budget situation in 2006 into a disastrous 
situation in 2007.  End comment. 
MEECE