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Cablegate: Angola Appreciates Its Currency

VZCZCXYZ0011
PP RUEHWEB

DE RUEHLU #0518 1441102
ZNR UUUUU ZZH
P 241102Z MAY 07
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC PRIORITY 4011
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

UNCLAS LUANDA 000518

SIPDIS

SENSITIVE
SIPDIS

FOR AF/S
NSC FOR BPITTMAN

E.O. 12958: N/A
TAGS: EFIN ECON AO
SUBJECT: ANGOLA APPRECIATES ITS CURRENCY

REF: LUANDA 441

1. (SBU) On May 7, 2007, Angola announced a 6.25 percent
increase in the value of the Angolan Kwanza (Kz) from 80 to
75 Kwanza per dollar. The GRA uses the Angolan Central
Bank's (BNA) monopoly position in exchanging dollars for
kwanza as its primary instrument in combating currency
inflation. Because the commercial banking system remains
under-developed, adjustments to the interest rate has yet to
become an effective monetary policy instrument for the BNA.

2. (SBU) BNA Vice Governor Ruy Miguens told us that the
decision to appreciate the Kwanza came after careful
consideration and discussion. He conceded that the quantity
of dollars in the economy had risen considerably, putting
some pressure on the BNA to adjust the exchange rate.
(Comment: Miguens was reluctant to elaborate on the exchange
rate adjustment, implying that the GRA made the exchange-rate
decision at a level above the BNA. End comment.) The
Brazilian local director of an international accounting and
business consulting form attributed the Kwanza,s
strengthening against the dollar to the BNA,s desire to
absorb excess dollar liquidity in the economy. The influx of
petroleum earnings has greatly increased the amount of money
in circulation. In 2004 alone, he said, currency (M2)
increased by 60 percent. This ongoing increase in the money
supply puts upward pressure on the Kwanza,s real exchange
rate. However, he also noted that, with only one product )
oil -- in its economy, the choice of an exchange rate is
almost arbitrary.

4. (SBU) Comment: In an economy as highly dollarized as
Angola,s the adjustment to the exchange rate will have a
minimal effect on trade. While the goods may have grown
cheaper in terms of the Kwanza, Angola is paying for them
with dollars earned from petroleum exports. In addition,
Angola imports from the United States and other countries
what it cannot make itself, and that includes almost
everything. Meanwhile, oil production has already increased
to 1.6 million barrels per day and is expected to surpass 2.2
million barrels per day before year,s end. At 50 dollars
per barrel, the additional 600,000 barrels per day would earn
the GRA an additional USD 2.2 billion during the last 90 days
of the year.
FERNANDEZ

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