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Cablegate: Afdb President Aims to Regain Member Confidence

VZCZCXRO0065
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHTU #1261/01 2610709
ZNR UUUUU ZZH
P 180709Z SEP 07
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 3861
INFO RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUCNMGH/MAGHREB COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 TUNIS 001261

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EEB (DIBBLE AND DIZOGLIO)
USDOC FOR ITA/MAC/ONE (NATHAN MASON)
CAIRO FOR FINANCIAL ATTACHE (SEVERENS)
LONDON AND PARIS FOR AF WATCHERS

E.O. 12958: N/A
TAGS: EAID EINV XA
SUBJECT: AFDB PRESIDENT AIMS TO REGAIN MEMBER CONFIDENCE

REF: 06 TUNIS 2916

-------
Summary
-------

1. (SBU) In a September 11 meeting with EEB PDAS Elizabeth
Dibble, African Development Bank (AfDB) President Donald
Kaberuka outlined his vision for the AfDB's future,
emphasizing the need for greater selectivity and focus in
Bank lending as well as strong support for the private
sector. Kaberuka stressed the importance of AfDB support to
fragile states and noted strong Board support to quickly
resolve Liberia's arrears. In a separate meeting, AfDB Vice
President Joe Eichenberger lauded Kaberuka's role in
restoring the Bank's AAA credit rating in the eyes of its
regional member countries and emphasized that the AfDB now
has a window of opportunity and pool of good will to
accomplish its aims. End Summary.

--------------
AfDB Relevance
--------------

2. (SBU) In a September 11 meeting with PDAS Elizabeth
Dibble, African Development Bank President Donald Kaberuka
outlined what he termed "exciting times" in Africa. Kaberuka
remarked that one or two countries may achieve the income
levels that permit graduation, while still others are making
progress based on strong commodities prices, reforms, and
improvements in neighboring countries. Kaberuka emphasized
that the AfDB is a small player -- ranked 6th in providing
development assistance to Africa. Kaberuka noted that he was
looking forward to a good African Development Fund (ADF)
replenishment, but that would not drastically alter the
Bank's resources. Stating that he did not want the AfDB to
become a mini-World Bank that tries to solve all the world's
problems, he remarked that the AfDB should focus on areas
where it can provide value-added and make a real difference.
Kaberuka cited the varying needs of African countries, noting
that those with greater market access (Equatorial Guinea, Sao
Tome and Principe, and North Africa) do not require financing
but still want technical assistance. PDAS Dibble replied
that responding to differentiated needs is important for the
Bank's relevance, and that it is important not to try to be
all things to all countries.

3. (SBU) AfDB VP for Operations Joe Eichenberger stressed the
need for greater selectivity and focus in Bank projects.
Eichenberger noted many of the new players and participants
in Africa bring substantial funds and capacities that AfDB
does not have. Eichenberger emphasized that the demand side
has also pushed the Bank towards infrastructure and related
concerns such as governance. He recalled that in the past
the combination of large infrastructure projects and little
oversight led to "roads with weeds growing out of them."
Today there is recognition that successful infrastructure
projects require attention to governance. Eichenberger added
that donors also recognize that there was too much emphasis
on social operations in recent years, citing the poor results
of the AfDB's human development projects. He stressed that
the AfDB must continue to invest in human dignity, given
Africa's poor human development indicators, but that the Bank
could best accomplish this by targeting its infrastructure
projects. Eichenberger cited projects that would build roads
to markets and to health facilities as examples. He hoped
that the current replenishment discussion would produce a
real increase in funds that would permit steady investments
in human development and growth in infrastructure spending.

-----------------------------------
Fragile States and the "MCC Effect"
-----------------------------------

4. (SBU) Kaberuka stated that the AfDB is increasing support
to fragile states and that he hopes to speed support to
countries meeting certain criteria. PDAS Dibble noted US
recognition of the need to support fragile states and
underscored the importance of moving forward quickly with
Liberia. PDAS Dibble cited longstanding US advocacy of
performance-based allocation and US programs that reward
performance, such as the Millennium Challenge Corporation.
Dibble highlighted that the "MCC effect" is causing countries
to consider reforms that could improve their chances of
eligibility, with countries like Tunisia taking note of the
MCC's new compact with Morocco. Kaberuka acknowledged that

TUNIS 00001261 002 OF 003


USG policy rewards good performers, but that it must also
support Liberia and others seeking to transition after
conflict.

5. (SBU) Eichenberger noted that the OECD/DAC has done a lot
of work on typologies of fragile states. He told Dibble that
based on that work, AfDB management decided that it could
best contribute to post-conflict and post-crisis countries.
Eichenberger agreed that performance-based allocation is a
key issue, adding that it was "not only the Americans" who
support it and even the skeptics "buy it in principle."

-----------------
Arrears Clearance
-----------------

6. (SBU) Kaberuka noted strong Board support to quickly
resolve Liberia's AfDB arrears. Treasury Financial Attache
Alex Severens noted that Treasury Assistant Secretary Lowery
has worked hard to resolve this, and that there have been
positive indications from china, India, the Philippines and
Korea. Eichenberger explained that the AfDB has the
resources to resolve its part of Liberia's arrears, but that
the 70/30 burden-sharing would stretch the rules of the AfDB
fund used to clear arrears and there has been Board pushback.
Eichenberger expressed hope that the Liberian arrears can be
resolved before the end of ADF-10, i.e., the end of 2007.
Severens asked Eichenberger whether Cote d'Ivoire would
require similar treatment to Liberia, but Eichenberger stated
the cut-off date was a larger concern for the Ivorians than
the burden-sharing formula. Kaberuka told PDAS Dibble that
the AfDB has presented a proposal for clearing Nigerian Trust
Fund arrears and that although the President has been very
understanding, others in Nigeria do not support the proposal.
Nevertheless, Kaberuka believes that the Nigerian President
will prevail and that the arrears can be resolved in the
coming month.

---------
Where to?
---------

7. (SBU) Kaberuka preemptively answered the location
question, laughingly noting that he knew Dibble would ask why
the AfDB is in Tunisia. He stated that it had not been easy
for the ADB to operate in Abidjan's crisis, and Tunisia had
originally offered a temporary place originally for six
months to one year. Kaberuka noted that the crisis continues
unabated, and expressed his desire for Cote d'Ivoire to have
lasting peace and stability. He added that the AfDB is
closely observing the situation in Cote d'Ivoire and the AfDB
Governors will make a decision next April. If they vote to
return, there will be one year of preparation, followed by
one year for the return process. PDAS Dibble emphasized that
the United States also hopes Cote d'Ivoire will achieve a
lasting and stable peace. Dibble indicated that the United
States supports resolution of the AfDB's temporary status as
soon as possible, but also want the AfDB to be able to serve
its stakeholders as effectively as possible.

-----------------------------
Supporting the Private Sector
-----------------------------

8. (SBU) Kaberuka highlighted increased AfDB focus on the
private sector, including investment climate support. The
Bank also seeks to play a catalytic effect for specific
private sector deals. He stated that the AfDB would like to
be a "medium player", with a target of US $1 billion in
financing. Dibble agreed that it is important to mobilize
the private sector without displacing it and cited OPIC's
approach of focusing on deals that could not be completed
without OPIC's involvement. Kaberuka stated that the AfDB
approach is to balance its portfolio, using low risk deal
operations to provide a foundation to undertake high risk
projects.

9. (SBU) Eichenberger emphasized Kaberuka's enthusiasm for
and focus on private sector activities. In response to
Dibble's concern that the Bank not take the place of the
private sector, Eichenberger noted that investors are not
familiar with Sub-Saharan Africa and mused that there may be
a value to ADfB participation in making other investors more
comfortable. Eichenberger argued that former President
Kabbaj restored the Bank's credit ranking through minimizing
risk, but that now is the time for the Bank to use its strong

TUNIS 00001261 003 OF 003


reserve position to support the private sector. Eichenberger
believes that the AfDB could ramp up private sector financing
to US $500 to 700 million annually.

---------------------
Kaberuka's Leadership
---------------------

10. (SBU) Eichenberger noted that the AfDB has a window of
opportunity and a pool of good will due to the respect
Kaberuka commands internationally. Emphasizing the
difference between former President Kabbaj and President
Kaberuka, Eichenberger stated that Kabbaj believed his
principal role was to restore the Bank's AAA credit rating
with international markets and credit agencies. Some see
Kaberuka's role as restoring the ADB's AAA rating with its
regional member countries.

11. (U) PDAS Dibble has cleared this cable.
GODEC

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