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Cablegate: Imf Team Helps Gdrc Draft 2005 Budget

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS KINSHASA 001849

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN CG
SUBJECT: IMF TEAM HELPS GDRC DRAFT 2005 BUDGET


1. (U) Sensitive but Unclassified.

2. (U) Summary. An IMF team led by Director For Africa Cyril
Brianson visited Congo the week of September 13 to assist in
the preparation of the DRC's 2005 budget. The team noted that
most macroeconomic indicators continue to be on target; that,
encouragingly, government revenues have increased over the
last year; that funding for elections and military
integration are to be included in the budget sent to
Parliament; and that the budget process is being hindered by
questions of when the USG will appropriate sufficient funds
to implement HIPC debt forgiveness. The IMF will return to
Kinshasa in November for a program review that is expected to
overlap with the Consultative Group meeting. End summary.

3. (U) Ambassador, DCM and Econoff met with IMF Director for
Africa Cyril Brianson, IMF resrep Arend Kouwenaar, and Senior
Economist Jacob Gons (who was Kouwenaar's immediate
predecessor as resrep) on September 20 to discuss the current
budget mission and other IMF topics. The IMF
representatives, who came to Congo at the request of the GDRC
to assist in the preparation of the budget, told Post that
the draft budget is less than 50 percent financed by the
revenues of the Congolese state. The rest is to come from
outside sources - multilateral and bilateral donors. The
budget is slightly more than one billion USD, with the GDRC
contribution at USD 450 million. OFIDA (the customs service)
has experienced steadily increasing revenues. Encouragingly,
government revenues increased 32.8 percent from 2003 to 2004.
While revenues are still low by any standard, the increase
is a positive indicator of both growing commercial activity
as well as reflecting progress on ongoing reforms in the
state revenue structures. The Ambassador noted the need to
balance the necessity of increasing state revenue to some
adequate level with a corresponding decrease in payment
demands on the formal sector, much of which represents
unauthorized free-agent demands by inadequately supported
offices and individuals. This remains a problem that has
impeded legitimate business growth in the DRC. The IMF
official indicated they were aware of and sensitive to the
issue.

4. (U) The team noted that the key issue is that the
approved budget must be implemented by the government to be
effective. In 2004, for example expenses for "institutions"
(the president and 4 vice-presidents) were over budget while
health and education spending were under budget. Brianson
noted that pro-poor spending shortfalls were not unique to
the Congo and that many governments did not have procedures
in place to spend money newly available under the terms of
HIPC.

5. (U) The IMF team asked about the status of the HIPC debt
forgiveness by the USG. The Ambassador advised that we hoped
that sufficient funding would be appropriated to at least
cover Congolese debt service over the next year. Later,
Kouwenaar called Econoff to express his concern that the US
was billing the Congo for loan payments coming due under the
October 2002 Paris Club agreement that had not yet been
forgiven by the USG. (Note: Vice President Jean-Pierre
Bemba, who leads the DRC's Economic and Financial Commission,
will be in Washington from October 3-7. We expect that he
will raise the HIPC issue in his meetings with USG officials
including Treasury Under Secretary Taylor on October 5. End
note.)

6. (U) Ambassador Meece noted the importance of budgeting
for elections, scheduled for June 2005 and also for military
integration. Brianson acknowledged that these need to be
priority issues for the GDRC, and indicated that a
substantial sum (approximately USD 65 million) is likely to
be included in the 2005 budget for military integration. As
well, funds are being included for the elections, although
the IMF officials observed the amount is little more tan
symbolic relative to total election funding needs It is
nonetheless important.

7. (U) The IMF team will return in mid-November for the
semi-annual review. This will coincide with the November
11-13 Consultative Group meeting to be held again in Kinshasa.

8. (SBU) Comment. The IMF team made a point to meet with
donors, both in a group debriefing and bilaterally. Team
members were forthcoming, open and receptive. Their
willingness to tackle the issues of funding elections and
military integration was an important step forward in
supporting the transition, and represents a welcome change
from prior IMF apparent reluctance to devote scarce budget
resources to these areas. Likewise, the GDRC's desire to
collaborate closely with the Fund in preparing its budget it
to be welcomed. End comment.
MEECE

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