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Cablegate: Economic Stability and June 30: No News Is Good News

VZCZCXRO0613
RR RUEHDU RUEHGI RUEHJO RUEHMR
DE RUEHKI #1083 1871304
ZNR UUUUU ZZH
R 061304Z JUL 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4318
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOP COLLECTIVE
RUEAIIA/CIA WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS KINSHASA 001083

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON PGOV CG
SUBJECT: ECONOMIC STABILITY AND JUNE 30: NO NEWS IS GOOD NEWS

REF: A. 05 KINSHASA 1177
B. KINSHASA 919

1. (U) Economic stability continued during the period surrounding
the DRC's June 30 Independence Day, hand-in-hand with the relative
political and social calm. The exchange rate did not fluctuate
noticeably, contrary to last year's rapid twenty percent swings
(reftel A). Inflation has remained low, averaging 0.1 percent this
June.

2. (U) Explanations for the stability vary. Congolese government
officials, bankers and business operators attribute it to several
factors, chief among them optimism in advance of the July 30
national elections. As a result, merchants kept their inventories
and price levels stable and currency speculation was at a minimum.
The Administrator of the Congolese Chamber of Commerce (FEC) told
EconOff that economic operators have increased confidence in the
DRC's political stability, and therefore made sure that their
inventories were well-stocked in advance of the June 30 holiday.
(Note: Western Congo, including Kinshasa, has had shortages of some
imported commodities, such as milk, because of a port employees'
strike, an event unrelated to June 30 but which shut down maritime
port operations for several days. End note.)

3. (U) Last year many merchants depleted their inventories before
June 30, fearing looting and vandalism (reftel A). Because many
goods were plentiful this year, prices remained steady. Within the
Congolese market basket of goods, which consists mainly of domestic
and regional items, Post observed only manioc and maize price
increases in its bi-monthly Kinshasa-area consumer market survey.
Other food quantities and prices remained stable, due in part to the
better domestic transport conditions during the dry season in some
parts of the DRC.

4. (U) GDRC authorities also attribute the exchange rate and price
stability to May and June's budgetary discipline, following April's
overspending (reftel B). In June 2005, the GDRC spent heavily in
the days immediately before June 30 to try to "buy" calm, including
paying military and police salary arrears, at least in Kinhsasa.

5. (U) Other theories for this June's economic stability include
businesspersons' increased confidence in the Congolese Franc (CF)
and the Congolese Central Bank's (BCC) tighter control of the bank
note supply. According to FEC's head in Kisangani, Orientale
Province and an OFIDA (DRC's customs agency) official in Matadi,
Bas-Congo province, business operators are progressively more
willing to use CF and the US dollar interchangeably in transactions,
rather than the former tendency to use solely foreign currency.
However, the Central Bank's assertion that it has increased
discipline over the bank note supply contradicts this claim to some
extent. A BCC official told Econ LES that the BCC has held the cash
supply steady, releasing new bank notes only in exchange for old,
unusable ones, which it destroys. (Comment: Until the supply of
circulating CF increases and the BCC releases denominations larger
than CF 500, many businesses will continue to use U.S. currency for
large transactions. End comment.)

MEECE

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