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Cablegate: Adb President Optimistic About Bank's Future, Wary

VZCZCXRO6431
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHTU #2916/01 3491453
ZNR UUUUU ZZH
P 151453Z DEC 06
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 2353
INFO RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUCNMGH/MAGHREB COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0073
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 TUNIS 002916

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAID EFIN ECIN KDEM TS
SUBJECT: ADB PRESIDENT OPTIMISTIC ABOUT BANK'S FUTURE, WARY
OF POLITICAL INVOLVEMENT


1. (U) Summary: During the Ambassador's December 11 courtesy
call on African Development Bank (ADB) President Donald
Kaberuka, Kaberuka touched on the differing problems and
varying situations of African nations and the importance of
adapting the services provided by the ADB to meet these
challenges. In discussing Bank lending to Tunisia, Kaberuka
cautioned that ADB statutes prevented the institution from
political involvement but acknowledged that the bank operates
in a political environment. End Summary.

2. (U) Background: Kaberuka, former Rwandan Minister of
Finance and Economic Planning, became President of the
African Development Bank in September 2005, inheriting an
institution whose financial stability had been restored, but
as a small development agency in a field crowded with larger
donors that faces questions about its ability to address
Africa's low historical growth. The ADB temporarily
relocated to Tunis in 2003 from its then headquarters in
Ivory Coast. End Background.

3. (U) Meeting Participants:

----
U.S.
----

Robert F. Godec, Ambassador to Tunisia
Amb. Cynthia Perry, U.S. Executive Director to the African
Development Bank
Victoria Taylor, EconOff, Embassy Tunis (notetaker)

------------------------
African Development Bank
------------------------

Donald Kaberuka, President
Sushil Khushiram, Senior Advisor to the President
Anne Kabagambe, Acting Manager, Office of the President

------------------------
Africa at the Crossroads
------------------------

4. (SBU) In his meeting with the Ambassador, President
Kaberuka stressed that "Africa is at a turning point" unseen
in 30 years. He noted that there are fewer armed conflicts,
but emphasized that peace and stability remain major concerns
in countries such as Ivory Coast and Sudan. Kaberuka also
stressed the problems of legitimacy and corruption faced by
many African countries, recognizing that corruption was
especially acute in newly rich countries without
well-established agents of restraint. Debt also remains a
concern in many countries, some of which have received debt
relief but are tempted to acquire new debt from countries
such as China. Kaberuka highlighted the frustration of many
African countries with trade negotiations, which have not
moved forward as hoped. Despite all the challenges, Kaberuka
praised the small group of countries who have made headway
despite being poor in natural resources. Countries such as
Cape Verde, said Kaberuka, have managed to achieve growth
rates of five percent despite their lack of resources.

-------------------------
Bank to Accelerate Change
-------------------------

5. (SBU) According to Kaberuka, the role of the ADB is to
accelerate the process of change occurring in Africa. One of
the central questions facing the Bank is how to effectively
deliver development products. The ADB must focus on what the
bank does best and must adjust the products and services it
provides to meet the needs of its recipient countries. He
noted that in North Africa the ADB is not a competitive
source of financing because those countries have many
available sources of lending from which to choose. Kaberuka
stressed that the ADB would like to provide more non-lending
products, such as policy advice, and would like to promote
the integration of African economies. Yet, he also
acknowledged that the although the ADB's finances were
"sound", its human resource base remained weak. Notably,
Kaberuka did not discuss choosing a permanent location for
the Bank, which many ADB employees and board members would
like to see resolved sooner rather than later.

-------
Tunisia
-------

TUNIS 00002916 002 OF 002

6. (SBU) Kaberuka acknowledged that the Bank had "done a lot
for Tunisia," with most projects focused on infrastructure
and education. (Note: Tunisia remains among the top
recipients of ADB lending, despite its comparatively high
level of economic development. Tunisia holds approximately
5.26 billion USD in loans from the ADB. End Note.) In
response to the Ambassador's observation that greater
political freedoms are needed in Tunisia, Kaberuka merely
replied "probably" and later noted that the Tunisians "have
their own way of doing things." Kaberuka conceded that the
expansion of Tunisia's middle class had created great
potential for entrepreneurship which could be recognized with
greater freedom and openness. Yet, he stated that Bank
statutes prohibit the institution from becoming involved in
political issues. At the same time, he recognized that the
Bank operates in a political environment. Kaberuka
emphasized that the Bank tries to provide "signals and
incentives" to help create "agents of restraint" in recipient
countries while trying to adhere to this mandate.

7. (SBU) Comment: Kaberuka appears committed not only to
tackling internal management issues, such as human resources,
but also to addressing larger questions about the role of the
bank and the services it provides. Although Kaberuka was
optimistic about the ADB's ability to overcome these
challenges, the bank's temporary location in Tunis -- now
entering a fourth year -- remains a major and largely
unanswered concern for employees and board members. In
addition, the ADB's wariness of political involvement is
inimical to Kaberuka's own recognition of the impact of
corruption and policy on economic development. It is
impossible to separate economics from politics and
governance, as Kaberuka acknowledged in discussing the need
to use signals and incentives to encourage countries to
develop institutional checks and balances against corruption.
However, Kaberuka did not elaborate what incentives could be
used to encourage good governance and was reluctant to
discuss conditioning lending on governance. While the ADB
depends on lending to recipients with excellent repayment
records to increase net finances, countries like Tunisia that
are close to attaining the Millennium Development Goals, yet
eschew political reform, are the least in need of assistance.
End Comment.
GODEC

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