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Cablegate: Confusion and Criticism Follow Further Changes to Foreign

VZCZCXYZ0000
PP RUEHWEB

DE RUEHKH #0975/01 1711428
ZNR UUUUU ZZH
P 201428Z JUN 07
FM AMEMBASSY KHARTOUM
TO SECSTATE WASHDC PRIORITY 7669

UNCLAS KHARTOUM 000975

SIPDIS

DEPT FOR AF/SPG, AF/EPS, EB/IFD, AND EB/ESC
DEPT PLS PASS USAID FOR AFR, AND ALSO PASS USAID

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL PGOV EFIN ECON EAID SU
SUBJECT: Confusion and Criticism Follow Further Changes to Foreign
Currency Laws

REF: KHARTOUM 902

1. (U) SUMMARY: On May 29, in an action widely understood as a
measure designed to prevent capital flight following tightened U.S.
sanctions, the Foreign Exchange Administration of the Central Bank
of Sudan announced an amendment to its foreign exchange regulations
(reftel). After widespread criticism of this amendment, the law was
further altered on June 10, reducing the prepayment margin on
imports and adding further clarification to the law. Critical
newspaper editorials and public debates followed this June 10
change. Some commentators have boldly argued that the ruling party
and political elite imposed these changes to defend their economic
interests and ultimately prevent political opposition. Less extreme
though more prevalent, most analysts view the volatile foreign
currency laws as a direct reaction to tightened U.S. sanctions. END
SUMMARY.

2. (U) Following widespread criticism of the Foreign Currency
Amendment, the Central Bank of Sudan (CBoS) published another change
to its foreign currency law on June 10. While upholding most of the
previous changes, the memorandum describes a reduction in the
prepayment margin on imports from 50 percent to 15 percent for
industrial and agricultural materials. The prepayment margin for
other import goods will remain at 50 percent of their value.
Furthermore, the law clarified that all commercial banks must
provide the Foreign Exchange Administration with monthly reports
detailing their imports operations. The law upholds the previous
amendment which puts limitations on transferring foreign currency to
accounts abroad.

3. (U) Abbas Hassan Ahmed, in a June 17 editorial in the Sudanese
Arabic daily newspaper "Al-Soudani," criticizes the changes to
foreign currency law. Acknowledging that the law may combat money
laundering, Ahmed argues that the changes will negatively affect the
most important areas of the economy. Ahmed contends that there is a
direct relationship between the tightened U.S. sanctions and the
changes. Ahmed believes that this round of sanctions differs
substantially from those in the past because most of the companies
on the new list have a direct connection to the ruling party and/or
the National Intelligence and Security Service (NISS). According to
Ahmed, these sanctioned companies benefit from interaction with the
American financial system and will be hurt by the sanctions. He
believes that the government changed the foreign currency law to
choke any competition, prevent an economic opposition bloc that
might be able to access foreign currency, and combat any rising
internal economic power. Ahmed states that since these changes
occurred, the value of Sudanese currency has dropped and a black
market for foreign currency has already emerged.

4. (U) Records of the debates in public meetings also illustrate
the confusion surrounding the foreign currency law. On June 10,
Saud al Brier, the President of the Sudanese Businessmen and
Employers Federation, met with Dr. Sabir M. Hassan, Governor of the
Central Bank of Sudan (CBOS) and submitted a public memorandum
criticizing the recent foreign exchange regulations regarding
imports.

5. (U) On June 16, the Banks Association held a public forum about
the new foreign exchange regulations, convened by Dr. Hassan. Also
in attendance were bank managers, businessmen, and university
students. Hatim Abdalla El-Zubair, Secretary General of the Banks
Association, opened the session saying that the forum will help
address the ambiguity that resulted from the changes.

6. (U) Dr. Sabir M. Hassan, Governor of the CBOS, first stated
that the amendment does not rule out foreign exchange altogether.
He compared the amendments to traffic laws which allow for the
freedom of movement within certain parameters. He stated that the
Central Bank made the changes to reduce dependency on imports and
combat money laundering activities.

7. (U) Many participants in the forum reportedly asked Dr. Hassan
why the new foreign exchange regulations immediately followed
tightened U.S. sanctions on Sudan. He responded that the
regulations had no relation to the sanctions. He also dismissed the
efficacy of any new restriction put on Sudan, saying that Sudan has
become accustomed to living in this state. Hashim Hago, President
of the Sudanese Businessmen and Employers Federation, criticized the
new regulations and stated that they will only result in further
confusion.

8. (SBU) COMMENT: The additional changes to foreign currency
laws, the public debates, and editorials that followed demonstrate
widespread confusion and disapproval of the amendments. According
to the reports, most observers see a connection between the foreign
currency laws and tightened U.S. economic sanctions. Others view
the foreign currency amendments not only as directly related to U.S.
sanctions, but also as a move designed to hinder real competition to
the businesses of the ruling elite. END COMMENT.


FERNANDEZ

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