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Cablegate: Imf Representative in Burundi Concerned Over

VZCZCXYZ0001
PP RUEHWEB

DE RUEHJB #0563/01 2201305
ZNR UUUUU ZZH
P 081305Z AUG 07
FM AMEMBASSY BUJUMBURA
TO RUEHC/SECSTATE WASHDC PRIORITY 0476
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS BUJUMBURA 000563

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR AF/C

E.O. 12958: N/A
TAGS: PGOV PREL BY
SUBJECT: IMF REPRESENTATIVE IN BURUNDI CONCERNED OVER
BUDGET CRISIS


1. (SBU) Summary. Ambassador Moller met on August 7 with
International Monetary Fund (IMF) Resident Representative
Israel de la Piedra and visiting IMF Assessment Team
economist Alvaro Manoel to discuss Burundi's impending
budgetary crisis. De la Piedra identified the two most
immediately troubling fiscal issues for Burundi as loss of
revenue in the face of increased Government expenditures, and
the questions of malfeasance raised by alleged illegal
payments by the Government of Burundi (GOB) of $17 million to
a private Burundian petroleum company, Interpetrol. De la
Piedra said that the IMF would address these two issues and
try to help the Government find a way to increase
transparency in its budget process and in its fiscal
operations. If the Government of Burundi is able
convincingly to demonstrate that it is embarking upon
necessary changes, then the IMF is prepared to consider
continuing its budgetary support. De la Piedra noted that
for IMF to provide further budget support, a third evaluation
visit would have to take place. He emphasized to the
Ambassador how seldom IMF agrees to make such a visit, but
responding to the Ambassador's remarks about Burundi's status
as a country emerging from decades of civil strife and about
its strategic importance in the region, Alvaro Manoel
conceded a third visit would be possible in Burundi's case,
cautioning however that IMF visits do not occur "every few
weeks". End Summary.

2. (U) Ambassador Moller met with IMF Resident Representative
Israel de la Piedra to discuss the budget crisis facing
Burundi. Mr. de la Piedra told Ambassador Moller that on
August 6, he and Burundi's Second Vice President Gabriel
Ntisezerana, and others participated in a video conference
with IMF Washington. De la Piedra informed the Ambassador
that the subject of the video conference was Burundi's
deteriorating fiscal situation, its causes, and what the GOB
needed to do to ameliorate the present crisis and ensure that
support would continue to flow from IMF, World Bank, and
others.

Two Issues Facing the GOB
-------------------------

3. (SBU) Mr. de la Piedra told Ambassador Moller that, for
its part, the IMF sees two immediate looming problems facing
Burundi. The first of these is the Government's wide budget
gap, driven partly by a loss of customs revenues at the same
time as additional expenditures are being approved. The most
egregious of these new and unplanned-for expenditures is the
thirty-four percent salary increase for civil servants
promised by President Nkurunziza on May 1. Alvaro Manoel,
IMF visiting senior economist, pointed out that President
Nkurunziza made his announcement of the salary increase after
the IMF had proposed its 2007 budget for Burundi, commenting
that Burundi's budget is "no longer financeable."

4. (SBU) The second problem De la Piedra described was the
unfolding scandal of allegedly illegal payments amounting to
some $17 million by the GOB to the private Burundian
petroleum distributor, Interpetrol. He pointed out that the
controversy and scandal surrounding the transaction touched
both on good governance issues -- corruption -- and on the
budgetary crisis, through the loss of GOB funds. Expanding
on the illegal Interpetrol payments, he explained that the
monies were handed over in three or four payments, the latest
of which was in May. The USD payments requested by the
Minister of Finance for Interpetrol were said to be needed to
cover "exchange rate losses," but IMF believes those losses
had already been paid by the GOB in 2004.

5. (SBU) Although it is important for the government to
recover funds paid to Interpetrol, De la Piedra hoped that
the GOB would not attempt to recover the lost money "by
might," but would instead follow the law. Citing the August
4 arrest in his home of the Governor of the Central Bank for
his alleged role in the Interpetrol affair, De la Piedra
expressed hope the arrest had been made legally.


Goals and Strategies
--------------------

6. (SBU) Mr. de la Piedra said that IMF's immediate goals for
Burundi are simple. Burundi must: acknowledge that the
Interpetrol problem must be put right, begin to move the
country towards responsible fiscal and budgetary policy and
practice, and implement measures to enhance revenues and cut

expenditures. The Second Vice President has already
identified petroleum products, fizzy drinks and beer, and
sugar as targets for tax increases.

7. (SBU) As part of the IMF's strategy to improve government
transparency, De la Piedra stressed the importance of finding
and closing loopholes in the law, such as the one that allows
the Minister of Finance to write checks without any
oversight, creating an opportunity for corrupt practices. He
recommended as well requiring regular audits of companies
that do business with the Government.

8. (SBU) Mr. de la Piedra informed the Ambassador that prior
to the IMF's August 8 departure from Burundi, he would meet
again with the Second Vice President, the Minister of
Finance, and the Interim Governor of the Central Bank to
continue their discussions on the budget impasse. On August
7, a second video conference with IMF Washington will take
place. Mr. Manoel intervened to explain that if the GOB can
convincingly demonstrate it will make needed changes to
address the flaws in its budget process, then the IMF is
prepared to continue its budgetary support. He went on to
say, that the GOB must immediately address the loss of
revenue and the worrying Interpetrol situation, cautioning
that IMF missions do not occur "every few weeks". De la
Piedra emphasized that for IMF to stay in Burundi, the GOB's
efforts to solve its fiscal problems must be robust and
transparent. Acknowledging the gravity of the situation, the
Ambassador urged the IMF Rep to keep the Embassy apprised of
developments.

9. (SBU) Comment. The IMF representative in Burundi is
clearly disturbed by the GOB's fiscal behavior, but is
continuing to work to find a solution. The IMF's willingness
to return to Burundi in September is promising, and suggests
its commitment to the country. Given the fragility of
Burundi's young democracy, the need for the IMF and other
international partners, to remain strongly invested in
Burundi's future is evident, as is the IMF's need to identify
serious brokers within the GOB with whom they can work. The
IMF's principal Burundian interlocutor, the Second
Vice-President, appears to be serious, a "straight-shooter",
and someone who understands the task at hand. If he can make
good on his pledges to fix the problems, then the IMF will
likely consider it has a solid partner. End Comment.

MOLLER
MOLLER

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