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Cablegate: Khartoum Central Bank Grants the South Authority To

VZCZCXRO7661
PP RUEHROV
DE RUEHKH #2030 3551102
ZNR UUUUU ZZH
P 211102Z DEC 07
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 9602
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS KHARTOUM 002030

SIPDIS

DEPT FOR AF/SPG, EEB/IFD/ODF, EEB/IFD/OMA
DEPT PLS PASS USAID FOR AFR/SUDAN
DEPT PLS PASS TREASURY FOR OFFICE OF INTERNATIONAL AFFAIRS AND USED
WORLD BANK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EAID PGOV SU
SUBJECT: KHARTOUM CENTRAL BANK GRANTS THE SOUTH AUTHORITY TO
ADMINISTER INDEPENDENT FINANCIAL SYSTEM


1. (U) On December 15 the Central Bank of Sudan (CBoS) Board of
Directors approved the "Central Bank of Sudan Policies for the Year
2008." Inter alia, the "2008 Policies" document grants the Bank of
Southern Sudan (BoSS) the authority needed to promulgate
long-delayed independent financial regulations for the South. "2008
Policies" was drafted by BoSS staff with the assistance of
USAID-funded technical advisors and submitted to the CBoS Board for
approval.

2. (U) Under the Comprehensive Peace Agreement (CPA), Southern
Sudan is authorized to develop its own interest-rate based financial
system, separate from the Sharia-based system in the North. The
South's system is to be supervised by the BoSS, which operates as a
branch of the CBoS in Khartoum, managing the interest rate-based
system in the South. (The Governor of the BoSS and two other
Southerners sit on the Board of the CBoS.) Under this "one country,
two systems" arrangement, country-wide monetary policy is
established by the CBoS Board in Khartoum, but implemented
separately in North and South by the CBoS and the BoSS. Likewise
the two financial systems are to be supervised independently of each
other.

3. (U) Approval of the "2008 Policies" provides the BoSS with full
authority to perform the most critical functions to develop an
interest-rate based financial system. The "2008 Policies" document
instructs the BoSS to adapt and use for Southern Sudan (1)
prudential rules and regulations, and (2) monetary-policy
instruments (e.g., open-market operations), with the rules and
regulations required for their use. This provides the BoSS with the
authority needed to begin exercising its responsibilities to
implement monetary policy and to supervise commercial banks.

4. (SBU) Comment: The "2008 Policies" is a significant step
towards permitting the BoSS to take on the functions of a standard
central bank and achieve the goal of a market-based financial system
independent of Khartoum. Draft banking regulations, prepared with
the assistance of USAID-funded technical advisors, have been on hold
at the BoSS for some time pending CBoS authorization. The way
should now be clear for the BoSS to begin implementing monetary
policy through conventional monetary-policy instruments, together
with required rules and regulations.

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