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Cablegate: Ethiopia's Hold Over the Imf and World Bank

VZCZCXRO3035
RR RUEHROV
DE RUEHDS #2556/01 3020525
ZNR UUUUU ZZH
R 290525Z OCT 09
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 6637
INFO RUCNIAD/IGAD COLLECTIVE
RUEPADJ/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 ADDIS ABABA 002556

SENSITIVE
SIPDIS

DEPARTMENT FOR EEB/IFD/OMA - JWINKLER AND EEB/CBA -
DWINSTEAD
USAID FOR AFR/EA HELLYER AND DALTON
DEPT PASS TO USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND
BARBARA
GRYNIEWWICZ
DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO
DEPT OF TREASURY WASHDC FOR REBECCA KLEIN

E.O. 12958: N/A
TAGS: EAID ECON ET
SUBJECT: ETHIOPIA'S HOLD OVER THE IMF AND WORLD BANK

ADDIS ABAB 00002556 001.2 OF 002


1. (SBU) Summary: Both the local International Monetary Fund
(IMF) and World Bank (Bank) representatives discussed the
Government of Ethiopia's (GoE) strong position when
negotiating for additional donor assistance during a October
22 lunch with Embassy officials and visiting AF/E Director.
According to the representatives, the GoE masterfully walks
the line between its status as one of the poorest nations and
touting its consistent double-digit Gross Domestic Product
(GDP) growth when seeking additional funding. The IMF
representative questioned the quality of the GoE's fiscal
data and worried about its increased public spending and debt
levels, but admitted his difficulties in finding other
reliable data and getting the GoE to open up the books of the
debt-laden state-owned enterprises (SoEs). End Summary.

2. (SBU) Local IMF and Bank representatives discussed the
clever negotiating skills of the GoE with CDA Meece, visiting
AF/E Director Geeta Pasi and EconOff during an October 22
lunch. Both IMF Resident Representative Sukhwinder Singh and
Bank Acting Country Director Jeeva Perumalpillai-Essex
indicated the GoE is adept at playing both sides of the coin
to assure assistance--from the impoverished country side to
the booming economic growth side. They asked, "what can we
do?" with the GoE when it comes up with good arguments on
both sides when negotiating for increased funding. Singh
stated the GoE often emphasizes the low income status of
Ethiopia while citing recent IMF funding to wealthier
countries during its negotiations. Perumalpillai-Essex
commented on the GoE's well developed sense of timing,
stating that she expects the GoE to request additional Bank
disbursements right before the end of the year when
Ethiopia's foreign exchange reserves will be low and
officially counted. (Note: Asking the Bank for foreign
exchange inflows privately at that time will reveal
Ethiopia's desperate need for assistance, while publicly the
Bank-boosted reserves will count as another GoE macroeconomic
success story. End Note.)

3. (SBU) Singh recounted week-long negotiations between the
IMF and the GoE on the Exogenous Shocks Facility (ESF)
package approved within the past year. He stated that the
GoE insisted that they were going to attain 11 percent GDP
growth in the fiscal year ending June 2009. The IMF
continually questioned the GoE's ability to do so given all
of the internal and external strains on Ethiopia's economy
and in the end told the GoE that if it is able to grow GDP at
11 percent then it does not need IMF ESF assistance. During
the next and final day of negotiations, the GoE retracted a
bit and reported it would only reach 10 percent GDP growth in
2009. The IMF then relented and agreed to an ESF loan (Note:
The IMF issued Ethiopia a USD 50 million ESF loan in January
2009 and a USD 241 million loan in August 2009. End Note.).

4. (SBU) Singh admitted he questions the GoE's budget
numbers, but stated the IMF has to use them since there are
no other reliable figures. He expressed concern not only
about the growth figures, but the GoE's recent public
spending and recent trends to increase debt. Singh also said
the GoE refuses to budge on opening up the books of SoEs and
these requests often invoke strong negative reactions from
GoE officials (Note: The SoEs reportedly have more debt on
their books than the GoE itself. End Note.). He went on to
say the IMF believes Ethiopia's real exchange rate is still
overvalued even after Prime Minister Meles agreed to the
recent 10 percent Birr devaluation when the central bank
governor and finance minister were hesistant to do so.

5. (SBU) Singh remarked that the GoE often compares itself to
the Asian Tiger countries due to its historical high growth,
but when the IMF points out various macroeconomic problems
Ethiopia is dealing with that the Asian Tigers did not, the
GoE only focuses on the data that supports its optimistic
conclusions. For example, Ethiopia is battling high

ADDIS ABAB 00002556 002.2 OF 002


inflation while most Asian Tigers did not; however, the GoE
focuses on the fact that South Korea struggled with high
inflation in one year of its growth boom. In response to CDA
Meece's inquiry, Singh acknowledged that Ethiopia's growth
spurt will have to end at some point; however, he said the
end is difficult to predict when the country continues to
receive significant levels of one-off donor assistance and at
least selectively produce decent economic performance.

6. (SBU) Comment: Given Ethiopia's status as a populous
nation dealing with extreme poverty, the Bank stands in the
same weak position the U.S. does when negotiating assistance
packages. The GoE knows donors will not pull out of Ethiopia
and leave millions of people to starve to death. The IMF
struggles as elsewhere to steer a course above
minimally-acceptable economic governance of policies. The
lack of consequences makes it quite difficult to push the GoE
on certain objectives such as fiscal transparency and other
conditionalities. End Comment.
MEECE

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