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Cablegate: President Kabila Turns Down 2010 Budget

VZCZCXRO3575
OO RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0024/01 0081536
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O R 081534Z JAN 10
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0019
INFO RWANDA COLLECTIVE
SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RHMFISS/HQ USAFRICOM STUTTGART GE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 KINSHASA 000024

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EAID PGOV PREL CG
SUBJECT: PRESIDENT KABILA TURNS DOWN 2010 BUDGET

REF: 09 KINSHASA 934; 09 KINSHASA 1112

1. (SBU) Summary: On December 31, President Joseph Kabila rejected
the draft 2010 budget and sent it back to Parliament for revisions.
One likely reason behind the rejection is that Kabila wants to
control spending in order to reach the completion point of the
Heavily Indebted Poor Country (HIPC) debt-relief program. The
challenge for Kabila is to both meet the pressing socio-economic
needs of the country and keep spending within reasonable limits.
End summary.

Background

----------

2. (U) In early October 2009, GDRC's draft 2010 budget, totaling
USD 5.3 billion, was submitted to Parliament (ref A). While
drafting the 2010 Budget, MPs took into account the recovery of the
world economy after the financial crisis and ongoing GDRC reforms
in the area of good governance and public financial management.
They decided to increase the budget from USD 5.3 to 6 billion
because they found potential additional financial resources from
the mining and telecommunications sectors. It is worth mentioning
that the 2010 budget considered certain mandatory expenditures,
like salary payments, which have to be made regardless of the
amount of revenues collected. The inability to collect projected
revenues would compel the GDRC to print money, which would
seriously undermine macroeconomic stability.

3. (U) The National Assembly's (lower House of Parliament)
Economic and Financial Committee reviewed and increased the
proposed amount of the budget to USD 6 million on December 2. On
December 15, the Senate's Economic, Financial and Good Governance
Committee reached consensus with the National Assembly and approved
it. The Parliament then sent the USD 6 million budget to Kabila
for his final approval and signature. However, Kabila rejected it
and returned it to the Parliament for revisions. Reaction from the
Parliament has been mixed. Opposition party members immediately
denounced the budget rejection and its "anti-social" spending
policies promoted by the IMF and WB. Nevertheless, President
Kabila is counting on his absolute political majority within
Parliament to keep spending within reasonable limits in the 2010
budget.

4. (SBU) The Vice President in charge of Economy and Finance at
the National Assembly Jean Lucien Bussa explained to Econoff on
January 7 that the reason behind the refusal was that the budget
should be revised to include new developments of DRC negotiations
with the World Bank and IMF around HIPC debt relief. The Principal
Adviser to President Kabila, Rahael Luhulu, added that the draft
budget contained some "inconsistencies" which need to be rectified.
(Note: He did not specify what the "inconsistencies" were. End
note.) Both Bussa and Luhulu confirmed that the return of the
budget to the Parliament was in compliance with the DRC
Constitution. The budget will be re-examined when Parliament
re-convenes on January 15.

Spending must be curbed

-----------------------

5. (SBU) President Kabila is trying to reign in government
expenditures in order to maintain DRC's debt sustainability. For
example, in October 2009, the GDRC reduced the amount of the
Sino-Congolese minerals-for-infrastructure agreement from USD 9.2
billion to 6 billion (ref B) in order to secure IMF approval for a
new three-year Poverty Reduction and Growth Facility (PRGF)
program. The new PRGF program will allow the Paris Club group of
official creditors to resume provisional debt relief and help pave
the way for comprehensive debt relief (upon reaching the

KINSHASA 00000024 002 OF 002


"completion point") under the HIPC Initiative and the Multilateral
Debt Relief Initiative (MDRI). This debt relief will help
alleviate DRC's official debt burden (estimated at USD 13.5
billion) and allow the DRC to allocate critically needed resources
for poverty reducing program. On December 11, the IMF Board of
Directors approved reinstatement of DRC's PRGF program.

6. (SBU) The GDRC must now concentrate on reaching the HIPC
completion point. In order to do so, it must meet a number of
"triggers," including maintaining macroeconomic stability and
improving the public financial management and debt management
systems. President Kabila will need to limit spending. In
addition, real GDP growth should be at least 5.5 percent, the
inflation rate should be limited to 12 percent by 2012, foreign
reserves should be equivalent to at least 10 weeks of non-aid
imports by 2012, and the foreign current account deficit (including
grants) should be limited to 25 percent of GDP.

7. (SBU) Comment: The significance of President Kabila's refusal
to sign the draft 2010 budget is unclear. Parliament routinely
increases the GDRC budget based on unrealistic spending
assumptions. On the one hand, it could be positive: Kabila is
taking the IMF Program (PRGF) seriously and is actually working to
control spending. He may have refused to sign the budget based on
spending increases made by the Parliament to the GDRC's original
draft budget (which had been drafted in close coordination with the
IMF). On the other hand, this could potentially create a rift with
Parliament or delay the implementation of the budget/regular
spending, since the DRC's fiscal year begins on January 1. Post
will continue to closely monitor developments concerning the FY
2010 budget as well as the impact of its roll-out and whether it at
the same time addresses the country's enormous economic and social
development needs and keeps spending within reasonable limits. End
comment.
GARVELINK

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