US embassy cable - 04KINSHASA1849

UNCLAS KINSHASA 001849 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, CG 
SUBJECT: IMF TEAM HELPS GDRC DRAFT 2005 BUDGET 
 
 
1. (U) Sensitive but Unclassified. 
 
2. (U) Summary. An IMF team led by Director For Africa Cyril 
Brianson visited Congo the week of September 13 to assist in 
the preparation of the DRC's 2005 budget. The team noted that 
most macroeconomic indicators continue to be on target; that, 
encouragingly, government revenues have increased over the 
last year; that funding for elections and military 
integration are to be included in the budget sent to 
Parliament; and that the budget process is being hindered by 
questions of when the USG will appropriate sufficient funds 
to implement HIPC debt forgiveness. The IMF will return to 
Kinshasa in November for a program review that is expected to 
overlap with the Consultative Group meeting. End summary. 
 
3. (U) Ambassador, DCM and Econoff met with IMF Director for 
Africa Cyril Brianson, IMF resrep Arend Kouwenaar, and Senior 
Economist Jacob Gons (who was Kouwenaar's immediate 
predecessor as resrep) on September 20 to discuss the current 
budget mission and other IMF topics.  The IMF 
representatives, who came to Congo at the request of the GDRC 
to assist in the preparation of the budget, told Post that 
the draft budget is less than 50 percent financed by the 
revenues of the Congolese state.  The rest is to come from 
outside sources - multilateral and bilateral donors.  The 
budget is slightly more than one billion USD, with the GDRC 
contribution at USD 450 million.  OFIDA (the customs service) 
has experienced steadily increasing revenues.  Encouragingly, 
government revenues increased 32.8 percent from 2003 to 2004. 
 While revenues are still low by any standard, the increase 
is a positive indicator of both growing commercial activity 
as well as reflecting progress on ongoing reforms in the 
state revenue structures.  The Ambassador noted the need to 
balance the necessity of increasing state revenue to some 
adequate level with a corresponding decrease in payment 
demands on the formal sector, much of which represents 
unauthorized free-agent demands by inadequately supported 
offices and individuals.  This remains a problem that has 
impeded legitimate business growth in the DRC.  The IMF 
official indicated they were aware of and sensitive to the 
issue. 
 
4.  (U) The team noted that the key issue is that the 
approved budget must be implemented by the government to be 
effective.  In 2004, for example expenses for "institutions" 
(the president and 4 vice-presidents) were over budget while 
health and education spending were under budget.  Brianson 
noted that pro-poor spending shortfalls were not unique to 
the Congo and that many governments did not have procedures 
in place to spend money newly available under the terms of 
HIPC. 
 
5.  (U) The IMF team asked about the status of the HIPC debt 
forgiveness by the USG.  The Ambassador advised that we hoped 
that sufficient funding would be appropriated to at least 
cover Congolese debt service over the next year.   Later, 
Kouwenaar called Econoff to express his concern that the US 
was billing the Congo for loan payments coming due under the 
October 2002 Paris Club agreement that had not yet been 
forgiven by the USG.  (Note: Vice President Jean-Pierre 
Bemba, who leads the DRC's Economic and Financial Commission, 
will be in Washington from October 3-7.  We expect that he 
will raise the HIPC issue in his meetings with USG officials 
including Treasury Under Secretary Taylor on October 5. End 
note.) 
 
6.  (U) Ambassador Meece noted the importance of budgeting 
for elections, scheduled for June 2005 and also for military 
integration. Brianson acknowledged that these need to be 
priority issues for the GDRC, and indicated that a 
substantial sum (approximately USD 65 million) is likely to 
be included in the 2005 budget for military integration. As 
well, funds are being included for the elections, although 
the IMF officials observed the amount is little more tan 
symbolic relative to total election funding needs  It is 
nonetheless important. 
 
7.  (U) The IMF team will return in mid-November for the 
semi-annual review.  This will coincide with the November 
11-13 Consultative Group meeting to be held again in Kinshasa. 
 
8. (SBU)  Comment. The IMF team made a point to meet with 
donors, both in a group debriefing and bilaterally. Team 
members were forthcoming, open and receptive. Their 
willingness to tackle the issues of funding elections and 
military integration was an important step forward in 
supporting the transition, and represents a welcome change 
from prior IMF apparent reluctance to devote scarce budget 
resources to these areas. Likewise, the GDRC's desire to 
collaborate closely with the Fund in preparing its budget it 
to be welcomed. End comment. 
MEECE