US embassy cable - 05MAPUTO829

UNCLAS SECTION 01 OF 02 MAPUTO 000829 
 
SIPDIS 
STATE FOR AF/S, AF/EPS, AND EB/IFD/ODF 
STATE PASS TO USAID FOR PPC/SBRENT, AFR/DP/WWARREN, 
AFR/SA/DMENDELSON 
STATE PASS TO USAID FOR PPC/SBRENT 
E.O. 12958: N/A 
TAGS: EAID, KMCA, ECON, MZ, MCC 
SUBJECT: BUDGET SUPPORT DONORS OBJECT TO DEDICATED MCC 
UNIT IN PLANNING MINISTRY 
 
1. (U) On June 30, the Dutch Ambassador and the 
Finnish Charge, the incoming and outgoing heads of the 
Group of 17 donors who provide budget support to the 
Mozambican government (GRM), called on Charge to 
deliver a letter expressing concern over the GRM's 
decision to set up a unit in the Planning Ministry to 
work with the Millennium Challenge Corporation (MCC). 
They stated that the establishment of the unit, by 
taking qualified staff from other duties, will damage 
the quality of the GRM's upcoming Poverty Reduction 
Strategy, upon which much of Mozambique's external 
financing is based. They also indicated that 
establishment of a specific project unit went against 
the principles of the 2005 Paris Declaration on Aid 
Effectiveness, signed by the USG and other governments. 
The letter asks that the MCC review the establishment 
of the unit along with the GRM and adopt a different 
approach. Text of the letter follows in para 4. 
 
2. (U) Charge explained the importance to the USG of 
a successful Mozambican compact with the MCC and noted 
our belief that the GRM's establishment of the unit 
will help move forward Mozambique's MCA proposal. 
Charge agreed to convey the letter to Washington 
agencies as requested. 
 
3. (U) Action Request: We understand that MCC 
officials are planning to discuss this issue in a video 
conference with G-17 members next week. Post asks that 
after the conference, Washington agencies evaluate the 
need for a response to the letter and provide one if 
necessary. End Action Request. 
 
4. (U) Begin text of letter: 
Paris Declaration Observance by the MCA in Mozambique 
Excellency, 
We have been observing with interest the approach of 
the Millennium Challenge Account to Mozambique over the 
last two years. As you know, the country receives a 
large amount of foreign aid every year. This year 
about 900 million USD have been pledged, that is 
approximately 50 USD per capita or nearly a fifth of 
per capita income. A large proportion of this, 
possibly over 300 million USD, is provided by our group 
of 17 donors (G17-Belgium, Canada, Denmark, European 
Commission, Finland, France, Germany, Ireland, Italy, 
Netherlands, Norway, Portugal, Spain, Sweden, 
Switzerland, United Kingdom, World Bank), including 15 
bilaterals, the World Bank and the European Commission, 
in the form of direct budget support oriented towards 
the country's Poverty Reduction Strategy (in its local 
abbreviation, the PARPA). We may add that USAID is a 
constant official observer to the activities of G17. 
The G17 is doing its best to implement the principles, 
subscribed to by most of the international donor and 
financiers of the world, including the USA, which are 
contained in the Declaration of Paris signed on 3rd 
March this year. We seek to increase harmonisation and 
alignment, not for our own sakes but for the sake of 
Mozambique. We can already see that the close 
collaboration on aid delivery and administration by G17 
is reducing transaction costs substantially, giving 
Government more time to think and plan strategically, 
is increasing transparency substantially and helping to 
accelerate the introduction of better systems of 
financial management. 
We G17 have of course no mandate from the Government of 
Mozambique to push other donors into line against their 
will. Nor have we any ambition to exclude non-aligned 
donors from Mozambique, and indeed we can only be 
pleased when the country achieves recognition and 
support by other donors. We would however like to 
address our strong concerns to you and ask you to 
forward our concerns to the MCA, as regards one of its 
latest demands on the Government of Mozambique. 
Mozambique is known, due to its very undercapitalised 
colonial history and its history of armed conflict then 
and thereafter, to be one of the poorest, least 
developed countries in the world, and not least, one of 
the countries most thinly provided with qualified human 
resources. 
We understand that the MCA has not been satisfied with 
Mozambique's efforts to develop a full and complete 
portfolio of activities for its financing. This has 
resulted in pressure being placed on the Government to 
set up a special unit in the Ministry of Planning and 
Development, to take care full-time over the coming six 
to ten months of MCA's needs and demands. We 
understand also that the MCA will finance the costs of 
this unit. 
The Government has responded by appointing four of its 
qualified public servants to this unit, including some 
who were seminal in the elaboration of the country's 
first PRS and its follow-up, and who should be 
performing the same function in relation to the second- 
generation PRS, to be elaborated during the coming six 
to ten months. The others could also be performing 
more priority and more productive functions of 
Government. Putting them in this unit cannot be other 
than a direct blow to the quality of the PRS (PARPA), 
on which much of the country's external financing is 
based, and even to other important aspects of the 
Government's priority work. 
Excellency 
In the view of G17, we consider that the support of the 
MCA should be handled by and within the normal channels 
of Government instead, and in harmonisation and 
collaboration with the other donors. Project 
Implementation Units set up for individual donors' 
purposes go directly against these principles. We 
would thus like to appeal to the MCA to review this 
step, in consultation with Mozambique, and to adopt a 
more sensitive and aligned approach to assisting the 
country to develop and reduce its poverty levels. 
We would be very grateful if you could convey these 
sentiments, offered in a strongly constructive spirit, 
to the MCA and any other relevant organizations 
affected. 
Yours very sincerely, 
(signed) 
Liki Remmelzwall 
Ambassador, the Netherlands 
Anton Johnston 
Charge Sweden 
Members of the G17 troika 
For and on behalf of the G17 donors 
End text. 
JDUDLEY