US embassy cable - 05NAIROBI3129

UNCLAS SECTION 01 OF 02 NAIROBI 003129 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/E, AF/EPS, EB/IFD/OMA 
USAID FOR AFR/DP WADE WARREN, AFR/EA JEFF BORNS AND 
JULIA ESCALONA 
TREASURY FOR ANN ALIKONIS 
LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958:  N/A 
TAGS: ECON, PGOV, EAID, EFIN, KCOR, KE 
SUBJECT:  IMF BRIEFS KENYA'S "LIKE MINDED" POLITICAL 
OFFICERS 
 
Ref:  Nairobi 2651 and previous 
 
Sensitive-but-unclassified.  Not for release outside USG 
channels. 
 
1.  (SBU) Summary:  Kenya IMF Resident Representative 
Jurgen Reitmeier briefed a small gathering of "Like-Minded 
Donors/Political" (LiMiD/P) on July 12.  In addition to 
outlining Kenya's progress on its PRGF, as reported in 
reftel, Reitmeier offered a guardedly optimistic assessment 
of Kenya's current economic performance, but noted that 
infrastructure problems must be addressed.  Donors pressed 
him on corruption and governance concerns and Reitmeier 
explained that the GOK was making progress on the 
governance criteria built into this second review.   End 
summary. 
 
2.  (SBU) USAID/Democracy and Governance Officer and Acting 
Econ/C attended a July 12 briefing by Kenya IMF Resident 
Representative Jurgen Reitmeier to a small gathering of 
"Like-Minded Donors/Political" (LiMiD/P) at the residence 
of Swiss Deputy COM Arthur Mattli.  Also attending were 
representatives from the U.K., Canada, Germany, France, 
Sweden, Australia, and Japan.  Sticking mostly to the 
information he shared previously with donors (reftel), 
Reitmeier provided a summary of current thinking on Kenya's 
progress on criteria for the second review of Kenya's three 
year, $240 million Poverty Reduction and Growth Facility 
(PRGF).  In response to participants' questions, Reitmeier 
touched on a few other themes as well. 
 
------------------------------- 
KENYA'S ECONOMY IS SATISFACTORY 
------------------------------- 
3.  (SBU) Reitmeier noted that Kenya's revised FY2004 GDP 
of 4.3 percent is still provisional, but, of greater 
importance, the IMF is comfortable with Kenya's revised GDP 
growth figures and the GOK's updated methodology for its 
growth estimates.  Estimates of 4.8 percent in FY05 and 4.9 
percent in FY06 seem reasonable, but beyond that even these 
growth rates will not be sustainable without significant 
new investment in Kenya's deteriorating infrastructure. 
Reitmeier opined that Kenya's available budget allocations 
will not be sufficient for needed infrastructure 
improvements and the GOK should begin a concerted strategy 
to pursue additional donor support.  In particular, he 
noted the usefulness of possible future budget support from 
the European Union and the World Bank. 
 
------------------------------------ 
GOVERNANCE - IMF IS PAYING ATTENTION 
------------------------------------ 
4.  (SBU) LiMiD/P co-chairs Canada and Switzerland both 
pressed Reitmeier on the on-going concerns about governance 
and corruption.  Reitmeier acknowledged that it is a 
problem, and that the IMF would continue to assess the 
situation critically.  He also pointed out some positive 
momentum, namely that the Public Officers' Ethics Act was 
likely to be amended this year, which would permit greater 
scrutiny of senior officials' asset declarations by the 
Kenya Anti-Corruption Commission (KACC).  However, 
participants noted that the amended draft might not include 
the desired provision for public disclosure of the 
declarations, which is not a requirement under existing 
law.  The current draft does outline specific codes of 
conduct for the President, Ministers, and MPs.  By 
Reitmeier`s estimation it also includes a good catalog of 
prohibited conflict of interest behavior. 
 
----------------------------- 
TOO SOON FOR AN EXIT STRATEGY 
----------------------------- 
5.  (SBU) When asked if the IMF was considering a possible 
exit strategy from Kenya, Reitmeier responded that the 
current program has not even completed its second review. 
After this program's completion, however, the IMF will 
consult closely with the GOK, IMF members, and donors on 
the need for a second program.  That could possibly take 
the form of a "signaling program," developed through 
Article 4 consultations with donors, that would permit 
continued assessment of Kenyan progress in meeting program 
targets but without new disbursements.  Reitmeier also 
noted the Tanzanian model where a second PRGF was developed 
with only a "symbolic" contribution ($US7 million over 
three years) that allowed further IMF engagement with 
policy makers.  Reitmeier added that it is too soon to tell 
if this could be a useful model for Kenya. 
 
------- 
Comment 
------- 
6.  (SBU) Reitmeier was effective in summarizing for this 
small gathering of mostly political officers where Kenya 
stands on its PRGF.  He clearly outlined that the GOK is 
making progress on meeting program conditionality, but that 
his staff is closely watching both economic and political 
developments.  At the same time, there could be no doubt in 
his mind that, at least for the majority of the LiMiD 
members, reiterating concerns about corruption and 
governance continue to be a priority message that the IMF 
needs to share with senior Kenyan officials. 
BELLAMY