Cablegate: The Drc and China: We Can Have Our Cake and Eat It Too

VZCZCXRO3000
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0918/01 2961525
ZNR UUUUU ZZH
R 221525Z OCT 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8651
INFO RUEHBJ/AMEMBASSY BEIJING 0107
RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS SECTION 01 OF 02 KINSHASA 000918

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV PGOV PREL CH CG
SUBJECT: THE DRC AND CHINA: WE CAN HAVE OUR CAKE AND EAT IT TOO

REF:(A) KINSHASA 426
(B) BEIJING 3996

KINSHASA 00000918 001.2 OF 002

1. (SBU) Summary: Recent public statements by the IMF, China
(PRC)'s Ambassador to the Democratic Republic of Congo (DRC), and
the Government of the Democratic Republic of Congo (GDRC) on the
multi-billion dollar Sino-Congolese agreement concluded in early
2008 (ref A) share several common themes, and a few important
differences. All parties agree that the DRC's infrastructure needs
remain enormous and that the GDRC can and should simultaneously
pursue the Chinese agreement and assistance, including debt relief,
from traditional donors. The key sticking point reflects differing
views on whether or not the Chinese agreement includes implicit or
explicit guarantees of the GDRC. The IMF indicated during its
September 10-23 Staff Mission to the DRC that some progress has been
made with the GDRC in addressing concerns over the Chinese
agreement's impact on the DRC's debt sustainability, but will wait
until the conclusion of a mining feasibility study, now slated for
March 2009, for any clarifications or possible adjustments to the
agreement. The GDRC has stated both publicly and in discussions
with the IMF its desire to pursue both a new IMF program and the
Chinese agreement, but has been non-committal about its willingness
to revise the terms of the agreement. While the Chinese clearly see
a need to address suspicion about the agreement, they have provided
no public indications that they are willing to revisit the agreement
in light of IMF concerns. End Summary.

IMF: PROGRESS, BUT NOT THERE YET
---------------------------------

2. (SBU) A press release issued by the IMF Staff Mission to Kinshasa
from September 10-23 stated that "The mission supports the
government's twin objectives of accelerating infrastructure
development and achieving substantial debt relief from its
traditional creditors." A key concern of the IMF and Paris Club
members remains whether the agreement includes implicit or explicit
guarantees of the GDRC. Until this issue is clarified, the DRC
cannot qualify for a new IMF Poverty Reduction and Growth Facility
program (PRGF).

3. (SBU) During a September 23 briefing with donor country
representatives, the IMF noted that that there had been some
progress in discussions with the GDRC, particularly in the area of
improved communications and a greater understanding by GDRC
officials of IMF/Paris Club concerns. Specifically, the IMF told
donors that the GDRC now accepts that the agreement includes
guarantees. However, the GDRC continues to insist that these are
"residual guarantees" covered by profits from the joint venture
established under the agreement. From the GDRC perspective, the
agreement would not impact debt sustainability since it is the joint
venture, not the Congolese state, that would be responsible for
repayment, and additional resources or concessions could be found if
the original concessions did not produce sufficient revenues to
cover the investments. (Note: In the first phase of the agreement,
revenues from the joint venture will be used to repay mining sector
investments totaling approximately USD 3 billion. In the second
phase of the project, 66 percent of the net profits will go towards
paying off the loans for infrastructure projects. End Note.)

4. (SBU) The IMF further told donors that while it will continue to
provide technical assistance to the GDRC on the 2009 DRC draft
budget and 2008 economic program, it will wait for the conclusion of
the mining feasibility study, now slated for March 2009, for
specific discussions on clarification or re-visitation of provisions
in the Chinese agreement. The feasibility study will also be an
opportunity to review concerns over the concessionality of the
loans. Based on the timing of the feasibility study, the IMF
presented two possible scenarios for DRC reaching Heavily Indebted
Poor Countries (HIPC) Completion Point. The optimistic scenario
would have a new IMF program presented to the Board in July 2009,
with Completion Point reached by May 2010. The less optimistic
scenario would have Completion Point slip until 2011, at the
earliest.

CHINA: ALL CAN PARTICIPATE IN DRC'S DEVELOPMENT
--------------------------------------------- ---

5. (U) During an October 8 panel held as part of an international
infrastructure conference in Kinshasa (iPAD Central Africa 2008),
China's Ambassador to the DRC, Wu Zexian, outlined China's role in
the DRC and directly addressed questions concerning the
compatibility of the Chinese agreement and an IMF program. Zexian's
presentation was the latest in a series of recent public statements
on China's engagement in the DRC and was clearly aimed at addressing

KINSHASA 00000918 002.3 OF 002

suspicions about the agreement.

6. (U) During his October 8 presentation, Ambassador Zexian
highlighted three principals of Chinese engagement in the DRC.
First, China supports the DRC as a fellow developing country with
shared challenges. Second, China has long-standing relations with
the DRC, including past assistance in infrastructure development
projects such as the Parliament building and Marytrs sports
stadium. Finally, China continues to support the DRC's development
through both official assistance and the recently concluded
mining/infrastructure agreement.

7. (U) Ambassador Zexian acknowledged public skepticism about the
recently concluded agreement. He stressed that the agreement should
not be considered an exclusive deal for China - all other partners
were welcome to cooperate similarly with the GDRC. Turning to the
IMF's concerns over possible sovereign guarantees in the agreement,
Zexian stated that the agreement would not add additional debt for
the DRC since the infrastructure projects would be paid for from the
eventual profits from the mining concessions. In the event that the
revenues from the concessions cannot cover the investment costs, the
GDRC would either simply find other natural resources or concessions
for payment, or the joint venture would be liquidated and China's
Eximbank would take over control.

GDRC: DEBT RELIEF, CHINESE AID ARE BOTH PRIORITIES
--------------------------------------------- -----

8. (U) Speaking at the same October 8 infrastructure panel as
China's Ambassador, GDRC Minister of Plan Olivier Kamitatu stated
that the DRC requires USD 14 billion for infrastructure development,
of which USD 9 billion will be provided through the Chinese
agreement. Kamitatu noted that the DRC plans to work with both new
partners, such as China, as well as traditional donors. When asked
specifically by an audience member how the GDRC plans to reconcile
IMF concerns about provisions in the Chinese agreement with the need
for debt relief under HIPC, Kamitatu stated that both HIPC and the
Chinese agreement represent priorities for the GDRC at the highest
level. The Chinese have been accepted as a partner by the
Congolese, Kamitatu noted. To ensure both processes proceed, the
GDRC stands prepared to work through technical issues in the Chinese
agreement.

9. (SBU) Comment. It is encouraging that the GDRC at a senior level
has publicly stated its desire for both the Chinese agreement and
HIPC to move forward, and that the IMF feels that progress has been
made, if only at a superficial level, on the sticking point of
whether the Chinese agreement includes implicit or explicit
guarantees of the Congolese government. It is also noteworthy that
the Chinese are participating in open forum-type meetings to discuss
these issues, even before Assistant Foreign Minister Zhai Jun
indicated willingness to do so two weeks later in a meeting in
Beijing with AF A/S Frazer (ref B). The proof is in the pudding,
however, and it remains unclear whether the GDRC and the Chinese
government are really willing to revisit the agreement and bring
problematic provisions in line with IMF requirements on debt
sustainability. The Chinese and GDRC are correct that the DRC's
needs are enormous and that all partners are welcome at the table.
At the same time, infrastructure alone will not address the DRC's
broader development challenges. The resources from debt relief
remain critical to the provision of basic services and pro-poverty
spending. The IMF Staff Mission has encouraged Paris Club members to
engage the DRC and China at a senior level to convey the importance
of ensuring that the Chinese agreement does not preclude a new IMF
program and forward movement toward HIPC Completion Point. Post
will seek opportunities to send this message to the GDRC and
encourages Washington to do the same. End Comment.

BROCK

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