Chinese deal threatens IMF aid for Congo

Friday, May 15, 2009

The International Monetary Fund is nearing a deal with the Democratic Republic of Congo worth billions in debt relief and aid.

But the agreement depends on China revising a $9bn (€6.6bn, £6bn) mines-for-infrastructure pact.

The deal, signed last year, gives Chinese companies rights to develop copper and cobalt reserves in one of the world' richest mining zones – but which is also among its least stable and poorest states. In exchange, the Chinese would build roads, railways, schools and clinics.

It is the most ambitious of the minerals-for-infrastructure deals reached, as China's fast-evolving relations with Africa began to challenge the dominance of former European colonial powers in trade, development thinking and political influence on the continent.

The Congolese government hoped that the project would allow the country to translate its mineral wealth into tangible development. But the terms of the deal, agreed when copper prices were soaring, have become the main obstacle to a fresh influx of western aid. The economic landscape has also changed. Facing declines in the price of copper and other minerals, the Kinshasa government is now unable to finance even basic functions of the state.

Before going ahead with a poverty-reduction programme, the IMF is insisting that Chinese lending be concessional, that state guarantees be removed and studies completed to show that mineral reserves tied up in the deal cover the cost of infrastructure.

Antoinette Sayeh, head of the Africa department at the IMF, said talks with the Congolese on a programme were nearly complete and could be approved by the IMF board as early as July.

Congo would then stand to gain from a write-off of $11bn of its external debt, and would be able to access billions in fresh development aid. "We have worked out most of the technical and policy issues. . . It now depends on outstanding issues on borrowing from China," Ms Sayeh, the former finance minister of Liberia, told the Financial Times.

The Paris Club of official creditors is reluctant to write off historic debt, contracted during the kleptocratic rule of Mobutu Sese Seko, the former dictator, only for the Congolese to access fresh loans from China on commercial terms.

A senior African official said: "The consensus is that it is a bad deal as it stands for the Congolese. But you can also understand the Chinese. They say, 'You guys [western donor institutions] have been here 50 years and there is little to show for it. There isn't even a road connecting Kinshasa to Goma.'?"

The Chinese have so far resisted attempts to improve the terms of the deal. Powerful vested interests in President Joseph Kabila's cabinet, who thrived on murky mining deals during the recent civil war, are also resisting.

They believe that they can play the Chinese off against the west and get the best of both worlds, a technocrat in the Kinshasa government said. Others in the Congolese administration are persuaded that debt relief and western aid should be the first priority.

All three parties – the Chinese, Congolese authorities and the IMF – are now awaiting the imminent findings of feasibility studies of the project, originally due in April.

"The challenge for the Congolese authorities is to find a way forward so the China project can go ahead as planned and so can debt relief. The two together would allow the country to develop and grow at accelerated pace," said Brian Ames, division chief in the IMF's Congo office.

Source: Ninemsn