This paper examines the Democratic Republic of the Congo’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and for the First Annual Program. The authorities requested a three-year PRGF arrangement in support of their program covering April 1, 2002–July 31, 2005, in an amount equivalent to SDR 580 million. The authorities have also steadfastly implemented a Staff-Monitored Program covering June 2001–March 2002, aiming principally at stabilizing the economic situation, and laying the foundation for the restoration of growth and reconstruction.

Abstract

This paper examines the Democratic Republic of the Congo’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and for the First Annual Program. The authorities requested a three-year PRGF arrangement in support of their program covering April 1, 2002–July 31, 2005, in an amount equivalent to SDR 580 million. The authorities have also steadfastly implemented a Staff-Monitored Program covering June 2001–March 2002, aiming principally at stabilizing the economic situation, and laying the foundation for the restoration of growth and reconstruction.

This statement provides information that has become available since the circulation of the staff report (EBS/02/76 Supplement 1). It does not alter the thrust of the staff appraisal.

1. Security and Political Developments

  • With regard to the peace process, the UN Secretary-General has named Mustapha Niasse, former Prime Minister of Senegal, as his Special Envoy to help negotiate an all-inclusive power-sharing agreement. Mr. Niasse will work closely with the facilitator of the inter-Congolese dialogue, Sir Ketumile Masire.

  • In the political area, consultations are underway with representatives of the Mouvement pour la Libération du Congo (MLC) to finalize the new constitution, while deliberations continue on the formation of a transition government.

2. Recent Economic and Financial Developments

  • The cumulative rate of inflation through end-May was 3.1 percent, and the annualized rate stood at 7.6 percent, compared with 13 percent in the program. The exchange rate has depreciated somewhat, with the end-May rate standing at US$ 1 = 324 CGF, compared with US$ 1 = 312 CGF at end-December 2001.

  • On May 21, the central bank refinance rate was lowered further from 39 percent to 12 percent, to reflect the sharp deceleration in inflation. The monthly rate on certificates of deposit was also reduced, from 3 to 0.7 percent.

  • Preliminary fiscal data through April indicate that the cumulative primary and consolidated overall surpluses (January-April) are on target. Net bank credit to the government is lower than programmed as net non-bank credit (certificates of deposit) is somewhat larger than anticipated.

  • The mining code is before Parliament and is expected to be adopted and published soon. With this exception, all prior actions for the requested PRGF arrangement have been met, and the proposed decision in the staff report has been changed accordingly. The implementation of other structural reform measures is on track.

3. The Status of the Bridge Loan

Belgium, France, South Africa, and Sweden have agreed to provide a bridge loan to clear the DRC’s arrears with the Fund and finance the reserve asset portion of the country’s increased quota subscription under the Eleventh General Review of Quotas.

4. The Status of the Arrears Clearance with the World Bank and the African Development Bank

  • A comfort letter from the World Bank indicates that the financing of the bridge loan that will serve to clear the DRC’s arrears has been secured.

  • On June 6, 2002, an informal meeting of the Board of Directors of the African Development Bank Group generally supported the approach to settle the DRC’s arrears with that institution through a partial payments/partial consolidation approach. The President of the AfDB has sent a letter to Management to that effect. The actual size of the consolidated loan would depend on the amount of donor resources that could be realized before July 1, 2002. A formal board meeting is expected later in June.

  • The DRC’s program for 2002 is in principle fully financed.

5. The Red Mountain Case

Background

The Red Mountain Company, which is based in Alabama, had purchased in the secondary market US$800,000 of debt originally held by creditors of the London Club, with a face value of US$8.5 million. Red Mountain initiated litigation against the DRC in September 1998 over the DRC’s default of the Refinancing Credit Agreement. In January 2000, Red Mountain obtained a judgment in an English court for an amount of $22.5 million. Red Mountain proceeded to judgment enforcement actions in the United Kingdom, United States (California), France, Belgium, and Bermuda. Notably, in California, Red Mountain obtained an order that, among other things, enjoins the DRC, until satisfaction of the judgment, from making payments anywhere in the world on external indebtedness unless the DRC proportionally pays Red Mountain.

Settlement of the case

The parties closed the settlement last week. The cash amount of the settlement was US$8.2 million (out of a claim of around $27 million, including post-judgment interest). As a result of the settlement, the California court on June 11, 2002 dismissed the case against DRC and vacated the court order.

Democratic Republic of the Congo: Request for a Three-Year Arrangement under the Poverty Reduction and Growth Facility and for the First Annual Program
Author: International Monetary Fund