1. A staff team visited Kinshasa during July 14–17, 2003 to meet with members of the new all-inclusive transitional government and institutions, and review the status of implementation of prior actions and other key measures included in the program, as well as recent economic developments. The President, in a public declaration on July 18, reiterated that the government’s commitment vis-à-vis the international financial institutions will and must be respected. The members of the new government took office following “hand over” ceremonies on July 15, and the government is now operational. The four Vice-Presidents have been sworn in on July 16. The first meeting of the new Council of Ministers has been postponed until a procedural issue regarding the swearing-in of the new Ministers is resolved. The latest information from the authorities indicates that this would be the case in the next few days.

2. All three prior actions have been implemented, namely:

• elimination of the quasi-taxation of petroleum products in the new price structure;

• government approval of the procedures manual for the new expenditure chain and of the reorganization of the four affected directorates in the Ministry of Finance and the Ministry of the Budget; and

• the finalization of the list of names of “ghost workers”, signed by the Ministers of the Civil Service and Finance.

3. In addition, on the fiscal side, the following measures are being implemented:

• the presidential decree ensuring the generalized use of the tax-payer identification number was signed and published on July 18;

• the customs one-stop window in the main port of Matadi became operational at end-June;

• the implementation decrees of the law on the new fiscal procedures have been issued;

• the implementation decrees of the new excise law and new turnover tax law have been issued;

• a ministerial circular eliminating all unjustified tax exemptions, including for petroleum products, and all offsetting of tax payments will be issued in the next few days;

• a new customs code is being finalized;

• the audit by the General Accounting Office of the execution of the 2001 budget has been completed;

• a special sub account at the Central Bank of the Congo to deposit resources released under the enhanced HIPC Initiative has been opened;

• a ministerial circular clarifying that no new tax can be decided upon without the approval of the Minister of Finance will be issued in the next few days;

• a ministerial circular clarifying that no external debt can be contracted in the name of the government without approval of the Minister of Finance, will be issued in the next few days; and

• a ministerial circular specifying that two major public companies, MIBA (diamonds) and GECAMINES (copper), will be brought under common tax law, will be issued in the next few days.

4. On the structural side, the members of the Steering Committee on the Reform of Public Enterprises (COPIREP) have been nominated by a presidential decree of July 2.

5. Concerning recent economic developments, inflation has come down in June and July 2003. The cumulative end-period inflation rate reached 5.6 percent at mid-July, or an annualized rate of 10.6 percent, broadly in line with the program. The Congolese franc slightly depreciated in recent weeks (2.4 % since end-May). Very preliminary estimates for the second quarter of 2003 show a continued increase in non-wage primary expenditure, including in sovereignty–and security–related expenditure and a higher-than-projected cash deficit of the BCC, while revenues (excluding grants) are broadly in line with the program. In order to address this increase in expenditure, the new government has decided to recall all related not-yet-paid payment orders and to freeze all non-essential expenditure until year-end. In addition to the revenue measures described above, the streamlining of procedures in the mobilization of revenue will be accelerated.