November 18, 2010 / 1:09 PM / 10 years ago

UPDATE 2-Creditors agree Congo debt write-off, flag worries

* Paris Club of creditors write off $7.35 billion in debt

* Concerns over governance, business raised

(Adds further details and reaction)

By Brian Love and Katrina Manson

PARIS/KINSHASA, Nov 18 (Reuters) - Creditor countries have agreed to write off $7.35 billion in debt owed by the Democratic Republic of Congo (DRC), according to the Paris Club of creditors.

Cancellation of the Paris Club debt follows approval in July by the World Bank and the IMF to erase a total $8 billion debt, most of it inherited from the Mobutu Sese Seko dictatorship, despite concerns over governance and the business environment.

In a statement issued after talks on Wednesday, the Paris Club said an agreement had been struck on the write-off “as a contribution to restoring DRC’s debt sustainability”.

Jean-Louis Kayembe wa Kayembe, head of the Congolese central bank’s monetary policy committee, told Reuters the debt relief amounted to 97.6 percent of total debt held with Paris Club members, meaning the central African nation ends up with a remaining $200 million worth of Paris Club debt.

“(We are) very satisfied with this cancellation of the debt which have a positive impact on central bank reserves and will also allow the state to create budgetary space...for the battle against poverty and for infrastructure, given a durable growth for the wellbeing of the population,” said Kayembe wa Kayembe.

The total outstanding external debt stock stands at $2.9 billion after the Paris Club cancellation, he said.

It is hoped the deals will free up funds used to service debts for developing a country that is rich in minerals but has been bogged down by decades of corruption and conflict.

The July deal — part of the Highly Indebted Poor Countries (HIPC) programme — was delayed due to concerns over governance and protests by Canada over a dispute between Kinshasa and Canadian firm First Quantum Minerals.

The Paris Club said it recognised efforts being made to implement poverty-reduction strategies, but raised similar issues as it confirmed the latest deal.

“Paris Club creditors expressed their concern over the business environment and urged the government of the DRC to carry out further reforms to improve governance, strengthen the rule of law and fight corruption ..,” the statement said.

Since July, Congo has agreed to take on millions of dollars of debt since July, including a $42 million deal with India.

It already has a $5 billion debt agreement with China and billions of dollars of outstanding internal debt owed to private companies and state utilities.

President Joseph Kabila has said the country will take on only sensible debts in future, and the IMF has made prudent debt management a condition for $550 million loan over three years.

Congo has attracted billions of dollars in mining investments but regularly comes near the bottom of the World Bank’s “Doing Business” report. This year it rose just four places to 175 out of 183.

The African country is seeking political stability, battling economic woes and stubborn rebel insurgencies as it prepares for presidential and parliamentary elections expected in 2011.

The elections would be the second since the official end to a 1998-2003 war that drew in six foreign armies and resulted in the deaths of 5 million from fighting and other causes.

Writing by David Lewis and Brian Love; editing by Ron Askew

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