JOHANNESBURG/LONDON (Reuters) - Advisers to Congo Republic’s government have warned it that there is a “major risk” the International Monetary Fund (IMF) will reject its bid for a long-sought bailout, according to a letter obtained by Reuters.
Negotiations for an IMF programme have dragged on since 2017, with the IMF’s executive board demanding the central African oil producer ensure the sustainability of its debt, most of which is owed to China and oil traders.
At the end of its most recent mission to Congo this month, an IMF team said it was finally ready to support a three-year credit facility. But any programme would first need to be approved by the Fund’s board. [nL5N22L7ZK]
“The advisers to the republic wish to make you aware of the major risk of the programme’s rejection by the IMF’s board,” said the letter addressed to Congolese Prime Minister Clement Mouamba and dated May 15.
Congo hired French financial advisers Lazard and more recently Parnasse, a firm employing former IMF Managing Director Dominique Stauss-Kahn, to assist it in the negotiations with the Fund.
The letter was signed by Strauss-Kahn and Matthieu Pigasse, head of Lazard France. A source close to the matter confirmed its authenticity.
Lazard declined to comment on the letter. Attempts to contact Strauss-Kahn were unsuccessful. Congo’s government spokesman and an official in the prime minister’s office in Brazzaville did not respond to requests for comment.
An IMF spokesperson rejected the advisers’ position that the programme, which would also likely unlock financing from the World Bank and African Development Bank, was in doubt.
“This information does not represent the views of the IMF. The IMF team continues to be in discussions with the authorities regarding the next steps needed to be able to present this agreement to the IMF Executive Board for discussion.”
Congo’s economy suffered from a sharp drop in oil prices in 2014, causing debt levels to balloon to 118 percent of GDP in 2017.
For over a year, efforts to restructure debt with China - Congo’s leading bilateral creditor - and oil traders including Glencore and Trafigura [TRAFGF.UL] made little headway.
However, Congo reached an agreement last month to restructure a portion of its debt to China. And the Bloomberg news agency reported that it had also reached a deal on its debt to Trafigura. [nL5N22E8VD]
The letter said the IMF technical team had expressed concern with regard to the real effort made by the Chinese in the deal.
“For the technical team, it’s a question of proving to the board members that China has agreed to a real restructuring of its loans and not simply a technical reconfiguration,” it stated.
Congo’s senate ratified the agreement with Export-Import Bank of China on Monday. [nL5N22W5GZ]
According to the Finance Ministry, Congo’s debt to China stood at nearly 1.48 trillion CFA francs ($2.54 billion) at the end of March.
Under terms of the deal, repayment of 944 billion CFA francs owed for eight infrastructure projects will be extended an additional 15 years. Congo, however, must pay off a third of that amount by the end of 2021.
Lazard and Parnasse also criticised the deal with Trafigura, writing that it did not meet the conditions set out by the IMF.
“The formalisation of such an agreement in the coming weeks would send a bad signal...to the board members about Congo’s real willingness to stick to its commitment to re-establish the sustainability of the public debt,” the advisers wrote.
Anti-graft groups have long criticised the opacity of Congo’s oil sector and loan agreements with oil traders and called on the IMF to use its position to foster transparency.
“Congo needs to publicly disclose the existence and terms of all its oil-backed loans before the IMF countenances any further financial support,” said Natasha White, an oil researcher for campaign group Global Witness.
($1 = 583.2500 CFA francs)
Additional reporting by Inti Landauro in Paris; Editing by Mark Heinrich