Press Release: IMF Approves US$750 million PRGF Arrangement for the Democratic Republic of the Congo

Democratic Republic of the Congo and the IMF

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Democratic Republic of the Congo—
Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Kinshasa, April 13, 2002

The following item is a Letter of Intent of the government of the Democratic Republic of the Congo, which describes the policies that the Democratic Republic of the Congo intends to implement in the context of its request for financial support from the IMF. The document, which is the property of the Democratic Republic of the Congo, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Use the free Adobe Acrobat Reader to view the Tables (723 kb PDF file).

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. We have completed with the IMF staff the last quarterly review (October–December 2001) of the government's enhanced interim program (PIR). The memorandum on economic and financial policies (MEFP) attached to our letter of June 20, 2001, which covered the period June 2001–March 2002, described the policies and objectives of the PIR for 2001, which is being monitored by IMF staff. This memorandum was updated with our letter of January 14, 2002, in the context of the first quarterly review of the PIR.

2. We are pleased to note that the overall results obtained to date under the PIR are satisfactory and that we are in the process of winning the battle against hyperinflation. In addition, far-reaching structural reforms have been implemented. However, on the fiscal side there are still expenditure pressures, despite a revenue performance that was much better than projected under the program. The government has thus decided to take a set of additional measures to ensure full compliance with the PIR indicators for end-March 2002.

3. Although the implementation of the PIR has resulted in the stabilization of the macroeconomic situation, we are aware that additional efforts are necessary to better control budgetary expenditure, strengthen budget centralization, and fine-tune our monetary programming and treasury cash management. We also intend to continue implementing far-reaching structural reforms, with a view to creating a climate more conducive to sustainable growth. These additional efforts are part of our strategy to combat poverty and will cover three phases: the stabilization phase (2001-02), the reconstruction phase (2002-04), and the development phase (from 2005 onward).

4. At the political level, we are happy that our efforts to strengthen the peace process and the inter-Congolese dialogue have had positive results, and we look forward to the return of peace and the reunification of our country in 2002.

5. To meet the major political and economic challenges it faces, the government of the Democratic Republic of the Congo (DRC) requests the support of the IMF to implement a macroeconomic reform program for the period April 2002-July 2005, within the framework of the Poverty Reduction and Growth Facility (PRGF), in the amount of SDR 580 million (approximately US$ 730 million). The attached MEFP presents the objectives and policies that the government intends to pursue in the context of its medium-term strategy, and sets out the objectives and measures for the first year of the program. The technical memorandum of understanding (TMU) of the program, also attached, indicates the modalities for monitoring program implementation and the information required, as well as the quantitative and structural performance criteria and benchmarks of the program.

6. The government's objective over the next three years is to strengthen macroeconomic stability, finally put an end to hyperinflation, resume sustainable economic growth, and begin to reduce poverty. The main elements of this approach, centered on a redefinition of the role of government as supporter--not predator or competitor--of the private sector, are the following: fiscal consolidation, transparency and good governance in fiscal management, a prudent monetary policy within the framework of a floating exchange rate system, and a strengthening of structural and sectoral reforms. With the participation of the civil society and development partners, the government has also begun preparing the poverty reduction strategy paper (PRSP), which should be completed in early 2005, at the latest. In the meantime, the government has drafted an interim PRSP (I-PRSP), which defines the process and timetable for preparation of the PRSP while specifying preliminary objectives to effectively combat poverty. The I-PRSP has been forwarded to you under separate cover.

7. The government believes that the policies and measures set forth in the attached MEFP are adequate to achieve its program objectives, but it is committed to take any further measures that may prove necessary for this purpose. During the period covered by the three-year arrangement, the authorities of the DRC will consult with the Managing Director of the IMF on the adoption of any additional measures deemed appropriate, or whenever the Managing Director requests such a consultation. In addition, after the period covered by this arrangement and while the DRC has financial obligations to the Fund arising from loans granted under this arrangement, the government will periodically consult with the Fund on the DRC's economic and financial policies, or whenever the Managing Director so requests.

8. The government of the DRC will provide the IMF with any information it may request for monitoring the progress in implementing the economic and financial policies. Furthermore, the DRC will conduct with the Fund a midterm review of the first year of the program, which will be completed with IMF staff no later than mid-December 2002. The review will cover economic and financial developments in 2002, the draft budget for 2003, and progress in the preparation of the PRSP.

9. We hope that our program will enable the DRC to normalize its relations with the international community, in particular with multilateral creditors and bilateral creditors in the context of the Paris Club, and to benefit from debt consolidation under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

10. I wish to take this opportunity to express my gratitude for the personal interest you have shown in my country's efforts, for the technical assistance provided by your institution, and for the forthcoming opening of an IMF resident representative office in Kinshasa.



His Excellency the President
Joseph Kabila

Democratic Republic of the Congo
Memorandum of Economic and Financial Policies
for 2002–2003

April 13, 2002

I. Introduction

1. Since the beginning of 2001, the new government of the Democratic Republic of the Congo (DRC), under the leadership of His Excellency President Joseph Kabila, has been pursuing three major objectives: (i) the restoration of peace; (ii) the pursuit of the inter-Congolese dialogue, which is expected to lead to free and transparent elections and a new constitution; and (iii) macroeconomic stability, the liberalization and opening up of the economy to the rest of the world, the reconstruction of the country, a return to sustainable growth, and poverty reduction. To achieve the third objective, the government formulated its enhanced interim program (PIR), covering the period June 2001-March 2002, the main purpose of which was to create a stable macroeconomic environment and lay the groundwork for a medium-term program.

2. We have now completed with the Fund staff the last review (covering the period October-December 2001) of developments under the PIR. Despite some bunching of budgetary expenditure at year's end, which caused some treasury cash-flow pressures and the emergence of wage payment arrears (less than 0.1 percent of GDP), the overall performance under the PIR was satisfactory, as illustrated by (i) the achievement of macroeconomic stabilization marked notably by a sharp decline in inflation, (ii) the implementation of a critical mass of structural reforms, and (iii) the strengthening of our administrative capacity. We have also discussed a three-year economic and financial program (April 2002-July 2005) with the Fund mission that visited Kinshasa from February 26-March 14, 2002. These discussions took place on the basis of the newly achieved macroeconomic stability and the measures taken to ensure attainment by end-March 2002 of the quantitative and structural indicators described in our letter of January 14, 2002 regarding the first review of the PIR.

3. The three-year program, which the International Monetary Fund could support with an arrangement under the Poverty Reduction and Growth Facility (PRGF), will enable the DRC to restore sustainable growth and combat poverty, which afflicts more than 80 percent of our population. The program is part of our efforts to restore peace, reconstruct and reunify the country, ensure good governance and transparency in the management of public resources, and strengthen our administrative capacity, with the help of the international community. To this end, the government has prepared an interim poverty reduction strategy paper (I-PRSP), based on a wide-ranging consultative process involving the participation of representatives of civil society and with the cooperation of our development partners, notably the IMF, the World Bank, the United Nations Development Program (UNDP), and the African Development Bank (AfDB). The DRC government herewith affirms its determination to take all measures needed to implement this strategy.

4. This memorandum describes the results achieved under the PIR, sets medium-term objectives for the three-year program, and presents the economic policies and measures that the government will implement in 2002.

II. Recent Political Developments

5. On the political side, the government is pleased to report that the political situation and security in the DRC continue to improve gradually following the progress made in 2001. The disengagement and withdrawal of foreign forces, which started in 2001, have continued in recent months, as indicated in the latest report of the United Nations Mission in the DRC (MONUC). At the same time, Phase III of the MONUC operations is continuing as planned, with the preparation of a Disarmament, Demobilization, Repatriation, Resettlement, and Reintegration (DDRRR) Plan, which will start in late 2002. The DRC government will continue its efforts to accelerate the progress made in this area, and it fully subscribes to the objectives of the regional DDRRR Plan being drawn up with the World Bank and the UN. The inter-Congolese dialogue, which we view as essential for the peace process, has continued in South Africa and is expected to lead to the formation of a transitional government of national unity. After a period of transition and the adoption of a new constitution, we plan to hold free and transparent elections. We especially thank the IMF, the World Bank, MONUC, and the UN for their untiring support for the peace process. We call on the international community to give its full support to our efforts to consolidate this process, which is a prerequisite for the development of our country and for stability in the Great Lakes region.

III. Implementation of the Interim Program

6. After seven months of implementing its PIR, the government notes with satisfaction that macroeconomic stabilization is being achieved. The inflation rate has slowed considerably, from a monthly average of 18 percent (i.e., an annualized rate of 632 percent) during the period January-May 2001, before the start of the program, to 0.71 percent a month during the period June-December 2001 (i.e., an annualized rate of 8.8 percent), which is well below the programmed monthly rate of 1 percent. The end-of-period inflation rate thus fell from 511 percent at end-December 2000 to 135 percent at end-December 2001. This sharp decline in inflation has led to the stabilization of the exchange rate after the introduction of a floating exchange rate system at end-May 2001. Although the GDP growth rate remained negative in 2001, there were some signs of recovery in the second half of that year.

7. We are happy to note that most of the quantitative and structural indicators at end-December 2001 were observed (Tables 1 and 2), except for that on cumulative net credit to the government, adjusted downward for any revenue in excess of the programmed amount, and for that on the non-accumulation of wage arrears. At year-end, these arrears amounted to CGF 800 million, or 3.4 percent of the wage bill. However, the stock of net credit to the government (unadjusted) is well below the programmed amount. In addition, the new banking law was published, a little later than planned, on February 2, 2002. The new statutes of the central bank (BCC), which enshrine its independence, will be published with some delay in April 2002 to ensure their consistency with our Constitution. Net foreign assets exceeded the programmed amount, despite delays in the provision of the expected external assistance for the financing of strategic projects aimed at reducing the principal supply bottlenecks.

8. On the fiscal side, the domestic primary balance (cash basis) showed a surplus corresponding to 0.5 percent of GDP for the year 2001, compared with a programmed deficit representing 0.2 percent of GDP. Similarly, the overall balance (cash basis) showed a surplus of the same order instead of a programmed deficit, which caused the net bank credit to the government (unadjusted) to drop well below the programmed amount. As part of the program, the government implemented strictly a monthly treasury cash-flow plan, and spending was based on revenue actually raised. This enabled us to eliminate the monetary financing of the budget. However, we are aware that further efforts are necessary to ensure a sound treasury cash-flow management and the strict centralization of all receipts and expenditures in the budget.

9. Taking into account an upward revision in nominal GDP since 1999, the improvement of the fiscal position is largely attributable to the sustained efforts to raise revenue, which reached 5.9 percent of GDP in 2001, compared with a programmed target of 5.2 percent. There was a sharp increase in all revenue categories, mainly associated with the positive impact of the unification of the multiple fiscal exchange rates with the floating exchange rate. Although in 2001 about 30 percent of collected revenue was still deposited in extrabudgetary accounts, improvements in the centralized recording of revenue through the banking system are already paying off.

10. On the expenditure side, the government has taken control measures that have not yet fully borne fruit. Total expenditure at end-December 2001 is estimated at 6.6 percent of GDP, compared with 7.1 percent of GDP in the program. Although the use of extrabudgetary channels was reduced in 2001, about one-third of total expenditure was not subject to the prior authorization of the Minister of Economy, Finance, and the Budget (Minister of Finance). Contrary to the program, the BCC has continued to finance budgetary expenditure without the prior authorization of the Minister of Finance. The unpredictability of such expenditure has led to problems in treasury cash-flow management and to the emergence of wage arrears at the end of 2001. As described below, the 2002 budget provides for measures designed to eliminate all extrabudgetary procedures, including budgetary expenditure financed by the BCC that has not been authorized by the Minister of Finance. The composition of expenditure will also be redirected progressively toward social and infrastructure spending.

11. As anticipated under the program, monetary policy has been restrictive. At end-December 2001, total domestic credit had grown by only 16 percent over the money supply at the beginning of the period, compared with a programmed increase of 55 percent. This difference can be explained primarily by much lower net bank credit to the government (unadjusted) than expected (CGF 11.3 billion, compared with CGF 18.6 billion in the program). However, the performance indicator on the cumulative change in net bank credit to the government (adjusted downward for the period June-December 2001 for any budgetary revenue in excess of the amount programmed) was not observed at end-December. The indicator on the cumulative change in credit to public enterprises was observed, namely an increase of CGF 0.15 billion, compared with CGF 0.2 billion in the program. Credit to the private sector rose by about 25 percent over the money stock at the beginning of the period, compared with 39 percent in the program. Net foreign assets were higher than programmed, at minus US$586 million, compared with minus US$593 million under the program. Overall, money supply grew by 102 percent on account of large fluctuations in "other items net" associated with valuation changes and central bank losses. The latter totaled some CGF 15.7 billion as of end-December 2001 (1 percent of GDP). As envisaged in the program, the BCC in June 2001 stopped granting credit to the private sector and to public enterprises. The BCC is currently finalizing an action plan to strengthen the conduct of its monetary policy and improve its internal management, following the recommendations of the IMF technical assistance missions of October and November 2001. It is also preparing an action plan, with World Bank support, for the restructuring of the banking system. Finally, in light of the sharp decline in inflation, the refinance rate was reduced from 140 percent in June 2001 to 90 percent in January 2002, but remains very high in real terms.

12. The situation in the foreign exchange market in 2001 was marked by exchange rate stability after large fluctuations in the first few months following the introduction of the floating exchange rate system on May 26, 2001. There was a significant increase in interbank foreign currency transactions, and the difference between the official exchange rate (reference rate) and the free market rate fell from 600 percent prior to May 26, 2001 to less than 1 percent at end-December 2001. However, some differences persist between the reference rates in the occupied and nonoccupied areas, mainly as a result of market segmentation. We are committed to maintaining a floating exchange rate system during the period of the program; the central bank will only intervene in the exchange market to smooth short-term fluctuations, if necessary.

13. The government of the DRC has neither contracted nor guaranteed nonconcessional loans since June 2001, thus observing the indicator in this regard. As agreed under the PIR, the government since June 2001 has been making monthly deposits of SDR 100,000 in its account with the Bank for International Settlements (BIS) in respect of its overdue obligations to the Fund.

14. On the structural side, far-reaching measures have been implemented, as envisaged. All prices have been liberalized, except those for certain public utilities. However, to reflect changes in their respective costs, prices for transportation were raised in 2001 by 167 percent; for water by 663 percent; and for electricity by 270 percent. The prices of petroleum products, which had been heavily subsidized and maintained well below international prices, were increased by about 300 percent on May 28, 2001. This increase eliminated de facto the heavy subsidies and the smuggling to neighboring countries. Petroleum product imports were also liberalized. The combined effect of these measures has been a sharp improvement in product delivery and in transportation as a whole. In turn, this has led to a better supply of basic foodstuffs from the producing regions to the cities, although progress in this regard is hampered by the lack of road maintenance.

15. The new investment code was published in February 2002, and the new mining code will be published before end-April 2002. Regarding the creation of a more transparent and predictable business environment, the judicial system is being strengthened, notably with the support of the European Union (EU). The law creating commercial courts was published in July 2001. Drafting of the enabling decrees of the new law and the operational logistics will be completed soon. A labor code is being drafted, and the authorities plan to seek comments from the International Labor Organization (ILO) and the World Bank before its finalization.

16. The government is firmly committed to solving governance problems. To that end, a good governance/anticorruption action plan is under preparation. In this context, a Code of Ethics and Good Conduct applicable to all levels of the civil service will be published by end-September 2002. Preliminary financial audits of the customs and tax departments and of most of the public enterprises were also completed. Following these audits, most directors of revenue-collecting agencies (régies financières) and public enterprises were dismissed and replaced. The directors of public enterprises, for their part, were replaced by temporary administrators, pending the restructuring, privatization, or liquidation of these enterprises. A comprehensive analysis of the size and structure of the civil service, financed by Belgium, is expected to start soon. Meanwhile, the government has conducted a preliminary audit of the size of the civil service, which identified 21,652 "ghost" workers. Finally, all the provincial governors were replaced, and the new governors have attended a seminar on good governance.

IV. Political Framework and Medium-term Objectives, April 2002-May 2005

17. The government has prepared a poverty reduction strategy and an interim poverty reduction strategy paper (I-PRSP) has been finalized by the Poverty Reduction Strategy Technical Committee (CTSRP) after several rounds of consultations with the parties concerned at both the national and provincial levels. The strategy identifies three key poverty reduction "pillars," namely, the restoration of peace and good governance; macroeconomic stabilization and the achievement of equitable and sustainable growth; and the promotion of "grassroots-level dynamics", that is, community-based initiatives. Three phases of the strategy are identified:

(a) Phase I (2001-2002) corresponds, on the economic side, with the period covered by the PIR and, on the political side, with continuous progress in the peace process. Concerning community-based initiatives, it involved the preparation of the I-PRSP and the first steps to buttress the partnership between the government and the various actors at the community level. The economic measures that were implemented aimed at achieving macroeconomic stability, particularly by breaking hyperinflation, and included the following: the elimination of the major economic distortions; the opening up of the economy to the rest of the world; the return to a normal, transparent budgetary process; the creation of an independent central bank; and the establishment of an enabling environment for private sector activity that is more transparent and predictable.

(b) Phase II (2002-04) is considered to be a period of reconstruction and includes (i) on the political side, the consolidation of peace, the reunification of the country, and measures to improve governance; (ii) on the economic side, a deepening of the structural reforms to consolidate macroeconomic stability and promote sustainable growth, a "pro-poor" budget with an appropriate composition of expenditure, the rehabilitation and reconstruction of infrastructure, and the preparation of sectoral strategies; and (iii) with respect to community-based initiatives, capacity building at the grassroots level and institutional reforms at the central level. This phase coincides with the implementation of a three-year program that could be supported by the Fund through the PRGF, by the World Bank through a Post-Conflict Economic Rehabilitation Credit (PERC) and a Multisector Emergency Reconstruction and Rehabilitation Credit (MERRC), and by the UN, the World Bank, and other donors through the financing of the regional DDRRR plan. We hope that our three-year program will receive full support from the international community and the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

(c) Phase III (starting in 2005) will be one of sustained development, with a tangible reduction in poverty and a marked improvement in people's living conditions. However, the I-PRSP does not discuss in detail the actions and policies of this phase; this will be done in the full PRSP.

18. Given the current difficult situation, characterized by the degradation of human and physical capital and the extremely low per capita income, poverty can be reduced only gradually. We are pleased to note that the elimination of hyperinflation has already had a positive impact on the income of the poor. The poor should also benefit substantially from the consolidation of peace and the reunification and reconstruction of the country. Moreover, the end of the war should stop the violence against individuals and, therefore, benefit the most vulnerable segments of society--in particular, the aged, women, orphans, and the handicapped in occupied areas. Finally, the rehabilitation of infrastructure should improve the distribution of public goods and services.

19. As indicated in the I-PRSP, attainment of the international objective of reducing poverty by one-half by 2015 is clearly beyond our reach. Even a reduction of the poverty rate from 80 percent to 60 percent would require an average annual real GDP growth of more than 8 percent, given the 3 percent rate of population growth. Thus, for the next three years, the government has set the following macroeconomic objectives: (i) a real GDP growth rate of about 5 percent, on average, to allow for an annual average per capita increase of at least 2 percent of GDP; (ii) a reduction in the annual inflation rate to 5 percent by 2005; (iii) allowing the external current account deficit (including transfers and excluding eventual debt relief) to widen from 3.7 percent of GDP in 2002 to 7.3 percent of GDP by 2005, reflecting the country's reconstruction needs, particularly the resumption of externally financed investment, but also the specific external debt-service profile; and (iv) a gradual increase in gross international reserves to about 9 ½ weeks of non-aid-related imports of goods and nonfactor services by 2005.

20. The investment ratio is expected to increase substantially as a result of (i) the resumption of external assistance in the form of investment projects under the MERRC being prepared with the World Bank; (ii) resources that could be released under the HIPC Initiative; and (iii) investment projects of nongovernmental organizations (NGOs). The investment projects that will be implemented during the reconstruction phase, largely consisting of investment for rehabilitation of infrastructure and administrative capacity building, will have only a gradual impact on the growth rate. National savings will grow as a result of the gradual increase in government savings. The medium-term scenario will need to be updated to take into account the implementation of the DDRRR program, the impact of the country's reunification, and the external assistance actually mobilized, including a possible rescheduling of our external debt service under the HIPC Initiative.

V. The Program for 2002

A. Macroeconomic Framework and Policies

21. In accordance with the medium-term macroeconomic framework, the program for 2002, which starts at the end of the PIR (March 31, 2002) and covers the period April 2002-March 2003, is geared to achieving the following macroeconomic objectives: (i) a growth rate of 3 percent, which takes into account the recent slowdown in the global economy; (ii) an increase in investment from 5 percent of GDP in 2001 to 10 percent of GDP in 2002 as a result of the resumption of externally financed investment; (iii) an increase in national savings from about 3 percent of GDP in 2001 to 11.0 percent of GDP in 2002 as a result of a rise in government savings and in official transfers from abroad; (iv) a decline in the average inflation rate from 357 percent to 25 percent over the same period; and (v) allowing the widening of the external current account deficit (including grants) from 2.2 percent of GDP in 2001 to 3.7 percent of GDP in 2002, linked to the resumption of investment. The I-PRSP includes a number of steps toward the finalization of a full PRSP within three years. The technical and financial support from the international community would be essential for the finalization of the full PRSP.

Fiscal policy

22. Fiscal consolidation will continue to be one of the cornerstones of the government's economic and financial policy in 2002. The domestic primary balance, on a cash basis, is programmed to show a surplus of 0.9 percent of GDP, and the consolidated overall balance (including the net balance of BCC operations) to show a deficit of 0.4 percent of GDP. Total revenue (excluding grants) is expected to reach 7.3 percent of GDP, and total expenditure (on a commitment basis) 11 percent of GDP, the latter driven primarily by the resumption of externally financed investment and external debt service. All wage arrears as of end-February 2002 (CGF 1.9 billion, or 0.1 percent of GDP) were eliminated by end-March 2002 without changing the original PIR objective of reducing net bank credit to the government for that month. To that end, additional measures to reduce nonpriority spending and raise revenue have been taken, in particular by reducing delays in the mobilization of revenue related to petroleum taxation.

23. The 2002 budget contains only revenue and expenditure for the provinces under government control. A supplementary budget law could be adopted later in the year to take account of the eventual reunification of the country. Before its adoption by the government, this supplementary budget will be discussed with Fund staff.

24. The achievement of the above mentioned fiscal objectives is based on a strengthening of revenue mobilization and expenditure control. The rehabilitation of public finances and, in particular, the tracking of expenditure and the mobilization of revenue will continue to be a key aspect of fiscal policy. The adoption and implementation of the 2002 budget within a normal budgetary process represent an important step forward in that regard. Fiscal policy will continue to be supported by the strict execution of a monthly treasury cash-flow plan (including the net financial operations of the BCC) and the prior authorization by the Minister of Finance of all budgetary expenditure based on available resources.

25. Concerning treasury cash-flow management, all revenue and expenditure will be effectively centralized under the control of the treasury, and the measures to improve treasury management initiated in 2001 will be fully implemented. In this regard (i) only the Treasury's account at the BCC will be used for the centralization of revenue; (ii) the commercial bank accounts where fiscal revenue from public enterprises is deposited will be closed; (iii) revenue collected in the context of petroleum taxation and quasi-taxation will be centralized at the treasury's account at the BCC; (iv) all revenue from mining taxation, including from "goodwill" (pas de porte) payments, will be deposited in a subaccount of the Treasury's account at the BCC; (v) a presidential decree will be published before mid-April 2002, announcing that all extra budgetary expenditure will be eliminated and that all expenditure--without exception--will have to be approved by the Minister of Finance; (vi) the new central bank statutes, which already have been submitted to parliament for the second reading (Deuxième Lecture), will be published before end-April 2002, stipulating that the BCC will no longer finance budgetary expenditure not yet approved by the Minister of Finance; and (vii) a monthly budgetary allowance for each ministry, containing strict expenditure priorities, has been implemented since March, with wage payments having the absolute priority.

26. Revenue (excluding grants) is projected to increase to about CGF 144 billion, or 7.3 percent of GDP, in 2002. This will be achieved through the full-year impact of the end-May 2001 unification of the multiple fiscal exchange rates and the strengthening of measures to improve tax collection. In addition to the steps already mentioned to centralize revenue, the reform of the tax-collecting agencies will be continued and deepened, with technical assistance provided by the IMF. The following measures will be implemented: (i) setting up of a large enterprises' unit within the Direction Générale des Contributions (DGC), before end-September 2002; (ii) introduction of a taxpayer identification number, first for large enterprises and then gradually for all other taxpayers, before end-2002; (iii) reform of the procedures for control and monitoring of tax disputes by the DGC by end-2002; (iv) improvement of the management information system of the Office des Douanes et des Accises (OFIDA) by March 2002; (v) continuation of the installation of the Automated System for Customs Data (ASYCUDA) to promote "one-stop shop" facilities; (vi) resumption of the control of petroleum taxation and quasi-taxation through the implementation of systematic controls of the physical quantities actually imported, as of April 2002; (vii) review of the product classification within the tariff schedule prior to the introduction of an overall tariff reform during 2003; (viii) strict control of exemptions and special regimes; (ix) preparation of a plan to reduce the number of taxes under the responsibility of the Direction Générale des Recettes Administratives, Judiciaires et Domaniales (DGRAD); (x) introduction of the new simplified system for collecting duties and taxes and elimination of revenue stamps by April 2002; and (xi) improvement of the internal management of the revenue-collecting agencies, with managerial responsibilities clearly defined by end-March 2002. Finally, as part of the continued modernization of the tax system, preparatory steps will be taken for the introduction of the value added tax (VAT) in 2004.

27. The control of budgetary expenditure will be strengthened and its composition will be coherent with our poverty reduction strategy. Total expenditure is planned to increase to CGF 218 billion, or 11 percent of GDP in 2002. This amount assumes a resumption of externally financed investment and the payment of nonreschedulable external debt service obligations, starting in June 2002. Current expenditure is expected to total 7.7 percent of GDP, with a strict ceiling on mission expenses (CGF 2 billion, including those related to the inter-Congolese dialogue). Capital expenditure will increase to 2.9 percent of GDP.

28. Regarding wage policy, it is essential to ensure a gradual return to appropriate wage levels after the sharp decline in real terms experienced over the past decade, while taking due account of monthly treasury cash-flow plans and the objective of eliminating hyperinflation. Civil service wages currently average less than US$15 a month. The government intends to give priority to wage, social, and infrastructure expenditure, compared with other expenditure categories. We hope that, with the return to peace, the civil service (nonmilitary) share in wages can be increased gradually with the implementation of the DDRRR plan. The government will eliminate wage arrears by end-March 2002 and will not accumulate new arrears throughout the program. In addition, the government will eliminate from the payrolls the "ghost" workers identified by the internal audit that was completed in 2001, and it will continue to review the payrolls. Before end-2002, a study on civil service staffing and structure throughout the country will be conducted with assistance from Belgium. On this basis, a civil service reform will be formulated in 2003. The government will also establish by end-2002 a personnel database that will be updated regularly and linked to the payrolls. Overall, wages are expected to rise by an average of about 50 percent in 2002, and the wage bill is targeted at about CGF 43 billion (2.2 percent of GDP). The government undertakes not to exceed this amount. The government does not envisage paying wages in the occupied areas before the country has been reunified.

29. Starting in 2002, the composition of expenditure will be changed consistent with our strategy to reduce poverty. Social spending will represent about 15 percent of primary domestic expenditure (i.e., 1.2 percent of GDP), compared with 4 percent in 2001 (i.e., 0.2 percent of GDP). Similarly, expenditure related to transportation and roads (including agricultural access roads) should be close to 1 percent of GDP in 2002, compared with less than 0.2 percent of GDP in 2001. In addition, if the expected net external financing materializes, it is envisaged that an additional amount of CGF 13.8 billion (0.7 percent of GDP) will finance social and infrastructure spending, after consultations with Fund staff. The same holds for the resources that could become available from repayment by COHYDRO of a supplier's credit repaid by the government (CGF 2.4 billion). Finally, the change in the composition of public expenditure will be reinforced in the 2003 budget.

30. Strengthening expenditure management procedures will be another key aspect of fiscal policy in 2002. The elimination of extrabudgetary spending and expenditure not authorized by the Minister of Finance is a prerequisite for effective expenditure control. The return to a normal process of expenditure commitment, authorization, and payment, and the regular recording of operations and production of status reports represent important steps for the restoration of effective expenditure control and tracking capacity. In this regard, the following measures will be taken in 2002: (i) rehabilitation of the budgetary control function; (ii) coordination of expenditure commitments and authorizations through regular meetings of the relevant departments and information sharing; (iii) acceleration of the process to produce budget execution status reports and the accounts of both the government and the BCC, and creation of a computerized link between the two institutions; (iv) stricter monitoring of the monthly cash-flow plan and establishment of a match between it and cash on hand through the creation of a joint BCC/Ministry of Finance working group to facilitate day-to-day tracking; (v) compilation of an exhaustive list of the government's bank accounts, by ministry and by institution; (vi) auditing of the entities that receive earmarked revenue and elimination of "special budgets" by September 2002; and (vii) upgrading of the hardware and other equipment of the treasury and budget departments (budgetary preparation and control), with support from the international community. These efforts are expected, in particular, to facilitate (i) the production of budget execution statements at various stages of the expenditure chain; and (ii) the production of the information needed for improved traceability and enhanced monitoring of expenditure execution, by ministry and by major expenditure function. In addition, by end-2002, expenditure execution statements for 2001, with supporting documents, will be forwarded to the Audit Office so that the external auditing process can begin. This process is expected to result in an audit of the 2002 government accounts by end-2003. At the same time, a public expenditure review will be completed with the assistance of World Bank staff by end-September 2002. Finally, the 2003 budget will be prepared and adopted by end-2002, after discussions with Fund staff.

Monetary policy

31. In 2002, the authorities will pursue monetary policy with a view to eliminating hyperinflation. To this end, the growth of broad money is expected to be limited to 35 percent, taking into account a slight recovery in the demand for money related to a gradual return of confidence. Net bank credit to the government will be reduced by 36 percent, which should allow for a 41 percent increase in credit to the private sector. Net international reserves are expected to continue improving concomitantly with gross international reserves, which are expected to reach six weeks of imports of goods and nonfactor services.

32. The BCC will make every effort to implement measures designed to facilitate a return to the normal operation of the country's payment system. To this end, the BCC will gradually liquefy the banks' free reserves, but only for those banks that do not receive refinancing from the BCC and that meet the reserve requirements. In turn, recipient banks will have to ensure the liquidity of their customers' deposits. In addition, the BCC will limit its bank refinancing to short-term (1-2 weeks) foreign currency swaps for domestic currency, and the foreign currency thus acquired by the BCC will be maintained as liquid assets.

33. The legal and regulatory environment of the financial system has improved considerably with the publication, in April 2002, of the new BCC statutes that establish its independence in the conduct of monetary policy and the setting of interest rates, with the overriding objective of domestic price stability. The BCC henceforth undertakes not to finance expenditure that has not been first authorized by the Minister of Finance. In addition, the new law on the activity and supervision of credit institutions and the law on credit unions were published on February 2, 2002. The new banking law, which has benefited from the comments of Fund and World Bank staff, also vests the BCC with the authority to supervise such institutions.

34. The BCC also undertakes to strengthen the operational monetary programming framework in accordance with the recommendations of IMF technical assistance missions. Once it has restored its capacity to intervene in the money market, the BCC will establish a mechanism for monitoring and forecasting factors that affect liquidity, as is traditionally done by central banks. In light of the sharp decline in inflation, the BCC will reduce its refinance rate but will ensure that it remains higher than the annualized rate for certificates of deposit. These certificates will become a monetary policy instrument and will no longer be used for financing budgetary operations. Rates on certificates of deposit will be lowered to take into account the deceleration of inflation but will remain positive in real terms. The BCC recognizes the urgent need to strengthen its procedures for recording foreign exchange transactions and for managing its international reserves. The BCC undertakes to eliminate all "frozen" operations (comptes en suspens) from its accounting system by end-March 2002.

35. The government is aware of the need to strengthen the financial position of the BCC to enable it to fully implement monetary policy. To this end, the BCC's net financial operations (including interest payments on the stock of certificates of deposit) will continue to be consolidated with the government budget, based on a monthly cash-flow plan of BCC financial operations. The BCC undertakes to implement its cash-flow plan.

36. An external audit of the BCC's financial position by an internationally recognized firm will begin in April 2002. The audit's terms of reference have been finalized with the help of the IMF staff and an audit firm will be selected with World Bank assistance in April 2002. The audit is expected to be completed by end-September 2002. The audit report will be used as a basis for an action plan to be finalized by end-December 2002. The BCC has also started to strengthen its management on the basis of the findings and recommendations of an internal management audit. Lastly, an internal audit department was recently created and an Interim Multiyear Audit Plan drafted, containing an analysis of the risks and weaknesses in BCC's management. The BCC undertakes to adopt the Interim Multiyear Audit Plan and to define a pertinent action plan by end-April 2002.

37. Mindful of the fact that bank restructuring is a prerequisite for the revival of financial intermediation and an effective monetary policy, the government is preparing, with the help of the World Bank, a comprehensive and coherent reform aimed at consolidating and restructuring the banking sector. This reform consists, notably, of (i) audits of four banks (already completed), namely Banque Commerciale du Congo (BCDC), Union des Banques Congolaises (UBC), Banque Internationale de Crédit (BIC), and Stanbic Bank; (ii) completion of the audits of four other commercial banks, namely, Banque de Commerce et de Développement (BCD), Citibank, Banque Internationale pour l'Afrique au Congo (BIAC) and Fransabank; (iii) the closing of those credit institutions deemed to be insolvent and beyond recovery, namely, Nouvelle Banque de Kinshasa (NBK) and Banque de Crédit Agricole (BCA), which will be placed in receivership by end-September 2002. Banque Congolaise du Commerce Extérieur (BCCE), which was declared insolvent and barred from the clearinghouse, will also be placed in receivership by end-September 2002; and (iv) formulation and introduction by end-December 2002 of an appropriate recovery plan for the other banks that are considered viable. This plan will include government divestiture or the establishment of a 20 percent ceiling on the government's holding of equity in public institutions. In addition, on the basis of its new statutes and the new banking law that vests it with full responsibility for supervising the financial system, the BCC will step up its surveillance of the financial system and enforce prudential rules consistent with existing international standards. The BCC also plans, with World Bank assistance, to strengthen its bank supervision department, licensing procedures, and the accounting system for banks.

38. As regards exchange policy, the government undertakes not to introduce or expand exchange restrictions, reintroduce multiple exchange rates, enter into bilateral payments agreements contrary to Article VIII of the IMF Articles of Agreement, or introduce or expand import restrictions for balance of payments purposes. The publication of the new exchange regulations in 2001 has led to the liberalization of transactions with the rest of the world and made them consistent, de facto, with Article VIII of the IMF Articles of Agreement. The government intends to formally accept the obligations of Articles IV and VIII in the course of 2002.

B. Structural and Sectoral Reforms

39. Mindful of the key role of structural and sectoral policies in economic recovery, the government is determined to undertake further reforms, with a view to creating an environment conducive to private sector activity. Implemented with World Bank assistance, the reforms cover public enterprises, the financial sector, mining, the rehabilitation of key infrastructure (transportation, water, electricity, the sanitation system, urban and rural development, and the environment), the social sectors (education, health, welfare, and community development), agriculture, forestry, and institutional capacity building.

40. In the public enterprise sector, the preparation of the reform strategy adopted in 2001 is progressing in tandem with efforts to improve the general business environment. To that end, a unit responsible for guiding the reform, called COPIREP (Public Enterprises' Reform Steering Committee), will be created, and its chairman will be appointed by end-April 2002. Its main tasks in the upcoming months will be to (i) build a consensus to enable the authorities to successfully carry out this complex reform as soon as possible, while (ii) preparing diagnostic studies of all public enterprises and formulating a divestiture action plan by end-September 2002, as well as drafting organic laws on public enterprises and entities. In addition, the government undertakes to (i) set up, by end-April 2002, sectoral groups that will assist in defining strategic aspects of the reform; and (ii) ensure, with immediate effect, that public enterprises or their assets are not sold either by the government or the enterprises themselves without the authorization of COPIREP.

41. In this context, the terms of reference will be finalized for a financial audit of COHYDRO by an internationally recognized firm, and invitations to bid will be issued by end-July 2002. The audit will be completed by end-December 2002. COHYDRO will cease all importing of petroleum products financed with public resources as of end-March 2002, until the audit has been completed and a pertinent restructuring or liquidation plan is established.

42. The government has, with World Bank support, begun a reform of the mining sector, including the restructuring of state mining company GECAMINES. The new mining code will be published by end-April 2002. Arrangements will be made by end-April 2002 for the certification of the origin of diamonds, as stipulated in the applicable UN resolution. The government will approve the new mining rules and regulations by end-October 2002. The new by-laws for the mining cadastre will soon be approved. All unexpired mining rights, whether abandoned or canceled, will be referred to a Mining Rights Validation Commission that will be created by end-May 2002. In the context of the restructuring of GECAMINES, the government has decided to set up, by end-April 2002, a special restructuring agency, to be attached to the Office of the President.

43. In collaboration with the World Bank, the government is drafting a new forestry law, which could be published by end-May 2002. The government has also decided to: (i) issue a ministerial decree by end-April 2002 declaring a moratorium on all new concession awards, extensions, and renewals until new award rules have been defined; and (ii) prepare a study on forestry taxation.

C. Promotion of Transparency and Good Governance

44. The legal and regulatory environment of our economy has been greatly improved via the publication of the new exchange regulations and the new investment code, the new banking law, the new BCC statutes, the new mining code, the abolition of special courts dealing with commercial and economic matters, and the creation of commercial courts. In addition, a new labor code is being prepared that will take account of comments from the ILO and the World Bank.

45. The government is determined to introduce a set of measures aimed at instituting good governance and fiscal transparency. An anticorruption strategy and an action plan will be prepared by end-September 2002 with assistance from the World Bank Institute.

46. By end-September 2002, the government will adopt a Code of Ethics and Good Conduct, applicable, without exception, to the entire civil service. In addition, it will adopt as soon as possible the regulations on implementing the BCC statutes, the new banking law, the mining code, the draft forestry law, the new investment code, and the new labor code. With assistance from the World Bank and other development partners, an anti-corruption commission will be created. In addition, the government will strengthen the Audit Office and the Office of the Inspector-General of Finance, and will take steps to strengthen procurement procedures, including the appointment of independent foreign experts to the awards board. Lastly, to promote the rule of law, the government will continue to strengthen the legal and judicial system, with the assistance of the European Union and the World Bank.

VI. External Sector and Financing Requirements

47. The stock of external debt at end-2001 totaled about US$13 billion, of which US$10 billion represented arrears. Multilateral debt stood at US$3.3 billion, including US$1.9 billion in arrears. In close cooperation with the IMF and the World Bank, the government has just completed an external debt sustainability analysis.

48. Before settlement of the DRC's arrears to multilateral and bilateral creditors, the financing requirement is estimated at US$10.9 billion. After settlement of the arrears and the receipt of additional financing from the IMF (US$526 million, including US$507 million settlement of arrears) and the World Bank (US$361 million, including US$331 million of settlement of arrears) through bridge loans, and the AfDB (US$984 million, including US$966 million of settlement of arrears) through procedures that are currently being finalized, the remaining financing requirement would be US$9 billion. To meet this need, the government will submit a request to its Paris Club creditors for restructuring of the arrears and rescheduling of its debt service (US$7.9 billion). The government will make every effort to obtain a consolidation of its arrears and a rescheduling of its debt service, on terms at least as favorable as those obtained from the Paris Club, from other bilateral creditors (US$374 million), as well as from commercial creditors--including on short-term debt--(US$334 million). The same procedure would be adopted with respect to the other multilateral creditors (US$173 million). The remaining financing requirement would thus be US$197 million. This residual financing gap could be covered by World Bank project assistance (US$32 million), the cofinancing (US$39 million) envisaged under the World Bank's MERRC, and the financing of other projects by the European Union (US$56 million), the United Nations (US$26 million), the AfDB (US$1 million), and other bilateral donors (US$42 million).

VII. PRSP and Poverty Reduction

49. The interim PRSP proposes a strategic framework for future poverty reduction policies and actions. Over the next three years, the government will endeavor to convert this strategic framework into an operational plan. This involves the prioritization of the numerous planned actions, an estimation of program costs, and the identification of domestic and external financing sources. In this context, action will be needed to further develop the sectoral strategies and to ensure consistency between the composition of fiscal expenditure and the PRSP. At the same time, the government will make arrangements for the management, support, and monitoring of poverty reduction actions at the grassroots level. We intend to complete our full PRSP in early 2005, at the latest.

VIII. Technical Assistance and Administrative Capacity Building

50. The government is grateful for the technical assistance provided by the IMF, the World Bank, the AfDB, the United Nations Development Program (UNDP), and several other external partners. We particularly appreciate the presence of the four IMF resident experts concerning public finances and the monetary area. The upcoming opening of the IMF resident representative office, in addition to the existing World Bank office in Kinshasa, will help strengthening our cooperation with the Bretton Woods institutions. This critical mass of technical assistance has enabled us to start building the government's administrative and institutional capacity and improving the quality and timeliness of macroeconomic statistics, especially for the monetary and government finance sectors. We are therefore pleased to state that the conditions are in place for the implementation and monitoring of a program under the PRGF.

51. However, it is necessary to continue improving our monetary and government finance statistics. Also, much remains to be done with respect to the national accounts, price indices, social indicators, and the balance of payments, and the government will once again seek technical and financial assistance from the international community in these areas.

IX. Program Monitoring, Prior Actions, Performance Criteria, and Indicators

52. Before mid-April 2002, two interministerial committees will have been created by presidential decree; the first committee, which will be responsible for monitoring the three-year program supported by the Bretton Woods institutions, will be chaired by the Minister of Finance; the second committee, which will be responsible for implementing the strategy to reduce poverty, will be chaired by the Minister of Planning and National Reconstruction.

53. To ensure the program's effectiveness, the government has already taken or will take, the following prior actions: (i) publication of a 2002 budget consistent with the program's objectives (January 2002); (ii) issuance of a presidential decree, in mid-April 2002, announcing that all budgetary expenditure--without exception--must be authorized by the Minister of Finance before payment; (iii) publication before end-April 2002, of the new BCC statutes establishing its independence and eliminating the financing of budgetary expenditure without prior authorization of the Minister of Finance; (iv) selection, by end-April 2002, of an internationally recognized firm to carry out the financial audit of the BCC; (v) elimination of all wage arrears at end-March 2002 and observation of the quantitative indicators at end-March 2002; and (vi) publication of the new mining code by end-April 2002. Preparation of the 2003 budget and agreement with Fund staff on the budgetary aggregates, will be a prior condition for the completion of the first review of the program.

54. Implementation of the program will be monitored with the help of semiannual reviews, and semi-annual performance criteria (September 2002) and performance indicators (June and December 2002). As indicated in Table 3, the variables to be monitored are: (i) net domestic assets of the BCC, (ii) net bank credit to the government, (iii) net foreign assets of the BCC, and (iv) a ceiling on new nonconcessional external loans (with a grant element of less than 35 percent) contracted or guaranteed by the government with a maturity of more than one year (excluding from the IMF). In addition, the government will not contract or guarantee any external loan with an initial maturity of less than a year, except if related to normal import credits, excluding petroleum imports. Moreover, the government will not accumulate external payment arrears after approval by the IMF's Executive Board of the program supported by the Fund's PRGF. The government will not accumulate arrears on wage payments. The BCC will not grant credit to nonfinancial public enterprises or to nonfinancial private sector enterprises. Lastly, the BCC will make monthly deposits of SDR 100,000 to the Bank for International Settlements until the IMF's Executive Board considers the three-year program that could be supported by the PRGF.

55. The program includes a number of structural performance criteria and indicators (Table 4), as follows: (i) completion of the financial audit of the BCC by end-September 2002 and formulation of an action plan before end-December 2002; (ii) Preparation of a list of banks to be liquidated, privatized, or restructured, and placement into receivership of the NBK, BCA, and BCCE, before end-September 2002; (iii) completion of an external financial audit of COHYDRO before end-December 2002; (iv) preparation of a global strategy and action plan for the fight against corruption by end-September 2002; (v) publication of the Code of Ethics and Good Conduct, applicable to all civil servants, by end-September 2002; and (vi) completion of a strategy for the restructuring of GECAMINES by end-September 2002.


Democratic Republic of the Congo
Technical Memorandum of Understanding

1. This memorandum covers the agreements on monitoring implementation of the program supported by the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF). It establishes the information to be reported and the deadlines for its submission to the IMF staff for program monitoring. It defines the quantitative performance criteria and indicators, as well as the structural performance criteria and indicators presented in the memorandum on economic and financial policies (MEFP) of the government of the Democratic Republic of the Congo (DRC), which is attached to the letter of April 13, 2002 from His Excellency President Joseph Kabila to the Managing Director of the International Monetary Fund.

A. Monitoring Program Implementation

2. Implementation of the program, covering the period April 1, 2002 - July 31, 2005 will be monitored on the basis of the performance criteria described in paragraphs 54 and 55 and Tables 3 and 4, respectively, of the MEFP.

B. Definition of Quantitative Performance Criteria and Indicators

3. The quantitative performance criteria and indicators described in Table 3 of the MEFP are as follows:

    (a) floor on net foreign assets of the central bank (BCC);

    (b) ceiling on net domestic assets of the BCC;

    (c) ceiling on net bank credit to the government;

    (d) ceiling on BCC credit to nonfinancial public sector enterprises;

    (e) ceiling on BCC credit to the nonfinancial private sector;

    (f) ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, at maturities of more than one year, excluding borrowing from the IMF;

    (g) ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BCC, at maturities of less than one year, except for trade credits (excluding petroleum imports);

    (h) no accumulation of wage arrears (including all forms of compensation); and

    (i) the BCC will make monthly deposits of SDR 100,000 in its account with the Bank for International Settlements (BIS) until its three-year program, which may be supported by a PRGF arrangement, is considered by the IMF Executive Board. The account will then be closed and the amount accumulated will be transferred to the IMF.


4. Net foreign assets of the BCC are defined as the difference between the BCC's gross foreign assets and all its external obligations, as shown in the Integrated Monetary Survey prepared by the BCC. The net foreign assets and all foreign currency denominated items of the BCC's balance sheet and the Integrated Monetary Survey will be valued at the applicable program exchange rate. The program exchange rates are SDR 1 = US$1.26537; and US$1 = CGF 313.6.

5. The net domestic assets of the BCC are equal to the sum of the following line items, as they appear in the BCC balance sheet:

    (a) net claims on the Government;

    (b) claims on nonfinancial public enterprises;

    (c) claims on the nonfinancial private sector;

    (d) claims on banks;

    (e) claims on other banking and nonbank institutions; and

    (f) "other items net" are defined as other assets less other liabilities (including capital and valuation accounts).

6. Net banking system credit to the government is defined as the sum of net claims of the central bank and of deposit money banks on the government, as described in the Integrated Monetary Survey prepared by the BCC, plus the BCC's net cash deficit.

7. Any nonproject external budgetary assistance, including external debt rescheduling, that exceeds program levels, will be used to finance poverty reduction expenditure. In the event that such assistance falls short of program levels, the corresponding contingent expenditure item will be reduced accordingly.

8. Twenty-five percent of any revenue (excluding grants) in excess of program levels will be used to reduce the stock of certificates of deposit (CDs) issued before end-March 2002.

9. BCC credit to nonfinancial public sector enterprises is equal to BCC claims on nonfinancial public enterprises, as defined in the Integrated Monetary Survey prepared by the BCC.

10. BCC credit to nonfinancial private sector enterprises (excluding loans to BCC personnel) is equal to BCC claims on nonfinancial private enterprises, as defined in the Integrated Monetary Survey prepared by the BCC.

11. Wage arrears are defined as validated personnel expenses not paid for more than 30 days. Wages include all compensation paid to employees (civil service, including the military and members of cabinet), including bonuses and allowances. Arrears will be assessed cumulatively in the program.

12. The government will not accumulate any payments arrears on the external debt, except on debt subject to rescheduling or restructuring, after approval by the IMF Executive Board of the PRGF-supported program.

13. The definition of debt can be found in Decision 6230-(79/140), paragraph 9, amended August 24, 2000 (see Annex).

14. The grant element of borrowing will be calculated on the basis of currency-specific rates based on the commercial interest reference rates (CIRR) at the time of disbursement, as established by the OECD. A loan is defined as concessional if, on the date of the initial disbursement, the ratio of the present value of the loan, calculated on the basis of the reference interest rate, to its nominal value is less than 65 percent (i.e., including a grant element of at least 35 percent).

15. Base money is defined as the sum of the following:

(a) currency in circulation (in and outside banks);

(b) deposits of banks with the BCC;

(c) deposits of public enterprises with the BCC;

(d) deposits of private enterprises and individuals with the BCC;

(e) deposits of other financial institutions, other than deposit money banks, with the BCC; and

(f) BCC securities issued for monetary policy purposes.

16. The following concepts are being used in the LOI/MEFP:

(a) Budget: annual act authorizing revenue collection and expenditure for central government. Transfers to provinces are included, but actual expenditure made by provinces, and provinces' own revenues are not covered. The social security system is also not covered;

(b) Special budgets (budgets pour ordre): autonomous agencies and entities benefiting from earmarked revenues which, like their expenditure, are covered in the budget;

(c) Extrabudgetary accounts: accounts that benefit from receipts that remain outside the monitoring of the treasury. Consolidation of these accounts, together with regularly monitored expenditure, is required to present comprehensive budget execution statements;

(d) Poverty-related and social spending: poverty-related spending is defined as spending on health, education, food, housing, social and community development, and infrastructure (including agriculture-related infrastructure). It relates to both current and capital expenditure. Social spending is a subset that covers health, education, food, housing, and social and community development.

C. Structural Performance Criteria and Indicators

17. The structural performance criteria and benchmarks are described in Table 4 of the Memorandum on Economic and Financial Policies.

D. Reporting

18. The authorities will forward to the IMF's African Department, as soon as possible and preferably by e-mail or fax, the data and information needed to monitor program implementation. Following are the data or documents to be submitted:

1. Exchange system

The following data are to be submitted:

(a) volume of purchases and sales of foreign exchange on the interbank market, between commercial banks and their customers, and in exchange bureaus;

(b) volume of purchases and sales (interventions) by the BCC on the interbank market;

(c) average CGF/USD reference exchange rate of the BCC;

(d) average CGF/USD exchange rate on the interbank market;

(e) average CGF/USD exchange rate offered by commercial banks to their customers; and

(f) average CGF/USD exchange rate used by exchange bureaus.

Note: The above information is to be submitted with a time lag of one day.

2. Banking System

The following data and documents are to be submitted:

(a) integrated monetary survey;

(b) monetary survey of the BCC;

(c) monetary survey of deposit money banks;

(d) net banking system credit to the government;

(e) net banking system credit to public sector enterprises;

(f) structure of nominal and real interest rates of deposit money banks;

(g) reserves (voluntary and required) of deposit money banks;

(h) structure of BCC interest rates; and

(i) structure of BCC certificate of deposit (CD) rates.

Note: The above information is to be submitted not later than three weeks after the end of each month.

3. Central Government

The following data and documents are to be submitted:

(a) execution of treasury cash flow plan;

(b) validated wage bill by category of payee;

(c) paid wage bill by category of payee;

(d) paid employees by category;

(e) civil service pay scale (if changed);

(f) issue, redemption, and stock of certificates of deposit (including maturity and interest charges) and by category of creditor (commercial banks, public enterprises, etc.); and

(g) public sector domestic debt, by category of creditor (commercial banks, private entities, etc).

Note: The above information is to be submitted not later than three weeks after the end of each month.

4. Real Sector

Report as soon as possible indicators on recent economic developments and other related data, such as the consumer price index; exports of commodities (in value and volume), crude oil, copper, cobalt and zinc, and industrial and artisanal diamonds; imports by value and volume, if possible by principal product and petroleum products; indicators of production, of the manufacturing, mining and services sectors, published in the BCC's monthly reports on business activity. Monthly tax base (imports) prepared by OFIDA.

5. External Debt

The following information is to be submitted:

(a) actual disbursements of external assistance, whether or not to finance projects, including those associated with new loans contracted (on a monthly basis with a lag of three weeks); and

(b) composition of external debt-service obligations by maturity profile (including after debt rescheduling by the Paris Club, other bilateral and multilateral debt, commercial debt, and short-term debt), and the stock of external arrears, taking into account actual payments, with a breakdown of principal and interest and classification by creditor (to be provided by the Public Debt Management Office (OGEDEP).

Note: The above information is to be provided not later than three weeks after the end of each month.

6. Miscellaneous

A progress report on implementation of the structural reforms specified in Table 4 of the MEFP will be submitted to Fund staff each month. In addition, information on the legal and regulatory environment as it affects business (new decrees, circulars, and laws) and pricing policy, as well as the official gazette, will also be reported to Fund staff.


Jean-Claude Masangu Mulongo
Central Bank of the Congo


Mbuyamu Matungulu Ilankir
Minister of Economy, Finance, and Budget

Kinshasa, April 13, 2002

ANNEX: Definition of external debt

For the purposes of this memorandum, the following definitions of "debt," and "concessional borrowing" will be used:

(a) As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000, debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, obligations, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods have been delivered or the services provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified periods of time, which are usually shorter than the total expected life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition set out above, debt includes arrears, penalties, and judicially awarded compensation arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation is not considered debt by this definition (e.g., payment on delivery) will not give rise to debt.
(b) A loan is defined as concessional if, on the date of the initial disbursement, the ratio between the present value of the loan, calculated on the basis of the reference interest rate, and its nominal value is less than 65 percent (i.e., including a grant element of at least 35 percent). The reference interest rates used in this assessment are the OECD commercial interest reference rates (CIRR). For debts with maturities of more than 15 years, the reference interest rate at 10 years, published by the OECD will be used to calculate the grant element. For shorter maturities, the rate used will be the reference market rate at six months.

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