Kinshasa, June 20, 2001

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

Dear Mr. Köhler:

1. The efforts of the new government of the Democratic Republic of the Congo (DRC) under the supreme authority of His Excellency Joseph Kabila, President of the Republic, are focused on simultaneously achieving three key objectives: (a) the restoration of peace; (b) the pursuit of a dialogue among the Congolese people, with a view to holding free and transparent elections; and (c) the liberalization of the Congolese economy, its opening to the rest of the world, and its reconstruction and revitalization. The government also intends to normalize its relations with the international financial institutions, especially the IMF and the World Bank.

2. The government is committed to rehabilitating the country's economic and financial situation and creating an environment more conducive to economic recovery. To do so, the role of the state has been redefined, and its institutions and capacities will be strengthened, so that it may become, among other things, a facilitator of, rather than a competitor with, the private sector, and so that it can focus on providing essential public services. The government intends to create a more secure and stable business environment by establishing a simplified and transparent legislative and regulatory framework, and by eliminating disruptive and arbitrary procedures. To this end, commercial courts will be established shortly. The government also intends to do more to promote good governance in the management of public affairs, including public procurement.

3. Based on a frank analysis of the present situation, the government has formulated a set of far-reaching and comprehensive economic and structural policies in the context of a consistent macroeconomic framework. The main objective of this program of economic stabilization and liberalization is to break hyperinflation. The attached memorandum on economic and financial policies, which covers the period June 2001-March 2002, sets forth the policies the government intends to firmly implement to attain its macroeconomic and structural objectives. The government hopes to receive the necessary support from Fund staff to monitor its enhanced interim program, which is described in the memorandum. Accordingly, the government will submit to the Fund staff all information necessary to monitor implementation of the measures called for in the program.

4. The government intends to intensify its cooperation with the Fund and appreciates the in-depth Article IV consultation discussions it had with the IMF mission that visited Kinshasa from May 2-16, 2001. The government of the DRC reaffirms its desire to fully normalize its relations with the IMF and to find a solution to its arrears with the Fund. During the period June 2001-March 2002, the government will deposit a monthly amount of SDR 100,000 in an account of the DRC held with the Bank for International Settlements, as indicated in the memorandum. The government hopes that the implementation of this enhanced interim program and the settlement of its arrears with the Fund (possibly with external assistance in the form of a bridge loan) will lead to a three-year Fund-supported program under the Poverty Reduction and Growth Facility (PRGF). Moreover, the government has begun discussions with its external development partners to find appropriate solutions to the arrears on its debt with them, particularly the World Bank and the African Development Bank.

5. In the context of the enhanced interim program, the government, with assistance from the international community and in particular the staffs of the IMF, the World Bank, the United Nations Development Program (UNDP), and the African Development Bank, intends to initiate a dialogue with the private sector, civil society, and all other development partners with a view to developing a poverty reduction strategy. This dialogue, carried out at the national level, would provide strategic inputs for the drafting of an interim poverty reduction strategy paper (I-PRSP) and thus help lay the foundation for a three-year program that could be supported by the IMF, the World Bank, and other external development partners. The government hopes that with these efforts the DRC will be able to benefit in due course from relief under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative) and thus alleviate the heavy burden of its foreign debt.

Sincerely yours,

The Government's Enhanced Interim Program for the Period June 2001-March 2002

I. Current Economic Situation

1. The economic situation has deteriorated significantly during the war that broke out on August 2, 1998, which involves not only a systematic plundering of the nation's natural resources, the death of more than three million Congolese, the displacement of populations, and growing numbers of refugees, disabled persons, and orphans, but also the destruction of infrastructure, including hospitals and schools. The mortality rate has increased, and malnutrition has become widespread.

2. The current economic situation is characterized by the vicious circle of hyperinflation, continued depreciation of the currency, increasing dollarization, lack of saving, financial disintermediation, falling production in both agriculture and manufacturing, generalized impoverishment of the population, an alarming spread of epidemics like HIV/AIDS, and the reappearance of previously eradicated diseases, such as tuberculosis, trypanosomiasis, leprosy, the plague, etc., as well as the spread of plant diseases that are seriously reducing the production of manioc (one of the major staple foods for the whole population). The lack of medical supplies is further aggravating the situation. The scarcity of inputs in all sectors has contributed to a continuing decline in production and rising cost of goods and services. The government also has had to contend with a serious lack of material resources. In this context, real GDP has fallen by 5 percent a year on average over the past three years. Output in all sectors is now well below the 1990 level. Per capita real GDP plummeted from US$224 in 1990 to US$85 (or 23 cents a day) in 2000. Consumer prices rose at an annual average rate of 107 percent in 1998, 270 percent in 1999, and 554 percent in 2000. This deterioration continued through the first four months of 2001, with a cumulative rate of 68 percent. The gap between the official and parallel exchange rates widened from 44 percent at end-1998 to 545 percent at mid-May 2001. Gross international reserves stood at the equivalent of only 2.2 weeks of imports of goods and nonfactor services at end-2000. External debt rose to 280 percent of GDP (amounting to almost US$13 billion) at end-2000, with arrears of more than US$9 billion accounting for about 75 percent of the total.

3. On the aggregate demand side, the main source of hyperinflation is the unbridled monetization of a fiscal deficit that has so far proved uncontrollable. This growing deficit is the result of the collapse of the expenditure control system and a sharp decline in the collection of revenue, which has fallen to one of the lowest levels in Africa. War-related expenditure, lack of transparency, and governance problems have exacerbated this situation. The proliferation of extrabudgetary spending, tax exemptions, quasi-fiscal operations (mainly involving the revenues of mining companies, such as MIBA and GECAMINES, and the oil companies), ad hoc interventions, taxpayer harassment, and corruption in a number of government services have contributed significantly to the erosion of government finances. Furthermore, with the war, security and sovereign expenses (which are partly off-budget and amount to 70 percent of total revenues), not to mention other extrabudgetary expenditures, have increased significantly. Spending on health, education, and infrastructure has remained far below the average for sub-Saharan Africa. The fiscal deficit has been financed by the Central Bank of the Congo (BCC) and through accumulation of both domestic and external arrears. The overall deficit of the government (cash basis) amounted to 45 percent of revenue in 1998 and 81 percent in 2000.

4. The drying up of external financing has compounded this difficult situation. To meet the needs of the government, the BCC has become a mere cashier. To cover the growing fiscal deficit and those of money-losing public enterprises, the BCC has printed money, and the government has accumulated arrears with its employees (wage arrears), foreign creditors, and local suppliers. The BCC has also lost all independence in the conduct of monetary policy and the control of its instruments. In addition, the BCC's financial position has been seriously weakened. Lastly, the shortage of banknotes (whose printing costs have risen sharply owing to hyperinflation) has contributed to the disruption of the payments system and financial disintermediation. The money supply grew by 160 percent in 1998, by 382 percent in 1999, and by 493 percent in 2000. For the first three months of 2001, this expansion is estimated at 35 percent.

5. The loss of confidence in the Congo franc has led to the use of foreign currencies in its place, resulting in a widespread dollarization of the economy. Financial saving in local currency has been discouraged by largely negative real interest rates.

6. The weakening of government finances, together with the fall in economic activity, has led to a deterioration of the BCC's external accounts and depletion of its international reserves. The nonrepatriation of foreign exchange earnings by a number of public enterprises has put added pressure on the foreign exchange market. Multiple exchange rates (official rate, fiscal rate, and parallel rate) and price controls (especially on petroleum products) have seriously distorted relative prices and resource allocation, and have led to shortages of essential goods and petroleum products. The regulatory framework has been increasingly burdened over the years by the proliferation of often contradictory decrees and decisions. Impromptu and often arbitrary interventions have created a climate of suspicion and insecurity that acts as a deterrent to saving, investment, and, consequently, economic growth. The virtual lack of maintenance of infrastructure and means of production has also contributed to increases in the prices of essential goods, falling production, a rural exodus, and the impoverishment of the population. This situation has been further exacerbated by the effects of the war, the displacement of populations, the influx of refugees, and the occupation of much of the national territory.

7. Finally, poor coordination among ministries in the preparation and implementation of economic and financial policies and the absence of a consistent macroeconomic framework have added to the deterioration of the country's economic and financial situation.

II. The Government's Enhanced Interim Program For June 2001-March 2002

8. To address the alarming situation that the DRC is facing and correct the economic and financial disequilibria, the new government intends to put in place a coherent set of macroeconomic, structural, and sectoral policies. The main objectives of the government's enhanced interim program are to: (a) break hyperinflation; (b) liberalize the economy and open it to the rest of the world; (c) establish a more favorable environment for growth, especially for private sector activity, the true engine of growth; and (d) lay the foundation for economic reconstruction and recovery.

9. The principal quantitative targets for 2001 are the following: (a) the revival of economic growth; (b) an average annual inflation rate of 300 percent, and an end-December 2001 rate of 99 percent; (c) an overall deficit, on a commitment basis and excluding grants, of 1.9 percent of GDP, and on a cash basis of 0.3 percent of GDP; (d) an external current account deficit of 14.0 percent of GDP; and (e) a minimum level of gross international reserves equivalent to 2.4 weeks of imports of goods and nonfactor services.

10. To reach these targets, the government intends to pursue a strict fiscal policy and a prudent monetary policy. A floating exchange rate regime was put in place on May 26, 2001, that unified the existing multiple rates, enhanced the competitiveness of the economy, and improved resource allocation. These policies will be accompanied by the sequenced implementation of major structural measures, with assistance from the World Bank in particular. The success of the program will also depend on well-targeted technical assistance to build administrative and institutional capacities. In this regard, the government is receiving technical assistance from the Fund in the fiscal and banking areas, and in macroeconomic statistics. The World Bank is providing technical assistance, in particular in the mining and transportation areas.

A. Fiscal Policy

11. A key element of the program is to rein in government finances so as to substantially reduce the fiscal deficit (cash basis), with the primary objective of breaking hyperinflation. The government intends to introduce measures designed to generate tax revenues and reduce spending. A monthly treasury cash flow plan was put in place on June 1, 2001, and all tax and off-budget revenues will be deposited in the treasury's General Account with the BCC. The government intends to take full account of the recommendations of the Fund technical assistance missions on the auditing of budgetary procedures, the modernization of fiscal and budgetary policies, and the strengthening of the financial administration (revenue collecting, budget, and treasury agencies). Given the still limited amount of expected foreign aid, it will not be possible for the government to fully service its external debt in 2001. However, the authorities will continue to pay interest on the BCC's net advances to the government. The interest rate on new advances will be adjusted to match the BCC's key interest rate starting in June 2001.

12. For 2001, the government has set a revenue target of CGF 58.9 billion (5.2 percent of GDP), of which CGF 25.0 billion will be customs receipts, CGF 10.4 billion direct taxes, and CGF 1.7 billion administrative and government property revenues. To this end, the measures described in Table 1 will be put in place according to the established timetable. The authorities will ensure that a sufficient supply of the necessary tax returns and assessment forms will be available. Any excess of total revenue net of refunds to the revenue-collecting agencies (régies financières) over and above the revenue programmed in the monthly Treasury cash flow plan will lower the ceiling on net banking system credit to the government.

13. The government intends to limit overall spending (excluding foreign interest payments) to CGF 59.4 billion (5.3 percent of GDP) in 2001, of which CGF 44.4 billion will be for current expenditure (excluding interest), and CGF 3.2 billion for domestically financed capital expenditure. For this purpose, the government will adopt the measures described in the attached Table 1. In light of the large share of personnel expenses in total expenditure, the government intends to maintain strict control of the wage bill in 2001. The government has decided that, in view of the pay raises granted in recent months (25 percent for the military and national police and 141 percent for the civil service, including a special bonus to cover increased transportation costs owing to higher oil prices), there will be no more increases during the rest of 2001. Moreover, an in-depth study of the staffing and structure of the civil service will be conducted with the assistance of a bilateral partner and completed by end-2001. While awaiting the results of this study, the government has decided to freeze hiring in all sectors and not replace retirees, except concerning the health and education sectors, and the rehabilitation of roads. Nonwage spending will be strictly limited and controlled, including sovereign expenses, the costs of missions abroad, and the expenditure of the provinces, so that maximum resources can be allocated to social and priority infrastructure spending. The government will significantly reduce subsidies to public enterprises, with a view to eliminating them when the public enterprise reform plan has been worked out with the World Bank. In anticipation of a steady return to peace, the 2002 budget will give priority to appropriations for the education and health sectors, infrastructure, and any other expenditure that will help reduce poverty.

14. The government intends to seek technical assistance from the international community to help build administrative capacity for the rehabilitation of government finances, as described in Table 2.

15. In the area of capital expenditure, the government intends to carefully select projects to be retained for the remainder of 2001. Thus, the amount of domestically financed capital expenditure will be CGF 3.2 billion and will basically be allocated for spending in the following sectors: transportation, health, and rural development. The amount of capital expenditure financed with external assistance (including technical assistance for administrative and institutional capacity building) will be adjusted upward to the extent that foreign-financed spending is executed. The same adjustment will apply to the overall deficit. The list of foreign-financed capital expenditures was prepared jointly with World Bank staff.

B. Monetary and Exchange Policy

16. The authorities' decision to retain the local currency, the Congo franc, requires the implementation of consistent monetary, fiscal, and exchange rate policies aimed at restoring confidence in the local currency and ending the vicious circle of hyperinflation and depreciation of the local currency.

17. In the area of exchange rate policy, the authorities introduced on May 26, 2001, a floating exchange rate system that unified the existing multiple exchange rates. It should be noted that the new foreign exchange regulations published on February 22, 2001, permit the unrestricted holding of foreign currencies in the DRC.

18. The government has published all legislation and regulations concerning the introduction of a floating exchange rate regime (involving the interbank market, exchange bureaus, and fund-wiring services). The government has taken due account of the Fund's comments on the drafts of this legislation. The introduction of the floating exchange rate system has also benefited from the recommendations of a Fund technical assistance mission. The BCC has reviewed and discussed with commercial banks their capacity to manage the exchange risk associated with the structure of their balance sheets and their foreign currency transactions. A foreign exchange interbank market was created concurrently with the introduction of the floating exchange rate system, and exchange bureaus were allowed to operate again. On the basis of information received daily by exchange bureaus and banks on the amounts and rates applied in transactions with their customers, the BCC publishes the daily exchange rate, based on transactions on each of these markets and the combined average rate of these markets. The BCC, while respecting the international reserves target in the monetary program, will intervene to smooth exchange rate fluctuations, but without going against market fundamentals.

19. The main objective of monetary policy is price stability, and for this purpose BCC advances to the treasury will be limited in conformity with the new statutes of the BCC and the monetary program. Base money will be the monetary anchor. Money supply is projected to increase by 53 percent in 2001, compared with 493 percent the previous year. Its growth in 2001 is below that of nominal GDP. The monetary program is described in Table 6. In particular, net credit of the banking system to the government will increase only by CGF 3,234 million for the year 2001 as a whole; it will decrease by CGF 30 million in June 2001, by CGF 998 million between end-May and end-September 2001, and by CGF 4,376 million between end-May and end-December 2001. All interest rates have been deregulated and the BCC will freely set its key interest rate, which will become positive in real terms in June 2001.

20. To regain its credibility, the BCC should have decision-making autonomy with respect to its monetary policy and the use of its instruments. To ensure its independence, the statutes of the BCC have been revised and will be published in June 2001. The authorities have taken full account of the comments of Fund staff on the statutes. Furthermore, as of June 2001, the BCC will no longer extend credit to the private sector and to public enterprises. Moreover, the BCC will no longer assume responsibility for executing payment orders that have not been issued by the treasury. All BCC transactions in foreign exchange will be at market rates. The BCC, with Fund technical assistance, intends to review its available policy instruments and make them more efficient, as well as diversify its indirect monetary policy instruments (including for open market operations) and strengthen its monetary programming. By end-2001, the BCC will be audited by an internationally recognized firm. Finally, the authorities will seek the support of the international community to improve the BCC's Plan Comptable.

21. The authorities will adopt all necessary measures to rehabilitate the banking system. In this connection, the government will seek the assistance of the international community, including the World Bank, to conduct audits of all banks. The government intends to strengthen bank supervision with technical assistance from the Fund in particular. The new decree-law on the activities and supervision of credit institutions will be published by end-June 2001 and will take due account of the comments of Fund and World Bank staff.

22. The government intends to seek grant financing and will contract (or guarantee) only highly concessional foreign financing (except for the normal financing of suppliers' credits for imports). To facilitate relations with the international community, the government will take steps to improve external debt management and conduct an exhaustive inventory of all outstanding public external debt and the stock of arrears, with the support of the Fund and the World Bank.

23. The government undertakes not to introduce or intensify exchange restrictions, reintroduce multiple exchange rates, conclude bilateral payments agreements that are inconsistent with Article VIII of the Articles of Agreement of the Fund, or introduce or intensify import restrictions for balance of payments reasons. The government also intends to accept the obligations of Article VIII in 2002.

C. Structural Reforms

24. The government recognizes that economic recovery requires not only a consistent macroeconomic framework, but also a clear and transparent legal and regulatory environment. To reassure economic agents and bolster a renewed entrepreneurial confidence, the government intends, with the help of the international community, to reinforce the legal and regulatory frameworks. A bill will be adopted by parliament, by end-June 2001 at the latest, establishing commercial courts with the sole authority to settle disputes involving economic and commercial matters. All matters of an economic or commercial nature currently being dealt with by special courts, such as the military courts, will be withdrawn and transferred to regular jurisdictions, in particular the commercial courts.

25. By end-June 2001, the government will publish a decree-law liberalizing the prices of goods and services. However, water, electricity, and public transportation rates will be set by the responsible ministries, based on transparent criteria established in consultation with professionals and user representatives. A system for regularly adjusting these rates, based on production and maintenance costs, will be agreed to by the parties. The government will seek input from certain development partners concerning the appropriate level for public utility rates.

26. The prices of petroleum products are set by the Ministry of Economy, Finance, and the Budget and the Ministry of Energy, using a formula incorporating the average border price, intermediaries' costs and margins, and the state's share (taxes and quasi-fiscal operations). The government, aware of the complexity of the current structure, has decided to simplify it and put in place an automatic, transparent system of fixing petroleum prices. In parallel with the revision of the pricing structure, the government would like to build up a security buffer stock and promote the effective liberalization of the importation and distribution of petroleum products throughout the national territory. The prices of petroleum products were raised by about 300 percent (especially for gasoline, diesel, and kerosene) on May 26, 2001, based on this new system. The prices of petroleum products will be reviewed every two weeks, and the relevant legislation has been published.

27. The government intends to continue liberalizing the diamond sector. Purchasers at trading posts may henceforth operate without restriction in the mining production zones. The authorities also intend to introduce the certification of diamonds so as to establish their origin in compliance with the UN resolution on this issue.

28. With World Bank assistance, the government has prepared a draft investment code and a draft mining code. The draft mining code is based on the conclusions of a February 2000 workshop held with all potential domestic partners and World Bank support. It was discussed in another workshop with the participation of international mining partners in May 2001. The government will take due account of the comments of World Bank and Fund staff on the draft codes before they are finalized.

29. In cooperation with the World Bank, the government will launch a reform of the public enterprise sector. A list of public enterprises to be reformed will be drawn up that will indicate the strategy to be pursued, depending on the type of enterprise in question. Also with World Bank assistance, a study will be undertaken to check cross arrears between public enterprises and between public enterprises and the state. This study will be concluded by end-March 2002 and will serve as the basis for the preparation of a timetable for the settlement of domestic arrears.

III. Promotion Of Transparency And Good Governance

30. The authorities recognize that good governance and transparency are essential in creating a stable environment and ensuring economic security. This is a priority for the government, and the above-mentioned measures will, in particular, ensure good governance in the conduct of public affairs. To that end, all expenditure and revenue were centralized and all extrabudgetary channels eliminated in early June 2001. The official gazette (Journal Officiel) will be published regularly and a competitive system of public procurement will be established, including the publication of public contracts exceeding a certain amount. Mining and diamond sector enterprises (in particular, GECAMINES and MIBA) and the oil sector will pay their taxes according to regular procedures, instead of the current system of tax compensation and off-budget operations, and they will repatriate their export earnings within the period prescribed in the exchange regulations (30 days). Extrabudgetary expenditure will be eliminated, and, effective June 2001, all expenditure must be executed in accordance with regular budgetary procedures. An action plan for the gradual elimination of corruption in certain government services will be implemented. Abuses of authority by individuals and nontax administrations involving intimidation, arbitrary arrests, and dishonest profit seeking at the expense of the treasury will be eliminated. Commercial courts will replace special jurisdictions for all economic and financial matters.

IV. Technical And Financial Assistance And The Need For Coordination With The International Community

31. The state's administrative and institutional capacities need to be strengthened, and the government intends to seek technical and financial assistance from the international community in the macroeconomic, structural, and sectoral areas. The authorities have discussed these needs with Fund and World Bank staff, and a meeting is scheduled in early July, with technical support from the World Bank, to ensure effective coordination of foreign assistance. Speedy, well-targeted assistance will be crucial to ensure the success of the program and, in particular, to finance the list of urgent and strategic projects prepared in collaboration with the World Bank. The short-term objectives are to build program implementation and monitoring capacities, begin the reconstruction of key state institutions, and put in place the necessary administrative capacity to lay the foundation for monitoring a PRGF-supported program, as well as programs of assistance of other development partners. There is also an urgent need to improve statistics in all sectors, and the authorities intend, with external assistance (particularly from the Fund), to improve the coverage and periodicity of the macroeconomic aggregates.

V. Relations With The IMF And Other International Creditors

32. The authorities recognize the need to make progress toward clearance of arrears to the Fund during the course of the SMP (June 2001-March 2002). In light of this, they have agreed to deposit a monthly amount of SDR 100,000 in an account of the DRC held with the Bank for International Settlements. These deposits will continue to be part of the DRC's international reserves until their eventual use, and will be monitored by the Fund. Given the country's urgent needs and its limited capacity to service its external debt, it is not possible for the DRC to make larger payments. Nonetheless, the authorities are firmly committed to normalizing relations between the Democratic Republic of the Congo and the Fund. Therefore, in the context of a possible PRGF-supported program, the government intends to seek a bridge loan from the international community to settle the DRC's arrears with the Fund. The authorities also intend to reach an agreement with the World Bank and the African Development Bank on a plan and the modalities needed to eliminate arrears with those institutions.

33. Given the urgency of meeting the DRC's social and reconstruction needs, including, with the return to peace, its demobilization, disarmament, reintegration, and retraining needs, a reduction in the external debt burden will be an important element in the country's economic strategy. Accordingly, the authorities intend to start normalizing relations with the DRC's international creditors in 2001. It will not be possible for the DRC to service its external debt fully in 2001. The authorities will contact their other multilateral and bilateral creditors and inform them of their intention to seek rescheduling under the Paris Club, in the context of a possible PRGF-supported program. The government also intends to ask the international community, and the World Bank in particular, to help it strengthen its external debt-management capacity.

VI. Program Monitoring

34. An interministerial economic and financial policy monitoring committee (ECOFIN) was created to better coordinate government actions and to support the introduction and monitoring of the program (Tables 1-7). ECOFIN is chaired by the Minister of Economy, Finance, and the Budget. The program will be monitored by means of quarterly quantitative indicators and structural benchmarks. A technical memorandum of understanding (attached), drafted with Fund assistance, contains a description of the indicators and the periodicity of the main data to be reported. There will be two quarterly reviews. The review to be conducted by Fund staff by end-November 2001 will be based on the end-September 2001 indicators and benchmarks, and on reaching understandings regarding the major items in the 2002 budget. The conclusion of the second review by end-March 2002 will be based on the end-December 2001 indicators and benchmarks.

1. This memorandum covers the understandings on monitoring implementation of the enhanced interim program and the information to be submitted. It defines the quantitative indicators and structural benchmarks as presented in paragraph 34 of the memorandum on economic and financial policies of the Government of the Democratic Republic of the Congo (DRC), which is attached to the letter of June 20, 2001, from the Minister of Economy, Finance, and the Budget, and the Governor of the Central Bank of the Congo (BCC) to the Managing Director of the IMF.

A. Monitoring Program Implementation

2. Implementation of the program covering the period June 1, 2001-March 31, 2002, will be monitored in two ways: (a) two program reviews by Fund staff to be completed by end-November 2001 and end-March 2002, respectively; and (b) an assessment of the degree of compliance with the quantitative indicators and structural benchmarks on the scheduled dates. To that end, the government will provide all necessary data (see Section D below).

B. Definition of Quantitative Indicators

3. The quantitative indicators, shown in Table 4 of the memorandum on economic and financial policies are as follows:

(a)	ceiling on net banking system credit to the government;
(b)	ceiling on net banking system credit to public sector enterprises;
(c)	floor on net foreign assets of the BCC;
(d)	ceiling on new nonconcessional external borrowing (including leasing) contracted or guaranteed by the government or the BCC, beginning June 1, 2001;
(e)	no accumulation of wage arrears (includes all compensation);
(f)	monthly deposits into an account of the DRC held with the Bank for International Settlements; and
(g)	as a memorandum item, the monetary base, which serves as the monetary anchor.

4. Net banking system credit to the government includes net claims of the central bank and of deposit money banks on the government, as defined in the "Consolidated Monetary Survey" prepared by the BCC. All transitory expenditure (expenditure items in transit, recorded in subaccounts) must be excluded from government deposits with the BCC. The ceiling on net banking system credit to the government will be reduced by the amount of external nonproject financing (estimated at zero in the budget). Any excess of total revenue net of refunds to the revenue collecting agencies (régies financières) over and above the revenue programmed in the monthly treasury cash flow plan will lower the ceiling on net banking system credit to the government.

5. Net banking system credit to public sector enterprises is equal to the difference between banking system claims on public enterprises and the latter's deposits with the banking system, as defined in the "Consolidated Monetary Survey" prepared by the BCC.

6. 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 "Consolidated Monetary Survey" prepared by the BCC. Account 02101, "Foreign exchange receivable," which, according to the explanations of BCC staff, consists essentially of advances in Congo francs (to GECAMINES and MIBA) that are to be repaid in foreign exchange, is to be excluded from net foreign assets. All external nonproject budget financing (estimated at zero in the program) will raise the floor on the BCC's net foreign assets.

7. The quantitative indicators applicable to new external borrowing are cumulative floors (effective June 1, 2001) applicable to new nonconcessional borrowing (including leasing) contracted or guaranteed by the government or the BCC, with the exception of loans granted in connection with regular imports.

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

9. The concessional element of the borrowing will be calculated using discount rates based on the commercial interest reference rates (CIRR) established by the OECD for the currency of denomination used. A loan is deemed concessional if, on the date of the contracting, the ratio of the present value of the loan, calculated on the basis of the discount rates, to its nominal value is less than 65 percent (i.e., including a concessional element of 35 percent or more).

10. Wage arrears are defined as validated personnel expenses (according to the Directorate General of Payroll) not paid for more than 30 days. Wages include all compensation paid to employees (civil service and non-civil service, including bonuses and allowances). These arrears will be assessed cumulatively in the program.

11. The monetary base is defined as the sum of the following:

• currency in circulation (inside and outside banks);
• deposits of deposit money banks with the BCC;
• deposits of public enterprises with the BCC;
• deposits of private enterprises and individuals with the BCC; and
• deposits of other financial institutions, other than deposit money banks, with the BCC.

Base money specifically excludes government deposits and deposits in foreign exchange with the BCC.

C. Structural Benchmarks

12. The structural benchmarks are shown in Table 5 of the memorandum on economic and financial policies.

D. Reporting

13. The authorities will forward to the IMF African Department, as quickly 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.

Exchange system

(a)	volume of purchases and sales of foreign exchange on the interbank market, between commercial banks and their customers, and in exchange offices;
(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 lag of one day.

Financial system

(a)	consolidated monetary survey;
(b)	balance sheet of the BCC;
(c)	balance sheet 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)	excess reserves (voluntary and required) of deposit money banks; and
(h)	structure of BCC interest rates.

Note: The above information is to be submitted three weeks after the end of the month.

Public sector

(a)	execution of the monthly 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)	issues and redemptions of certificates of deposit (including maturity and interest charge) and by category of creditor (commercial banks, public enterprises, etc.); and
(g)	public sector domestic debt to be collected and reported as soon as data on domestic public debt become available.

Note: The above information is to be submitted three weeks after the end of the month.

Real sector

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

External sector

The following information on the external sector will be submitted:

(a)	actual disbursements of external assistance, for project financing or otherwise, including those associated with new loans contracted, including the terms of the loans and the creditors of the latter (on a monthly basis with a lag of three weeks); and
(b)	composition of external debt-service obligations, by maturity profile, as well as the stock of external arrears taking into account actual payments, with a breakdown of principal and interest and classification by creditor (to be provided quarterly by the Public Debt Management Office--OGEDEP).

Miscellaneous

15. A progress report on implementation of the structural reforms specified in Table 5 of the memorandum on economic and financial policies 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 be sent to the Fund.
 

Guidelines on Performance Criteria with Respect to Foreign Debt

Excerpt from Executive Board Decision No. 6230-(79/140), as revised on August 24, 2000

9.  (a) For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e., 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, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, 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, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and

(iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the 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.

   (b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.