Press Release No. 03/40

Press Release: IMF Completes First Review of the Democratic Republic of the Congo's PRGF Arrangement and Approves US$36 Million Disbursement

March 24, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the first review of the Democratic Republic of the Congo's performance under an economic program supported by a Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, the Democratic Republic of the Congo (DRC) will be able to draw up to SDR 26.6 million (about US$36 million) immediately.

The Board also waived the DRC's nonobservance of performance criteria pertaining to the ceiling on net domestic assets of the Central Bank of the Congo (BCC), the preparation of a list of banks to be liquidated, privatized or restructured and the placement into receivership of three commercial banks, as well as the publication of a code of ethics and good conduct applicable to the whole civil service.

The DRC's three-year PRGF arrangement was approved in June 2002 (see Press Release No. 02/27) for SDR 580 million (about US$786 million). So far, the DRC has drawn SDR 420 million (about US$569 million) under the arrangement.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on the DRC, Anne Krueger, First Deputy Managing Director and Acting Chair, made the following statement:

"The DRC has made considerable progress in consolidating the peace process and the inter-Congolese dialogue. The interim peace agreement reached in early March in Pretoria, South Africa, and the final agreement expected to be reached by early April 2003, will provide further impetus to the impressive turnaround in the DRC's economic performance observed in the last two years. Lasting peace is a crucial condition for the economic reconstruction and development of the DRC.

"Based on strong ownership, the DRC's government has already implemented wide-ranging and bold macroeconomic and structural reforms. The turnaround in economic and financial policies has already yielded significant results. In 2002, economic growth was positive for the first time in 13 years, and the vicious circle of hyperinflation and currency depreciation has been broken.

"The major challenges facing the DRC will be to achieve re-unification with macroeconomic stability, to strengthen the capacity of the central and provincial governments, and to create a fully accountable professional army and police force. Sustained implementation of sound macroeconomic policies and structural reforms, in addition to peace, will be critical for economic stabilization and for attracting the resources needed for reconstruction and development. The international community will need to provide timely and predictable financial and technical assistance to the DRC to support its reform and reconstruction efforts.

"The government's policies in 2003 are appropriately geared toward consolidating the economic recovery and macroeconomic stability. The 2003 budget's emphasis on continued fiscal consolidation, while allowing an increase in social and infrastructure spending, is welcome. Particular emphasis is being placed on boosting revenue collections and strengthening public expenditure management.

"Monetary policy should continue to focus on price stability in the context of the existing floating exchange rate system. This will require strengthening of the central bank's capacity to control domestic liquidity and development of a sound and well-regulated financial system. Timely efforts to restructure the banking system and tighten banking supervision will be important. The central bank's determination to move quickly to strengthen its internal operations and to refrain from financing government operations is commendable.

"The deepening of the ongoing structural reforms will further improve the business climate and strengthen the basis for private initiative. The large body of recently enacted legislation will need to be put into effect through the necessary implementing decrees, particularly in the areas of governance, mining, forestry and energy. A key challenge will be to create a culture of accountability and respect for the rule of law. The authorities are encouraged to persevere in their bold steps to improve governance and intensify the fight against corruption, money laundering, and the financing of terrorism," Ms. Krueger stated.