Wednesday, August 19, 2009

China, Congo agreement severed to obtain debt relief

In order to get a chance to have 11 billion dollars of debt forgiven, the Democratic Republic of Congo had to sacrifice 3 billion dollars in infrastructure improvement financed by China.

An agreement that would have allowed China to build copper mines in Congo in exchange for 3 billion dollars in infrastructure had to be altered. The International Monetary Fund wouldn't grant debt forgiveness unless the deal was changed.

For a further explanation of the announcement, we go to this snippet from Financial Times reporter Barney Jopson.

Under the original deal, a consortium of state-owned Chinese companies agreed to build roads, railways, hospitals and universities in return for the right to develop a copper and cobalt mine.

But pressure to alter it had come from western donors that refused to offer Congo relief on historic debt of $11bn because of concerns over state financial guarantees the deal contained, which could threaten Congo’s ability to manage its debt.

“During our visit, the authorities … told us that the partners have accepted the amendments in the project of the Sino-Congolese agreement, including the removal of the government’s guarantee on the mining project,” Mr Ames said.

Congo is eager to take advantage of a debt relief scheme for poor countries and to access new forms of western development aid, but it cannot do so until the IMF approves a new programme for the country, which it had not been ready to do.

The $9bn financing was split into three tranches of $3bn: one for setting up the mining operation and two for nationwide infrastructure investments, including more than 3,500km of roads and nearly 3,000km of railways.

But Jean-Claude Masangu, governor of Congo’s central bank, told the same press conference that the second $3bn infrastructure part of the project, which had also raised IMF concerns, had been suspended.

The IMF and the Paris Club of creditors had led western opposition to the state guarantees in the overall deal, which earmarked government revenues and made China a privileged creditor.

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