ZAIRE AND IMF IN ECONOMIC RESCUE TALKS
Talks are underway between financially
troubled Zaire and the International Monetary Fund (IMF) aimed
at rescuing the economy of the second largest nation in
sub-Saharan Africa.
    Diplomatic and banking sources in Kinshasa agreed that a
compromise formula could be reached in the coming weeks
enabling pro-Western Zaire to obtain a much needed injection of
cash.
    For its part the government is expected to increase
budgetary discipline, which in turn is likely to attract
foreign investors, the sources said.
    "Barring last-ditch obstacles, which can't be totally ruled
out in an issue involving a nation's pride and substantial
political and economic interests, Zaire and its creditors are
bound to come to terms soon," a Western diplomat told Reuters.
    "The Zairean economy won't survive without massive IMF
assistance. Similarily, the West has no interest to see Zaire's
strategic minerals fall into communist hands," the diplomat
said.
    Zaire defied its creditors late last year by saying it
would limit repayments on its five billion dlr external debt to
10 pct of its export earnings from January 1987.
    The government also announced an end to the floating
exchange rate for the zaire currency and a return to a fixed
parity against special drawing rights (SDRs) with periodic
adjustments.
    Until last year, Zaire devoted up to 28 pct of its export
revenue to servicing large foreign debts contracted during the
copper boom of the 1970's to finance largely non-productive and
often extravagant investment projects.
    Zaire, the world's leading cobalt producer and the sixth
largest supplier of copper, depends on the two minerals for
two-thirds of its export earnings.
    "A young country cannot go on indefinitely sacrificing
everything for the sake of servicing its external debt,"
President Mobutu Sese Seko commented in October when he
announced his government's decision.
    As early as January 1986, Mobutu had warned that "one does
not feed on austerity and praise. I have another debt, one
toward my people and my people's efforts must not backfire," he
told diplomats.
    Zaire pointed out that during four years of IMF-backed
austerity (1983-86), it had become a net exporter of capital
without receiving appropriate financing from abroad.
    Economists said that since the large devaluation of the
zaire currency in September 1983, the country suffered a net
outflow of 830 mln dlrs each year.
    Zaire's medium and long term public debt in the past few
years reached an equivalent of about 100 pct of its Gross
National Product (GNP), one of the highest such ratios in the
world, banking sources said.
    Mobutu accused the IMF of "strangling" his country at an
October meeting of the ruling MPR party and said his people
could not long endure the hardship caused by austerity.
    Zairean officials blame their present difficulties on the
IMF recovery plan's two basic assumptions which, they said,
failed to materialise last year,
    - a world economic recovery pushing up commodity prices and
boosting Zaire's export revenue and debt servicing capacity,
    - substantial, additional financial help from the country's
traditional donors.
    In 1983 Zaire set out on a major economic reform aimed at
curbing its soaring debt. It floated its currency, slashed
spending and privatised industry, gaining praise from Western
creditors and obtaining debt rescheduling.
    As a result, the overall economic and financial situation
improved markedly, with inflation down to 41 pct last year from
100 pct in 1983.
    But it also led to a severe and steady fall in living
standards for Zaire's 35 mln population, fuelling widespread
discontent among poorer city dwellers, diplomats said.
    Economists estimate the drop in purchasing power at between
20 and 35 pct for an average household over the last 12 months,
despite a pay rise of up to 67 pct for civil servants announced
last May.
    The World Bank has released in the last two months half of
a previously-agreed 80 mln dlrs industrial sector loan and lent
27.6 mln dlrs to modernise the country's vital river transport
system.
    Belgium, Zaire's former colonial ruler and its main trading
partner, recently agreed to release a total of 17 mln dlrs to
ease payments difficulties and finance imports of spare parts
for industry.
    A new agreement between the IMF and Zaire would pave the
way for another debt rescheduling, probably at the next meeting
of the Paris Club of Western creditor nations, diplomats said.
 REUTER
