VZCZCXRO1219
OO RUEHGI RUEHMA RUEHROV
DE RUEHKH #1566 2960917
ZNR UUUUU ZZH
O 220917Z OCT 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2146
INFO RUCNFUR/DARFUR COLLECTIVE
RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA
UNCLAS KHARTOUM 001566
DEPT FOR A/S FRAZER, SE WILLIAMSON, AF/SPG, AND EEB/IFD
NSC FOR PITTMAN AND HUDSON
ADDIS ABABA FOR USAU
DEPT PLS PASS USAID FOR AFR/SUDAN
DEPT PLS PASS TREASURY FOR OIA, USED IMF AND USED WORLD BANK
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EAGR EAID PGOV PREL PINR IBRD SU
SUBJECT: GOSS FINANCE MINISTER MAWIEN DECLARES INTERIM TRUCE OVER
FOREIGN EXCHANGE RESERVE DISPUTE
REF: KHARTOUM 1436
1. (SBU) SUMMARY: On October 21, GOSS Minister of Finance Kuol
Athian Mawien told CDA Fernandez that he has reached a interim
solution to the dispute over management of foreign exchange reserves
with GNU Minister of Finance and National Economy Dr. Awad Ahmed
Aljaz. Both sides have agreed to revert to "pre-crisis" behavior and
refrain from further antagonism until the end of the year, when
hired international experts brought in by each will convene to
examine the issue and offer recommendations, he said. Mawien
reiterated the GOSS position that all foreign exchange generated in
South Sudan should be held and managed by the Bank of Southern Sudan
(BOSS), adding that the South has now accumulated over USD 500
million in reserves and has no intention of transferring these to
Khartoum. END SUMMARY.
2. (SBU) Mawien stated that in his visit to Khartoum this week he
had quarreled intensely with CBOS Governor Dr. Sabir Mohamed Hassan
over control and management of national foreign exchange reserves
(reftel), but subsequently had reached an interim truce with GNU
Minister of Finance and National Economy Dr. Awad Ahmed Aljaz to
create some breathing room by reverting to "pre-crisis" behavior and
essentially putting off the dispute until the end of the year. At
that time he said, Khartoum and Juba will each select a team of
international experts to convene and offer recommendations. He noted
that the GOSS had recently engaged the Addis Ababa-based Horn
Economic and Social Policy Institute to conduct a preliminary
assessment, which indicated the feasibility of the BOSS taking a
lead role in reserves management for the conventional window in
accordance with the Wealth Sharing Agreement under the CPA. (Note:
Separately, the Assessment and Evaluation Commission (AEC) for the
CPA told us that they plan to draft a legal opinion on the foreign
exchange issue, to share with the parties and commissioners
informally in an effort to resolve the issue. End note.)
3. (SBU) Mawien said that the South has now accumulated over USD 500
million in reserves and has no intention of transferring these to
Khartoum, arguing that these reserves are an integral part of a
process of wealth creation and management for the benefits of the
economy of Southern Sudan. The BOSS must keep and manage foreign
exchange reserves that it accrues in order to promote the
development of the South Sudan economy and banking system, he said,
and the GOSS believes it is empowered to do so under Article 14.3 of
the Wealth Sharing Agreement of the CPA.
4. (SBU) Mawien also called for the completion of restructuring of
the CBOS in accordance with Article 14.3 of the Wealth Sharing
Agreement, arguing only a partial restructuring was done by
establishing the BOSS. CBOS had just converted itself into both the
head office and the Islamic window, he said, and further
reorganization of the CBOS is needed to draw a clear line of
demarcation between the two. He also criticized the fact that Dr.
Sabir serves simultaneously as CBOS Governor and head of the
Management Committee. "[Sabir] is accountable only to himself" in
managing the Bank, Mawein said.
5. (SBU) Comment: A problem delayed is a problem half solved in
Sudan, and while the decision to pursue a future negotiated
settlement with the involvement of international experts is
laudable, the current dispute leaves little room for compromise. As
noted in reftel, foreign currency reserves would be integral to GOSS
financial independence in a post-2011 environment, making it
unlikely to budge on this issue. However, the CPA specifically
states (Article 14.2) that the BOSS is a branch of the CBOS, which
will implement "the same national monetary policy in Southern
Sudan," (Article 14.3) suggesting that control of foreign currency
reserves is a CBOS (Khartoum) prerogative - making this an issue
that is unlikely to go away anytime soon, and adding to the list of
items that could provoke a constant, simmering crisis between the
two CPA partners. For now the NCP is more focused on ICC issues,
however, and needs the SPLM's support, but could well be tempted at
some future date to cut off the proceeds of oil sales to South Sudan
until these funds are "repaid". Such a fateful step, would take the
crisis from simmer to boil.
FERNANDEZ