Cablegate: Central Bank Governor Confirms Interim Agreement On Foreign

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OO RUEHGI RUEHMA RUEHROV
DE RUEHKH #1578/01 2981153
ZNR UUUUU ZZH
O 241153Z OCT 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2166
INFO RUCNFUR/DARFUR COLLECTIVE
RHMFISS/CJTF HOA

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E.O. 12958: N/A
TAGS: ECON EFIN EAID PGOV PREL SU
SUBJECT: CENTRAL BANK GOVERNOR CONFIRMS INTERIM AGREEMENT ON FOREIGN
EXCHANGE DISPUTE, BUT SAYS PROBLEM "NOT RESOLVED" YET

REF: KHARTOUM 1566

1. (SBU) SUMMARY: Central Bank of Sudan Governor Sabir Hassan
confirmed that there is an interim agreement with the GoSS on the
transfer of foreign exchange (FX) held by Bank of Southern Sudan
(BOSS), but that the issue "is not resolved." The BoSS is to resume
its pre-April transfers of excess FX to the Central Bank, but
Governor Hassan evaded questions about what will happen to the $500
million in FX that reportedly already has accumulated in the BoSS.
By the end of the year, the two sides are to have formed a
joint-committee and hired teams of experts to finally resolve the
problem, as well as other disputes. END SUMMARY.

2. (SBU) On October 22, Central Bank of Sudan (CBOS) Governor Dr.
Sabir Mohammed Hassan provided his perspective on the dispute with
the Government of South Sudan over foreign exchange reserves to
Assessment and Evaluation Committee (AEC) Chairman Derek Plumbly and
Working Group Coordinators, including CDA Fernandez. Hassan
confirmed that Government of National Unity (GNU) Finance Minister
Al Jaz and GoSS Finance Minister Mawein had reached a provisional
agreement on October 20 to return to the pre-April 2008 FX
operations, under which the BoSS transfers its excess FX into
Central Reserve Account at the CBOS (reftel). Hassan complained
that at the October 20 meeting, the GoSS also had raised "new
issues" involving CBOS restructuring and management changes,
separate from the question of foreign exchange. (Note: These "new
issues" refer to Minister Mawein's reftel complaint that Hassan is
both CBOS Governor and head of its Management Committee, and his
call for further CBOS reorganization to clarify the separation
between the Islamic banking system in the north and the conventional
system in the south. End note.)

3. (SBU) Hassan explained that under the Comprehensive Peace
Agreement (CPA), on instructions of the GNU Finance Ministry in
Khartoum, each month CBOS transfers into the GoSS' account at the
BoSS one half of the revenues derived from oil produced in the
south. These revenues are denominated in foreign currency, since
they derive primarily from foreign oil sales. Until April, the
BoSS would maintain a working reserve (about US$300 million) of FX,
and exchange the rest for local currency from the CBOS. The BoSS
then stopped these exchanges on the order of the GoSS Finance
Ministry and held on to all of the FX.

4. (SBU) Hassan said the CPA clearly states (Article 14.2) that the
Bank of Southern Sudan is a branch of the CBOS. As such, the BoSS
reports to and takes direction solely from the CBOS Board of
Governors (on which the BoSS Governor sits as a Deputy Governor).
The GoSS has no authority to issue instructions to the BoSS, as it
had done in ordering the BoSS to stop transferring foreign exchange
to the CBOS' reserve account. Hassan called this a clear "violation
of the CPA."

5. (SBU) According to Hasan, the Central Reserve Management Unit of
the CBOS manages FX reserve policy for all of Sudan, including the
South. Because the Sudanese Pound is not convertible, the CBOS must
maintain a significant stock of FX in its Central Reserve Account.
While the GoSS receives half of the state revenues produced in its
territory, foreign exchange such as that held by the BoSS does not
belong to the GoSS. The GoSS "wants to have its cake and eat it
too" Hassan said.

6. (SBU) Pressed by CDA Fernandez on whether the October 20
agreement includes the transfer of the US$500 million that is
reported to have accumulated in the BoSS in the interim, Hassan was
evasive. Hassan left the impression that, while the BoSS will now
start transferring FX back to the CBOS as it had been doing until
April, the CBOS and the GoSS have agreed to disagree for now about
the disposition $500 million.

7. (SBU) When asked, Hassan said emphatically that the dispute is
"not resolved." He said the GNU and the GoSS now will form a
joint-committee, including participants from the Naivasha talks that
led to the CPA, to finally resolve the question. Each side will
hire outside experts to advise them. In addition, the committee
will examine the "new issues" of CBOS restructuring and management
raised by the GoSS on October 20. AEC Chairman Plumbly expressed
the hope that the interim agreement will hold and said that the AEC
will continue to follow the issue closely.

8. (SBU) COMMENT: The GoSS appears to have taken a page from the
NCP's book and employed a reading of the often-less-then-clear CPA
most favorable to its own interests. The CBOS and GoSS had worked
out an earlier agreement that promptly collapsed. We can expect
this dispute to continue to drag on while the two sides argue over

KHARTOUM 00001578 002 OF 002

their differing interpretations; meanwhile, it appears that the
current agreement has appeased the CBOS temporarily. Some of the
heat of the argument seems to be Dr. Hassan's view that he has
personally been undercut by the GOSS exercising untoward
interference of the BOSS.

FERNANDEZ

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