Cablegate: Senegal's Latest Treasury Bonds; a Creative Approach

VZCZCXRO7543
PP RUEHMA RUEHPA
DE RUEHDK #1431/01 3511452
ZNR UUUUU ZZH
P 161452Z DEC 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1573
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0076
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 001431

SENSITIVE

SIPDIS

DEPARTMENT FOR EEB/EPPD, AF/W AND AF/EPS
TREASURY FOR RHALL, DPETERS, GCHRISTOPOLUS
ABU DHABI FOR OTA/GRIFFERTY

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD SG
SUBJECT: SENEGAL'S LATEST TREASURY BONDS; A CREATIVE APPROACH

REF: A) Dakar 1298, B) Dakar 0813

DAKAR 00001431 001.2 OF 002

1. (SBU) SUMMARY: In early December, Senegal launched a USD 40
million treasury bond offering as one part of the government's plan
to pay off the debt it owes to private sector contractors. In
marketing the bonds, the regional central bank and the Ministry of
Finance reportedly promised subscribing banks that their client
companies to whom the government owes money will be paid on a
priority basis, allowing those companies to pay back debts owed to
the banks. Hopefully, this arrangement will not only contribute to
diminishing the GOS's budget deficit, but will also add some
much-needed liquidity to Senegal's banking sector. END SUMMARY.

2. (U) In an effort to honor its commitment to pay its internal
debt by January 2009 (Ref A), on December 3, Senegal launched a CFA
20 billion (USD 40 million) short-term treasury bond offering
through the WAEMU/UEMOA regional central bank (BCEAO). The bonds'
face value is USD 2,000. They are to be sold under the "Dutch
Auction" system to determine the payable interest, which is expected
to average six percent, payable in advance, and exempted from taxes.

3. (U) The main target for the bonds are local commercial banks.
Insurance companies and other financial institutions that maintain
current accounts at the BCEAO, as well as intermediate banks located
within the WAEMU region can also purchase the bonds.

CREATIVE MARKETING
------------------
4. (SBU) There was wide-spread initial skepticism that this

DAKAR 00001431 002.2 OF 002

issuance would succeed, particularly given the current lack of local
liquidity and after Senegal's previous treasury bond issuance in
June was under-subscribed (Ref B). However, our contacts believe
this latest offer, which is significantly smaller, will be fully
subscribed or better due mostly to creative marketing by Senegal's
Ministry of Finance and the BCEAO. According to banking sources,
the BCEAO polled local banks on the credit they have outstanding
(and likely overdue) from private clients who are suffering from the
large stock of official arrears. These banks were pushed to
purchase bonds equal to the amount these companies owe, with the
promise that the Treasury will pay those companies first from the
bond proceeds, allowing the companies in return to repay their
outstanding debts to the local banks. In theory, this approach
should create some much needed liquidity in the commercial banking
sector in the coming months.

5. (U) Though the bond issuance reflects only a small portion of
the government's current arrears to the private sector, which is
estimated to be USD 350 million at a minimum, it is part of the
MinFin's action plan to close the current budget deficit as required
under the country's Policy Support Instrument (PSI) agreement with
the IMF. The government is continuing to look for other sources of
financing in order to pay off its arrears to the private sector by
the end of January 2009 as promised by President Wade and Finance
Minister Diop.

6. (SBU) Ministry of Finance contacts confirm that they hope to
gain BCEAO and IMF approval for a similar issuance before the end of
January 2009. The approval for such action will depend in part on
the treasury bonds being planned by other WAEMU member states, and
also the recommendations of the IMF Board's second review of
Senegal's PSI.

BERNICAT

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