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Chinese Mineral Deal Blocking Congo's IMF Debt Relief

Congo's $9,000,000,000 mineral deal with China is holding up agreement with the International Monetary Fund on reducing its external debt.

President Joseph Kabila's government wants the IMF to forgive much of its external debt.

But the IMF says Congo's massive mineral deal with China could make that debt worse. So it is waiting for the results of a feasibility study next month before deciding on Congo debt relief.

China's biggest investment deal in Africa would give state-owned firms the right to develop Congolese copper and cobalt mines in exchange for building roads, railways, hydro-electrical dams, universities, airports, hospitals, and vocational training centers. Chinese firms would own 68 percent of the joint venture overseeing the project. Congo would own 32 percent.

Oil and mineral exports account for as much as 60 percent of state revenues in Congo. So IMF Director General Dominique Strauss Kahn says developing the mineral sector is indispensable to the country's economic growth. Ending three days of meetings in Kinshasa, Strauss Kahn says the contradiction here is that debt relief is equally indispensable.

Strauss Kahn says if Kinshasa goes through with the Chinese mineral deal it will result in an explosive increase in Congo's debt and reduce the country's chance of gaining IMF debt relief. So the question is: Will Congo renounce the IMF program for the Chinese mineral deal or will it renounce the mineral deal for debt relief?

Strauss Kahn says choosing between debt relief and the mineral deal is unacceptable. Congo needs both. So he says the IMF is trying to find a solution by working with President Kabila to propose to his Chinese partners a way of preventing the collateral necessary for this loan from increasing Congo's debt. Strauss Kahn says such a solution would allow Congo to join the IMF debt relief program.

Congolese Prime Minister Adolphe Muzito says those discussions have already begun.

Muzito says Congo is talking with its Chinese partners about adjusting their contract to make it more compatible with debt relief. With the help of the IMF, the prime minister says Congo is also discussing debt relief with traditional bilateral partners.

Muzito says these traditional partners should be reassured that both debt relief and the mineral deal can be made compatible, even though the Chinese loan is on commercial terms.

That is one of the biggest concerns about the deal. Western donors say Chinese financing on commercial terms could mean substantially more debt for Congo at a time when the global economic crisis depressing commodities prices means revenue from mining may not cover as big a share of infrastructure costs as originally planned.

The IMF says a larger-than-expected slowdown in mining and construction means economic growth in Congo this year will slow to just over two percent. With international reserves at a five-year low and inflation projected to be 25 percent, Congo's financing gap is expected to widen significantly.

President Kabila's government says the Chinese mineral deal will not significantly effect debt levels and brings much-needed infrastructure to a country still recovering from years of civil war and the kleptocratic rule of Mobutu Sese Seko.

If completed as planned, the Chinese deal would triple the nation's existing paved road network and rebuild nearly 3,000 kilometers of rail lines, most of which have seen little maintenance since Belgian colonialism.