KENYA: INTERNATIONAL MONETARY FUND CANCEL LOAN

(2 Aug 1997) English/Nat

Kenya will cut spending and take other measures to cover a 141 (m) million US dollar shortfall caused by the International Monetary Fund's suspension of a multimillion dollar loan, the government has said.

The IMF wants Kenya to do more to combat corruption and strengthen management of its energy sector before releasing additional instalments of a 220 (m) million US dollar low-interest loan to the east African government.

Kenya is planning budget cuts to make up for a 141 (m) million US dollars shortfall following the IMF's suspension on Thursday of a multimillion dollar loan.

Kenya could find itself in an even tighter situation if Western governments that provide aid follow the IMF's cue.

The IMF said the country's energy sector is mismanaged and demanded government action to prevent more financial scandals like those of the early 1990s.

Then, (m) millions of dollars were allegedly embezzled using fictitious diamond and gold
exports.

Charges against top government officials were dismissed.

Finance Minister Musalia Mudavadi, speaking on Friday, did not address the reasons the IMF gave for its action.

And he said the government was moving swiftly to maintain economic stability.

The government's taking it very seriously, he insisted.

SOUNDBITE: (English)
"It could have serious repercussions, it could dent investor confidence, it could have repercussions for the shilling. It could effect inflation. It's really something that can shake the confidence of an economy."
SUPER CAPTION: Musalia Mudavadi, Kenyan Finance Minister

Opposition leaders welcomed the IMF's decision.

SOUNDBITE: (English)
"So we are happy that finally this is happening. We have said that Moi does not know any other language. He does not understand any other language. And therefore we are very, very happy with this stand."
SUPER CAPTION: Raila Odinga, leader of the National Development Party

While cutting off financial assistance will hurt ordinary Kenyans, that was a price worth paying, they say.

SOUNDBITE: (English)
"It is of a concern to all of us that it is going to hurt. This is what has been said in the past with respect to similar situations, like South Africa. It was argued for a long time that sanctions were hurting the poorer people more than the culprits. But there is a price that has to be paid for any freedom. So I think that Kenyans are willing to pay for greater freedom in this country."
SUPER CAPTION: Raila Odinga, leader of the National Development Party

Fares Kwindua, permanent secretary in President Daniel arap Moi's office and secretary to the Cabinet, Thursday complained that the IMF was making more political than economic demands and could have used more diplomatic language.

SOUNDBITE: (English)
"As you go towards fulfilling what you have agreed with these institutions, and you go to negotiate, we found ourselves being told, `Yes you have done this but what about this now?' This is something new that neither the government nor the World Bank, IMF, anticipated it would happen. So you have to deal with that. So a postponement, a
postponement, a postponement after the other. To be honest with you I didn't expect another outcome of these talks myself. I didn't expect a different outcome."
SUPER CAPTION: Fares Kwindua, permanent secretary in President Daniel arap Moi's office

Although the US and other donor governments have been pressing Moi to make elections expected in the autumn more democratic, the IMF says the decision was not politically-motivated.

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