* Payments suspended in June over bank bailouts
* Govt has agreed to reverse deals with banks
* Country hit hard by freezing of donor support
By Joe Bavier
ABIDJAN, Sept 12 The International Monetary Fund
could lift a suspension on payments aimed at helping
Guinea-Bissau emerge from years of political turmoil following
an evaluation mission this week, the institution's country
representative said on Monday.
The IMF agreed a programme with Guinea-Bissau last year
after 2014 elections drew a line under a coup two years earlier
- one of a succession that have spawned chronic instability and
helped make the West African country a haven for South American
Disbursements were suspended in June, however, after the
government took on 34 billion CFA francs ($58.3 million) in bad
loans from two private banks. Donors followed suit and suspended
budget support for 2016 equal to around 2.1 percent of GDP.
IMF representative Oscar Melhado told Reuters by email that
the Fund welcomed a government decision to cancel the bailouts,
whose value amounted to around 5.5 percent of GDP.
"The only remaining obstacle is the refusal of the banks to
accept the bad portfolio back into their books," he said.
The IMF had argued the bailouts benefited the wealthiest
citizens and foreign investors. Authorities had said they were
needed to shield the private sector from bankruptcy.
Monday was a public holiday and the banks, Banco da Africa
Ocidental and Banco da União, were not available for comment.
Melhado said the government should also commit to
implementing prudent macroeconomic policies and key structural
reforms during the visit due to begin on Tuesday, which
constitutes the first and second reviews of the IMF programme.
Disbursements worth 4.1 billion CFA could still be made this
year if the reviews are approved by the IMF's board in December.
Total donor contributions, including direct budget support
and financing for targeted sectors and projects, typically make
up around 80 percent of Guinea-Bissau's budget. After the IMF
freeze, Finance Minister Henrique Horta described the economic
situation, including a budget deficit amounting to about 3.5
percent of GDP, as "catastrophic".
The government of Guinea, which is helping to mediate in its
smaller Portuguese-speaking neighbour, said earlier this month
that Guinea-Bissau would not be able to pay the salaries of
civil servants and the security forces from October.
"We hope that donors will resume support following the IMF.
It would depend on each donor's policy," Melhado said.
The IMF visit comes days after an agreement to form a new
government, ending a year-long political crisis that has
paralysed state institutions.
($1 = 582.9600 CFA francs)
(Reporting by Joe Bavier; Editing by Mark Trevelyan)