The financial war in Ivory Coast: Five key questions answered

The real battle for the world's No. 1 cocoa producer isn't happening on the streets of the commercial capital, Abidjan. It's unfolding in bank corridors.

Times are looking tough for Ivory Coast.

While Senegalese President Abdoulaye Wade lobbies for a West African-led military invasion in Ivory Coast, the Ivorian military is threatening to mount a devastating defense on behalf of incumbent President Laurent Gbagbo, who just about every major world leader considers the clear loser of the Nov. 28 election.

But the real battle for the world's No. 1 cocoa producer isn't happening on the streets of the commercial capital, Abidjan. It's unfolding in the bank corridors where cocoa revenues are wired, where tax reserves are cashed, where government debt is issued, and where government debtors come to collect their "coupon."

Understanding Ivory Coast's financial war is key to fathoming the calm exuded by supporters of President-elect Alassane Ouattara, who have been playing cards at the Golf Hotel where their candidate, an economist and former deputy managing director of the International Monetary Fund, has been living off helicoptered-in food for weeks.

Some rosy day, Ivory Coast may have a president – or its version of a 38th parallel – but until that dawn, here are the five questions that should determine the outcome of what must be the most convoluted conflict of the year.

1.) Who controls the Central Bank?

Unlike Kenya or Zimbabwe, Ivory Coast's power struggle is taking place in an economy that was never set up for full-fledged independence from its colonial power, in this case, France. The country's currency – the West African CFA Franc, a banknote used in eight West African countries – serves as a nummary expression of how geopolitically pegged the country is to France and the other West African nations she colonized.

What that means for the two men who would be president is that the currency they use to pay their shadow governments isn't born in Ivory Coast. It's born in Dakar, Senegal, where, on Christmas Eve, the Central Bank told journalists that it will no longer recognize Mr. Gbagbo as president.

It could take an epoch before that principle becomes a bureaucratic reality. Last Friday, the Burkina Faso-based monetary union that sets policy for the bank brought bank officials to an orientation session in Mali with a "get a move on it" message.

But for Gbagbo, the bank's decision means he is essentially cut off from the financial apparatus of his own country. If he wants to take out a government bond – essentially a giant IOU to investors looking for a risky buy – he'd need the central bank to advertise, auction, manage, and sell it. If he wants to make a withdrawal from Ivory Coast's tax reserves, he'd have to practice forging Mr. Outtara's signature.

2.) Who's responsible for the government's debt?

But there's a catch: Ivory Coast doesn't just need money. It owes money.

In fact, the country owed a $29 million interest payment on a $2.3 billion bond that was due Dec. 31 – and it still hasn't paid.

"The bill should be paid only when the international community recognizes Laurent Gbagbo," the incumbent's spokesman Ahoua Don Mello told Bloomberg News last week. "I think it would be curious to ask our government to pay while the international community doesn’t recognize it."

On Tuesday, however, Gbagbo's Finance Ministry reversed that tone, and said they'd make the payment before a 30-day grace period triggered a default that would essentially excommunicate Ivory Coast from the global finance community.

But Gbagbo's government, as bond analyst Samir Gadio wrote in an e-mail, "would probably be unable to do so even if the political will existed and the treasury authorized the transaction. Indeed, the payment would have to be channeled via the Central Bank of West African States which now recognizes Outtarra as president."

3.) How long can Gbagbo pay his government?

"Although Gbagbo appears to be backed by the Army at this stage, this will be conditional on his ability to pay the security forces in the coming months," Mr. Gadio added.

He leaves out the part where soldiers pay themselves, or rather, coerce innocent people crossing borders and roadblocks to dash a little something from the bottom of their hearts/wallets. Among West African soldiers, Ivory Coast's fighting force has a reputation for masterful extortion, but it may not be enough to keep an entire government grinding on in the face of international isolation.

Salaries alone cost Gbagbo's administration $170 million a month, according to British newspaper The Guardian. Expect the military to enjoy first dibs on whatever wage money the government scrounges up. And since the election, it's been able to scrounge up enough to pay some of its servants some of their money, even if it's a few days late.

4.) How much control does Gbagbo have over cocoa and oil?

If Gbagbo has been able to keep his troops fed and his functionaries paid, it's in no small part because the lush, tropical stretch of Ivory Coast he controls happens to be the cocoa basket of the planet. The most fertile cocoa hills of Ivory Coast stretch right through sections controlled by Gbagbo's supporters.

But that industry has been nearly milked dry: Up to 40 percent of the export price of Ivorian cocoa consists of the government's take, both formally and informally. In coming chaotic months, as soldiers, ruffians, and bureaucrats skim more and more revenue off cocoa farmers, truckers, and traders, expect to see more cocoa smuggled across the Ghanaian border, where farmers earn nearly twice the $2 a kilogram they fetch in Ivory Coast.

But Gbagbo's government need not live on chocolate alone: The IMF suspects that state revenue from Ivory Coast's oil reserves may actually exceed the $1 billion a year it fetches from the cocoa harvest. How he'll manage, keep, invest, and pay out that revenue could help determine how long he can hold on to the Ivorian throne.

5.) Is the Idea of a new Ivorian currency for real?

In the last-minute drive to keep their government fed, Gbagbo's closest advisers are rushing to build the apparatus of a self-sufficient state – something intrinsically different from the Ivory Coast envisioned by Francophiles that founded it.

The notion of tossing up a strident, self-isolated Ivory Coast that more closely resembles Zimbabwe (where Gbagbo has sought advice) than, say, Senegal, may seem like a wide-eyed, midnight hour-idea meant to stave off an impending regime collapse. But it's closer to the entire raison d'être of Gbagbo's movement.

"They have an obsession with autarky," meaning economic self-dependence, International Crisis Group analyst Rinaldo Depagne told The New York Times. And it's an obsession that's had a long time coming.

Much is mind-boggling about the Ivorian conflict, but this much is clear: The country was founded with limited economic independence from France, from which it benefited from 40 years of stability, impressive growth, and French aid, while neighboring Ghana, now a rising world market, suffered the madness of military coups and banknotes that dove in value like pogs.

Today, not Ivory Coast, but rather Ghana leads West Africa, and the French ties seem more a disadvantage than a safety precaution. Growth in the eight countries that use the West African CFA franc, which is tied to the euro, has lagged behind the sub-Saharan African average.

The Gbagbo era has marked a perhaps inevitable backlash to Ivory Coast's French-friendly policy, and the latest expression of that resentment is the Gbagbo's Currency of the Ivoirian Resistance. It's the bills that Gbagbo's team has proposed printing as a way to pay civil servants and soldiers. As a currency, analysts say the MIR would almost surely be a disaster. But the irony is that, whenever the ruckus dies down, it might not be such a terrible idea.

"A large chunk of Africa is tied to the least adaptive zone in the world," African Development Bank Chief Economist Mthuli Ncube told Bloomberg News in June. "Surely, that's a disadvantage."

If there's hope for whatever comes out of this political crisis, it's that the conflict – messy and destructive as it has been – may offer this nation a fresh chance to reclaim its place as an economic leader in West Africa.

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