Interviews suggested that this practice extends far beyond nonpayment of interest and principal on loans from private banks. In addition, the government no longer pays many of its bills owed to its private suppliers and contractors, fails to refund excess taxes paid by private firms, and fails to pay premiums due to exporters (a centerpiece of CMte d'Ivoire's effort to compensate for the overvaluation of its currency). Adding insult to injury, in spite of the fact that the government is failing to pay the export premia, exporters are expected to treat (for tax purposes) putative premia receipts as income, and may end up paying taxes on income from the Government which has not materialized.

Almost every firm supplying the government, exporting or paying taxes with a refundable component (such as the FNI investment and FNR training taxes) is owed money by the government. For private firms, government payment arrears create pressure on their cashflow, diminish potential investment funds, and reduce the profitability of staying in business. Given the near exhaustion of financing from banks, few businesses manage to find external resources for investment or even working capital. Before the worsening of the financial crisis in 1988, the government was said to commonly take a year to pay its bills. Now, it has become common for the government agencies and public enterprises to simply ignore their debts and arrears.

A small, informal surve?y of SMEs supplying the government found all of them suffering from the government's financial practices, some waiting three or more years for payment of substantial contracts. For those firms with private sector options, this has meant a substantial reduction in the percentage of business transacted with the government. For those without this altemative, it has meant missed payments or default on loans, missed payrolls, layoffs and financial losses.

Why have private companies allowed the government to build up such huge arrears? First, the government in the past has been a dominant force in the economy. It is by far the largest consumer in numerous markets, hence an unavoidable customer. Second, the government may previously have been a very good customer -- for while it was slow to pay, it paid full price where other customers often insisted on discounts. Particularly in a recessionary period, a government contract with the possibility of payment may appear better than nothing. Third, some suppliers have no choice: in some cases, services are (more or less subtly) commanded, not demanded.

Fnally, a recent record of poor economic stewardship and uncertainty about Cote d'Ivoire's political future clearly is deterring private investment. In particular, the continued growth of public expenditure (and its increasing consumption content) in the face of declining economic performance and government revenues has shaken the confidence of investors and lenders, both domestic and international. The failure of the government to pay its debts (combined with unpredictable attempts at incremental taxation) has reduced the security of property rights, hence the incentive for private I Six suppliers of items ranging from construction services to uniforms were surveyed by SOCOGEC, as a follow-up to the CECPS mission, during the second half of 1990.

23