By Daniel Flynn

Dakar - Donors have one last opportunity to save Guinea-Bissau from sliding into chaos by providing funds to pay its employees and combat Latin American drug cartels, the United Nations and International Monetary Fund (IMF) said on Thursday.

Struggling with heavy debt and a collapsing economy, the former Portuguese colony has not paid public workers for four months, undermining its attempts to fight cocaine traffickers increasingly using it as a transit route to Europe.

Unless the international community can find about $20-million (about R143-million) to shore up a budgetary shortfall this year, new Prime Minister Martinho Ndafa Kabi's reform programme threatens to unravel, leaving the country insolvent and mired in administrative chaos.

"This is the last chance for Guinea-Bissau. If stability in the country is not restored, there may be no more hope," Shola Omoregie, head of the UN mission in the west African country said at a meeting in the Senegalese capital Dakar.

"If the international community does not come to Guinea-Bissau's aid, that would be creating an environment where drug traffickers can thrive," Omoregie said. "The government cannot compete with them if you do not support it."

President Joao Bernardo "Nino" Vieira named Kabi in April to head a consensus government tasked with reform, ending a month-long political crisis triggered when parties ousted former prime minister Aristides Gomes.

Vieira, who ruled for nearly 20 years after toppling independence president Luis Cabral in 1980, was unseated in a 1998-1999 civil war but returned to power in a controversial 2005 election. He has an uneasy relationship with political parties.

Two-thirds of Guinea-Bissau's 1.4 million population lives on less than a dollar a day, and most rely on fishing or farming to survive. The main export crop of cashew nuts has proven volatile and drugs provide a lucrative alternative.

"We have to fight against this phenomenon of drug trafficking because it neutralises our attempts to reform the budget and government institutions," said Finance Minister Issufo Sanha, adding that foreign aid was needed to train military and civil personnel and to build prison facilities.

An International Monetary Fund mission, which has spent two weeks in Bissau reviewing the government's reforms, plans to recommend to the multilateral lender's board in July the adoption of a $3-million (about R21-million) post-conflict support programme. The sum, although small, would be a first step to a possible debt relief deal in three years.

However, the IMF can only approve the programme if foreign donors first provide the missing budgetary funds. Many donors say Bissau should first have the post-conflict programme before they commit to any funding.

"This is a Catch 22 situation," Catherine McAuliffe, head of the IMF mission to Guinea-Bissau, told donors.

"We need to break the vicious cycle of instability and deteriorating public finance in which Guinea-Bissau finds itself," she said. "Wage arrears not only demoralise public sector workers but are slowing the economy and have the potential to ignite civil unrest."

A donor meeting in Geneva in November fell well short of the government's target for aid.