UPDATE 1-W.African currency zone worried about Ivorian fall-out

Tue Feb 1, 2011 1:00pm EST

* Ivorian bank wrangle seen as risk for region

* Report says Ivorian debt held widely throughout zone

(Adds final communique)

By Diadie Ba

DAKAR, Feb 1 (Reuters) - A battle for control of Ivory Coast's state funds in the regional central bank risks hurting the finances of the other seven countries in the West African franc zone, officials said at an emergency meeting on Tuesday.

Laurent Gbagbo has refused to step down as the Ivory Coast's president despite losing a Nov. 28 election according to UN-certified results which showed rival Alassane Ouattara to be the victor.

The eight-nation West African Economic and Monetary Union (WAEMU) has shut down Gbagbo's access to Ivorian funds held at the Senegal headquarters of the region's central bank, but Gbagbo hit back last week by requisitioning its local Ivorian offices.

"These acts are without precedent in the Union," Jose Mario Vaz, finance minister of Guinea Bissau and current president of the single currency zone's council said ahead of the meeting in Dakar.

"The stability of the banking system and limiting impacts of the crisis on the Union's economies are a major preoccupation and must be addressed in our deliberations," he said of the Union, also known by its French acronym UEMOA.

The ministers "strongly condemned" the seizure of Ivory Coast's local central bank offices and assets by Gbagbo's camp and expressed support for measures taken by the bank's leadership to block Gbagbo's access to funds, according to a communique issued after the meeting.

The eight countries of the West African franc zone are: Ivory Coast, Benin, Burkina Faso, Guinea-Bissau, Mali, Niger, Senegal and Togo.

The West African franc (CFA) is currently pegged at around 656 to the euro and while few believe the Ivorian crisis could force a devaluation of the franc, concerns are growing that it could hit the rest of the zone in other ways.

Investors said on Tuesday that Ivory Coast had defaulted on the $29 million coupon payment of its 2032 $2.3 billion bond due by Jan. 31, raising question marks over whether it will follow by defaulting on CFA-denominated debt. [ID:nLDE7100VE]

Citing a leaked WAEMU document, French magazine Jeune Afrique this week said around two-thirds of treasury bills held by banks in the single currency zone were Ivorian, amounting to 604.3 billion CFA francs ($1.26 billion).

It said banks in Senegal, Burkina Faso and Benin were most exposed to a possible Ivorian default, and quoted the same document as querying whether Ivory Coast would pay its share of the running costs of WAEMU institutions. (Additional reporting and writing by Mark John; editing by Patrick Graham and Susan Fenton)