DOMINICAN REPUBLIC-PARIS CLUB: AVOIDING BURDEN

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 000990

SIPDIS

SENSITIVE

DEPT FOR WHA/CAR, WHA/EPSC, EB/OMA; TREASURY FOR DO:NLEE,
LLAMONICA, RTOLOUI; PARIS FOR TREASURY ATTACHE

E.O. 12958: DECL: 02/18/2007
TAGS: DR EFIN
SUBJECT: DOMINICAN REPUBLIC-PARIS CLUB: AVOIDING BURDEN
SHARING FOR PRIVATE CREDITORS?


Classified By: Eco-Pol Counselor Michael Meigs. Reason: 1.5 (b) and (d
).


1. (SBU) Summary. On February 17 Dominican Presidency
official Carlos Despradel asked the Charge to seek U.S.
support in an effort to avoid burden sharing for holders of
sovereign debt bonds. Having just received the portfolio for
Paris Club negotiations, he is deeply concerned about the
impact on the country,s credit rating. Despradel is willing
to travel to Washington next week (February 23-27) to discuss
the question. Embassy is sympathetic to his effort to
maintain access to financial markets even for a future
administration but appreciates the significant downside of
backing away from an IMF commitment just days after the
standby was approved. End summary.


2. (SBU) On February 17 Technical Secretary of the Dominican
Presidency Carlos Despradel called at short notice on the
Charge and set forth his analysis for the Paris Club
rescheduling. Despradel said that he had just received the
assignment and upon examination of the dossiers had concluded
that if the country fails to pay coupons due on sovereign
debt, the deterioration in its credit rating will be very
costly when it faces renewal in 2006 of its issue of USD 500
million in sovereign bonds. ("I do not expect to be in the
government at that time, but this is a point of principle for
me, a matter of national interest.")


3. (SBU) Talks with the Paris Club are scheduled for March 5
but he finds this gives insufficient time to prepare. Even
so, after conferring with the IMF, he is aiming to meet the
March 5 date. He asked the Charge to advise U.S. authorities
of this plight and to seek U.S. support for continuing to
make coupon payments on sovereign bonds, despite the
country,s formal commitment to comparable treatment for
other creditors.

Background
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4. (SBU) In its program for the standby agreement renewed,
finally, on February 12, the Dominican Republic aimed at
obtaining USD 300 million in debt relief for calendar year
2004, half of which would come from rescheduling of 150
million in Paris Club bilateral debt (originating pre-1984).
Despradel says that total pre-1984 debt payments due in 2004
are USD 264 million (USD 153m due to the U.S., 54m to Spain,
40m to Japan, 10m to Germany and 6m to France). He stressed
that the Dominican Republic will continue to service all
post-1984 debt to Paris Club members. Despradel regrets that
the agreement is to obtain only one year of debt relief; he
recalled that the 1991 Paris Club rescheduling had been for
three years of payments (1991-1993) due on pre-1984 debt,
rescheduled over 15 years.


5. (SBU) The rest of the USD 150 million is to come from
other creditors, meaning either the holders of sovereign debt
or non-Paris-Club official creditors. The country is
servicing two issues of sovereign bonds: 27m due in January
2004 was paid within the grace period, 25m is due in March,
27m in July and 25m in September, for a total of USD 104
scheduled for payment for the full year. The three coupon
payments remaining in 2004 represent USD 77m. The only
other significant non-Paris-Club creditors are Venezuela
(20m),Brazil (21m) and Mexico (17m). Despradel comments
that each of these official creditors has provided
supplier,s credits under ALADI or the San Jose accord on
petroleum. He believes that it will be very difficult to
obtain any relief from any of the three Latin American
countries.


6. (SBU) Despradel is hoping that with support from the
United States and Spain, the two largest creditors, he will
be able to get Paris Club creditors to reschedule the entire
USD 264m due in 2004 on pre-1984 debt. He thinks that
eventually and with considerable difficulty the Dominicans
might get debt relief of perhaps USD 10m due to Latin
American countries.


7. (C) The Technical Secretary says that he met in private
with President Mejia on the need to comply with IMF
conditions (&Using the military will not work, we must show
them during the March review that we are in strict
compliance8). Despradel says that Mejia subsequently told a
full economic cabinet meeting that the administration had to
adhere to conditions "down to the last cent." The IMF has
prepared a tabular presentation of relevant indicators, to be
renewed weekly.


8. (SBU) Despradel said again -- "and this is very
important" -- that the GODR will continue to pay all of its
post-1984 debt servicing. He reminded Charge that according
to the standby, the government will continue to make peso
payments for rescheduled debt but that these will go into the
Central Bank to reduce its holdings of short-term debt.


9. (SBU) Despradel is willing to travel to Washington next
week (February 23-27) to discuss these matters with Treasury
and with the IMF and he expects to travel to Madrid for the
same purpose. A five-person technical team arrives in
Washington today, February 17, for a morning of contacts with
the IMF before continuing to New York, where they will
consult Dominican legal counsel and J.P. Morgan, the
country,s agent for dealing with bondholders.


10. (SBU) Charge and Eco-Pol Counselor took note of
Despradel,s arguments and proposal and promised to provide
them promptly to Washington authorities. The Charge reminded
Despradel of U.S. Treasury misgivings about the Dominican
desire to approach the Paris Club as part of the renewed
standby; Despradel shrugged, implying that Dominican
authorities had not found any other reasonable approach.

Comment
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11. (C) We were dismayed to see Carlos Despradel given this
ill-prepared dossier. Finance Secretary Calderon declined
the job, saying that he was too involved with electricity
sector negotiations. Central Bank Governor Lois Malkun,
co-signer with Calderon of the mid-January declaration of
intent to seek comparable treatment for other creditors,
simply turned it down. We are sympathetic to Despradel,s
concern about the impact of Paris Club rescheduling on access
to financial markets even for a future administration but
appreciate the significant downside of backing away from an
IMF commitment just days after the standby was approved.
KUBISKE