BRAZIL AND THE PARIS CLUB - PREPAYMENT OR

UNCLAS BRASILIA 003346 SIPDIS SENSITIVE NSC FOR CRONIN TREASURY FOR OASIA - DAS LEE, FPARODI, KBERG STATE PASS TO EXIM STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON STATE FOR EB/IFD/OMA - MOSS AND FORSYTH E.O. 12958: N/A TAGS: EFIN ECON SENV PREL BR SUBJECT: BRAZIL AND THE PARIS CLUB - PREPAYMENT OR POSTURING? ¶1. (SBU) The Finance Ministry's Strategic Debt Planning Coordinator, Anderson Silva, confirmed to Emboff December 21 that the Finance Ministry is studying a proposal to pay off all of its Paris Club (PC) debt in 2006. According to Silva, no final decision has yet been made despite press reports that the GoB decided, at President Lula's end-of- year stock-taking cabinet meeting on December 19, to pre-pay its PC debt in the same fashion that it had pre-paid its $15.2 billion IMF debt. Finance Ministry statistics, which may well differ from USG and other PC creditor country data, put Brazil's outstanding PC debt at approximately US$2.5 billion as of September 2005. France and Germany are the major creditors, each holding roughly a 20 percent share, while the USG accounts for a 10 percent slice. ¶2. (SBU) Silva minimized the significance of the December 19 announcement, affirming that most of the remaining PC debt would be paid of in 2006 anyway. (Note: according to the press, all but $250 million of Brazil's PC debt will be paid off by end-2006 under the existing amortization schedules; the remainder would be paid off in 2007.) Silva also acknowledged that a prepayment would raise coordination issues with PC creditors, a matter which had not yet been addressed. Separately, the German economic counselor has told us that Brazil's debt to Germany already was scheduled to be entirely paid off in 2006. ¶3. (SBU) Comment: Given the maturity profile of Brazil's remaining PC debt, it appears this announcement -- as opposed to the more significant IMF repayment -- is more about posturing than debt management. It is also unclear to us whether this decision has any relation to the recent rockiness in Brazil's participation in the Paris Club as a creditor. One tangential issue this raises is that, even if the GoB does not prepay its USG debt, there may be very little debt left to swap under the Tropical Forest Conservation Act (TFCA). Given holiday staffing at the finance ministry, however, we don't expect to get a fuller picture of GoB intentions until January. CHICOLA