Identifier
Created
Classification
Origin
05PARIS7980
2005-11-23 11:14:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Paris
Cable title:  

PARIS CLUB - NOVEMBER 2005 TOUR D'HORIZON

Tags:  EFIN ECON EAID XM XA XH XB XF FR 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 06 PARIS 007980 

SIPDIS

SENSITIVE

STATE FOR EB/IFD/OMA
TREASURY FOR DO/IDD AND OUSED/IMF
SECDEF FOR USDP/DSAA
PASS EXIM FOR CLAIMS -- EDELARIVA
PASS USDA FOR CCC -- ALEUNG/DERICKSON/KCHADWICK
PASS USAID FOR CLAIMS
PASS DOD FOR DSCS -- PBERG

E.O. 12958: N/A
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - NOVEMBER 2005 TOUR D'HORIZON

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

--------
SUMMARY
--------

UNCLAS SECTION 01 OF 06 PARIS 007980

SIPDIS

SENSITIVE

STATE FOR EB/IFD/OMA
TREASURY FOR DO/IDD AND OUSED/IMF
SECDEF FOR USDP/DSAA
PASS EXIM FOR CLAIMS -- EDELARIVA
PASS USDA FOR CCC -- ALEUNG/DERICKSON/KCHADWICK
PASS USAID FOR CLAIMS
PASS DOD FOR DSCS -- PBERG

E.O. 12958: N/A
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - NOVEMBER 2005 TOUR D'HORIZON

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

--------------
SUMMARY
--------------


1. (SBU) At the November 15 Paris Club meeting, the IMF reported
that the Stand-By Arrangement (SBA) with Iraq that will be
presented to the IMF Board on December 23 will probably be
precautionary. The Secretariat and some creditors complained
that a precautionary arrangement belied Iraq's claim last year
that it could not afford to make any payments to the Paris Club
during the initial years of reconstruction (which led to an
agreement among creditors to capitalize 100% of moratorium
interest through 2007). Macedonia is interested in prepaying
previously rescheduled debt at face value. The US is Macedonia's
largest Paris Club creditor, with $44 million in previously
rescheduled debt - all of which can be prepaid without penalty at
any time. The Secretariat intends to solicit a response from the
Chinese authorities to a June letter expressing the Paris Club's
interest in learning more about China's external creditor status.
The US argued that no action was necessary, but the majority of
creditors favored renewed outreach. Other countries discussed
included Angola, Argentina, Cambodia, Congo-Brazzaville, Jordan,
Kenya, Nigeria, Sao Tome and Principe, Serbia Montenegro, and the
Seychelles.

--------------
ANGOLA
--------------

2. (SBU) The IMF said Angola has expressed renewed interested in
a Staff Monitored Program (SMP) as a step toward getting an upper
credit tranche arrangement, possibly a Policy Support Instrument
(PSI),and an eventual Paris Club treatment. The Secretariat
surveyed creditors to see if Angola was servicing any of its
Paris Club debt. The US was the only creditor to report
receiving payments from Angola. (Out of $113 million in total
debt to the US, just $7 million is in arrears. Spain, by
contrast, reported $740 million in arrears and no payments

received in decades.) The Secretariat will launch a data call to
get a clearer picture of the situation.

--------------
ARGENTINA
--------------

3. (SBU) Italy proposed a revision to the Secretariat's draft
response to Argentina's letter of September 27 seeking a
restructuring of its Paris Club debt. The revision avoids
reference to Paris Club arrears - which Italy believes is too
politically sensitive back home - and instead urges Argentina to
"cooperate with the IMF, in a manner consistent with the IMFC
Communiqu of 16 April 2005." (The April communiqu called on
Argentina to resolve arrears to private creditors consistent with
the IMF's lending into arrears policy.) The Secretariat will
send the letter on November 24 unless there are objections.

--------------
CAMBODIA
--------------

4. (SBU) The US reported that it was working with the
authorities to resolve longstanding data issues that have held up
p
completion of a bilateral agreement implementing the 1995 Paris
Club agreement. The US noted that, even after the 1995 agreement
is implemented, Cambodia would still have substantial arrears to
the US that must be addressed if Cambodia wishes to obtain a new
Poverty Reduction and Growth Facility (PRGF) with the IMF. The
IMF said Cambodia would not be in a position to pay these arrears
and would have to seek a new Paris Club treatment. Russia said
it had reconciled the data with Cambodia, but the bilateral has
not been agreed due to a dispute over the interest rate to be
charged on rescheduled post-cutoff debt. Russia's next meeting
with the Cambodian authorities is scheduled for January. Russia
clarified that, once it implements the 1995 Paris Club agreement,
Cambodia will have no further arrears to Russia, unlike the case
of the US. (Russia's 1997 accession agreement with the Paris
Club stipulates that, when implementing Paris Club deals
concluded prior to 1997, Russia must include all arrears as of
the date the bilateral is signed.)

--------------
CHINA
--------------

5. (SBU) The Secretariat sought creditors' recommendations on
what steps to take given China's non-response to the June 22
letter expressing creditors' desire to learn more about China's
status as an external creditor. The US suggested that no action
was necessary and questioned whether Chinese membership was in
the interest of the club. Most other creditors, however, favored
a more proactive approach and were open to considering eventual
Chinese membership, pending better information on China's
creditor status. Several creditors argued that, as the world of
creditors evolves, so should the Paris Club. The Secretariat
said it would follow up with the Chinese through informal
channels.

--------------
CONGO-BRAZZAVILLE
--------------

6. (SBU) The IMF reported that Congo's PRGF is on track, and
that a stand-alone decision point request under the Heavily
Indebted Poor Countries (HIPC) program is scheduled for December

19. The second PRGF review is anticipated for February or March.

--------------
IRAQ
--------------

7. (SBU) The IMF said an SBA will be presented to the Executive
Board on December 23. Iraq is expected to treat the arrangement
as precautionary. The precautionary nature of the program took
some creditors by surprise. The Secretariat noted that the lack
of a financing gap contradicted Iraq's claim last year that it
had no capacity to make payments to Paris Club creditors given
severe balance of payments problems. It said the Paris Club
normally doesn't provide debt treatments based on precautionary
programs, and that a disbursing program is necessary to ensure
strong Fund surveillance. Germany, Netherlands, and Sweden made
similar remarks. The US pointed out that Iraq's Emergency Post
Conflict Assistance (EPCA) program disbursed 436 million dollars,
and that the 2004 Agreed Minute linked the second phase of debt
relief to an upper credit tranche program, not necessarily a
disbursing upper credit tranche program. The IMF helpfully added
that a precautionary SBA has the same degree of conditionality as
a disbursing SBA. Moreover, the IMF's financial commitment is
the same: funds are placed in reserve and can be drawn by the
program country (as has happened many times in the past). The
IMF noted that oil revenues in Iraq are higher than expected due
to high oil prices, but said the situation could easily change
given the volatility of oil prices. Separately, the UK, the
Netherlands, Korea, Denmark, Switzerland, and Japan indicated
that they hope to conclude their bilateral agreements with Iraq
by the end of the year.

--------------
JORDAN
--------------

8. (SBU) The Secretariat distributed a letter from Jordan
requesting an increase in its debt swap ceiling from 30% to 50%.
At the G-7 debt experts meeting in October, Germany, Japan and
Canada indicated they were still opposed to lifting the ceiling
because they believe higher debt swap ceilings allow creditors
who participate in swaps to receive more favorable treatment than
those who do not. Canada is also concerned about France's
previous practice of using higher levels of discounts in debt for
equity swaps to provide more favorable financing terms on
unrelated commercial transactions and thus evade OECD export
credit disciplines. Jordan's letter will be discussed at the
December Paris Club meeting.

--------------
KENYA
--------------

9. (SBU) The IMF said there had been a number of delays in the
PRGF reviews due to governance issues. Overall macroeconomic
performance has been stronger than expected, and the second
review is now scheduled for December 21. Kenya's 2004 agreement
with the Paris Club provided that the third stage of
rescheduling, covering maturities coming due in 2006, was
contingent on a successful completion of the fourth review. The
Secretariat reminded creditors that the second phase of the

SIPDIS
current Paris Club agreement entered into force after Kenya
completed the first review of the PRGF (rather than the second
review, as stipulated in the agreement). The question that must
be decided by creditors, most likely in January, is whether the
third phase should enter into force upon completion of the second
review. There were no comments from creditors at the meeting,
suggesting that they had no objections in principle to proceeding
in this manner.

--------------
MACEDONIA
--------------

10. (SBU) Macedonia has sent a letter to the Secretariat asking
about the feasibility of prepaying at face value all or most of
debt previously rescheduled under the 1995 Paris Club agreement.
Macedonia's primary motivation is to refinance the debt at a
lower interest rate in the Eurobond market. The timetable
envisioned is fairly compressed: Macedonia would like to receive
expressions of interest by December and execute the prepayment in
January. According to the government's own records, Macedonia
has $94 million in previously rescheduled debt to the Paris Club,
nearly half of which is owed to the US. (Ex-Im Bank has all of
the previously rescheduled US debt. The bilateral that
implemented the 1995 Paris Club agreement allows for prepayment
without penalty, but in inverse order of scheduled maturity of
the principal installment. The debt is broken into two loans -
one with $36 million outstanding, the other with $8 million.)
Most creditors expressed their support in principle for Macedonia
prepayment proposal. Italy, however, reported arrears related to
a loan to the former Yugoslavia that Macedonia must clear before
a prepayment operation can proceed.

--------------
NIGERIA
--------------

11. (SBU) The Secretariat reviewed implementation procedures
regarding the recent Paris Club agreement. Austria was the only
country to report not having received its pro rata payment,
apparently due to technical reasons. The Secretariat said it had
circulated a bilateral agreement template that creditors were
free to use. IMF staff expect to complete work on a first review
under Nigeria's Policy Support Instrument (PSI) in January and
present it to the IMF Executive Board in April or May. In
response to a question from Spain, the Secretariat said the
OECD's Development Assistance Committee had yet to decide whether
to treat Nigeria's buyback discount as Official Development
Assistance.

--------------
SAO TOME AND PRINCIPE
--------------

12. (SBU) Due to revised data on its four creditors' books, STP
may be asked to make a slightly larger cash payment (perhaps by
10%) than originally thought. The US is not a creditor.

--------------
SERBIA MONTENEGRO
--------------

13. (SBU) The IMF said completion of the final review of the
Extended Fund Facility (EFF) is still uncertain. The review
could come to the Executive Board in January or February, which
would require a technical extension of the program. Germany
asked whether creditors should consider an extension of the
current Paris Club arrangement (which provides for the
capitalization of 60% of interest payments) to match any
extension in the program. The US argued that Serbia Montenegro
should not be rewarded for dithering on reforms. The Secretariat
agreed, noting that the authorities had not requested an
extension of the Paris Club arrangement, and that to offer such
an extension now would give the authorities less incentive to
complete the final review on time.
--------------
SEYCHELLES
--------------

14. (SBU) The IMF said the Seychelles is experiencing severe BOP
and debt problems. Several creditors (Japan, Italy, UK, Germany,
France, Spain, Belgium) reported arrears; some supported sending
a letter to the authorities urging them to clear arrears and seek
an IMF program. The Secretariat said it would wait for the
results of the next IMF mission to the Seychelles before
considering next steps. The US is not a creditor.

-------------- --------------
METHODOLOGICAL DISCUSSION: SWAPS, WEBSITE AND HANDBOOK
-------------- --------------

15. (SBU) Creditors were divided over Norway's proposal to lift
the ceiling on debt-for-development swaps. The US, the UK, and
Canada were open to the proposal, as long as the debt-for-
development swaps were not structured to provide cash to the
creditor. Other creditors (Germany, Japan, Italy, Russia)
opposed lifting the ceiling, mainly on the grounds that the Paris
Club should be a creditor forum, not a development institution.
Germany stressed that lifting the ceiling would increase
political pressure to do swaps. Creditors agreed to add
information to the Paris Club website regarding prepayment and
buyback modalities. Australia offered to put together a
technical handbook, with the aim of helping future delegates, as
well as debtor countries, familiarize themselves with the Paris
Club process, and welcomed input from other creditors.
STAPLETON#