PARIS CLUB - DECEMBER 2005 TOUR D'HORIZON

UNCLAS SECTION 01 OF 06 PARIS 008586

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 - DECEMBER 2005 TOUR D'HORIZON

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

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


1. (SBU) At the December 13 Paris Club meeting, creditors
agreed to implement a second 30 percent tranche of debt
reduction for Iraq, provided a Stand-By Arrangement is
approved by the IMF Executive Board before year-end. The
first batch of bilateral agreements implementing the Paris
Club debt deal with Nigeria, including an agreement with the
U.S., was signed on December 17 at a ceremony in Abuja.
Grenada has reached agreement in principle with the IMF on a
Poverty Reduction and Growth Facility (PRGF) that could pave
the way for a Paris Club rescheduling in 2006. Key
creditors withdrew opposition to an increase in the debt
swap ceiling for Jordan; the issue will be discussed again
in January. Other countries on the agenda included Angola,
Argentina, the Democratic Republic of the Congo, the
Dominican Republic, Kenya, Macedonia, North Korea, Sao Tome
and Principe, Serbia Montenegro, and Sierra Leone. END
SUMMARY.

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

2. (SBU) The Secretariat presented the results of a recent
data call, which revealed significant disparities in
Angola's behavior toward to its Paris Club creditors.
Angola owes 3.9 billion dollars to the Paris Club, of which
3.5 billion is in arrears (including late interest). The
majority of Paris Club creditors have received little or no
debt service over the last decade; in some cases (Denmark,
Canada, Finland, France, Sweden, Switzerland, Netherlands,
UK, Japan),arrears represent the totality of the
outstanding debt stock. Germany, on the other hand,
reported no arrears (out of 223 million dollars in
exposure),while the US reported just 7 million dollars in
arrears (out of 49 million). (Note: on December 16, US Ex-Im
Bank reported it had received payment of the arrears from
Angola.) Spain (the largest creditor) asked the Secretariat
to draft a letter urging the authorities to respect Paris
Club solidarity. The USDEL said it could support a letter
calling on Angola to pay all its Paris Club creditors in
full. In addition to a letter, the Secretariat agreed to
prepare a working paper exploring creative ways of dealing
with Angola if and when it comes to the Club.
--------------
ARGENTINA
--------------

3. (SBU) Creditors decided to hold off on follow-up action
to the letter that was sent last month (expressing concern
about the accumulation of arrears) until Argentina's new
economic team has signaled its intentions to the IMF.

--------------
DEMOCRATIC REPUBLIC OF THE CONGO
--------------

4. (SBU) The Secretariat will initiate a data call to
determine the size of a moratorium interest payment falling
due on March 31, 2006. Creditors will decide whether to
defer the payment based on the DRC's capacity to pay. In
response to a question from the Secretariat, the USDEL
explained that it is now in a position to join other
creditors in providing HIPC interim relief to the DRC and
that it will forgive 100% of flows falling due, including
the interest payment falling due in March. (Note: USG will
be able to provide interim relief until the end of FY07.)

--------------
DOMINICAN REPUBLIC
--------------

5. (SBU) The IMF said no major financing gaps are expected
in 2006 thanks to higher-than-expected financing from
Venezuela and the World Bank and lower-than-programmed
payment of arrears to electricity generators. Therefore,
there is no need for financing assurances from the Paris
Club. In October, the DR had asked the Paris Club to
reschedule 2005 and 2006 maturities. At that time, the
USDEL, while supporting the 2005 rescheduling, was
unconvinced by the IMF's financing gap projections and had
successfully opposed the 2006 request.

--------------
GRENADA
--------------

6. (SBU) The IMF said agreement in principle has been
reached with Grenada on a PRGF that could come to the
Executive Board in March. Although Paris Club claims are
relatively small, the Fund is planning to ask creditors for
financing assurances next month. Grenada completed a
restructuring of its commercial debt in November

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

7. (SBU) The second tranche of cancellation (30%) is set to
take effect, assuming an SBA is approved by the IMF
Executive Board later this month. Although the IMF noted
that two prior actions still needed to be completed
(adjustment of domestic fuel prices and an audit of the
central bank),it gave no indication that the program might
be delayed. The Secretariat has drafted a letter to the
authorities notifying them that the conditions for the
second tranche of cancellation have been met. The plan is
to send the letter on December 23 or 24, immediately
following board approval of the SBA. Several creditors
(France, Germany, UK, Netherlands, Denmark, Spain,
Switzerland, Austria) hope to finalize their bilateral
agreements by the end of the year. The deadline for
concluding bilateral agreements is likely to be extended
another two months to accommodate laggards, to February 28,

2006.

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

8. (SBU) Reaction to Jordan's request for an increase in
the debt swap ceiling was more positive than anticipated,
although a consensus is still lacking. As expected, the US,
the UK, France, and Italy voiced support for the request,
citing Jordan's role as a key ally and a desire to be
helpful in the face of difficult external challenges.
Canada and Japan - which had previously opposed Jordan's
request in the G-7 - said they would not block consensus,
although they remain unenthusiastic. Several other
countries (Germany, Netherlands, Switzerland, Norway)
expressed reservations and asked for more information before
making any decisions. The Netherlands warned that
increasing the ceiling would set a dangerous precedent and
said that it had already been approached by Indonesia with a
similar request to do more swaps. Norway, which in the past
has lobbied creditors to lift the ceiling on debt-for-
development swaps, said it was skeptical about uncapping
debt-for-equity swaps. The Secretariat agreed to produce a
working paper for discussion at the next meeting.
Separately, creditors are prepared to extend the
consolidation period of Jordan's current arrangement once
they receive a comfort letter from the IMF (expected soon)
regarding Jordan's performance under Post-Program
Monitoring.

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

9. (SBU) The second review of the PRGF has been delayed
until January in the wake of President Kibaki's decision to
reshuffle his cabinet. Creditors are prepared to enter into
force the third phase of the current Paris Club agreement
once the second review is approved.

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

10. (SBU) Macedonia has withdrawn its prepayment offer
after it was unable to resolve a dispute with Italy over a
loan to the former Yugoslavia. The Secretariat reported
that Macedonia recently issued a 150 million 10-year
eurobond with a coupon rate of 4.625%.

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

11. (SBU) The Secretariat confirmed that Nigeria has made
its second payment into escrow at the BIS, pursuant to the
terms of the October Agreed Minute. The first batch of
bilateral agreements, including an agreement with the U.S.,
was signed in Abuja on December 17.

--------------
NORTH KOREA
--------------

12. (SBU) Russia reported $7.4 billion in claims, all in
arrears, and asked if other creditors had exposure to North
Korea. Eleven other creditors (France, Netherlands,
Germany, Italy, Japan, UK, Austria, Sweden, Switzerland,
Belgium, Finland) reported claims ranging from $10 million
(UK) to $365 million (Japan) - most of which are in arrears.
The US has no claims.

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

13. (SBU) STP has mishandled implementation of a previous
agreement to make a one-time payment of $1.5 million to its
Paris Club creditors. STP overpaid Russia, but underpaid
Spain, Germany, and France. The Secretariat will work with
all parties involved to rectify the error. The US is not a
creditor.

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

14. (SBU) The final review of the IMF program is scheduled
to come to the Executive Board in February. Creditors
rejected Serbia's request for an extension of the interest
capitalization period (to match the technical extension of
the IMF program) on the grounds that Serbia should not be
rewarded for dithering on reforms.

--------------
SIERRA LEONE
--------------

15. (SBU) The IMF reported that a new PRGF could be in
place by next February, subject to the completion of prior
actions and financing assurances from the Paris Club. Once
the program is approved, creditors will resume interim HIPC
relief retroactive to June 2005, when the previous PRGF
expired.

--------------
Debt Swap Report and Handbook
--------------

16. (SBU) The Secretariat asked creditors to update their
submissions to the recent debt swap data call, and
distributed a preliminary glossary of terms for creditors'
comment. In response to the USDEL suggestion that the
handbook be expanded beyond a simple glossary to something
resembling a user's manual, the Secretariat said it would
start with a glossary and then consider possible next steps.

--------------
Fiftieth Anniversary Celebration
--------------

17. (U) An event celebrating the 50th anniversary of the
Paris Club is tentatively scheduled for Wednesday, June 14,
coinciding with the Paris Club's annual meeting with the
private sector. The Brookings Institution and CEPII (a
French think tank) will organize a policy forum consisting
of three roundtable discussions: the Paris Club in the
international financial system; the Paris Club and
development; and the Paris Club and the private sector. The
roundtable discussions will be chaired by former Paris Club
chairpersons and will feature speakers from creditor and
debtor countries, as well as from academia. Brookings will
publish a collection of papers, to be submitted by various
contributors.

STAPLETON#