CYPRUS EXTENDS FULL DEBT RELIEF TO IRAQ

UNCLAS NICOSIA 001692 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN EAID PREL IZ CY SUBJECT: CYPRUS EXTENDS FULL DEBT RELIEF TO IRAQ REFS: (A) 05 NICOSIA 958, (B) 05 NICOSIA 433, (C) 05 NICOSIA 88, (D) 05 STATE 8646 (U) This cable is sensitive but unclassified -- please protect accordingly. ¶1. (U) Summary. The Government of Cyprus (GOC) and the Government of Iraq agreed on a full, mutual debt cancellation at the recent meeting of the General Assemblies of the IMF and World Bank in Singapore. As part of the agreement, Cyprus forgave Iraqi debts to the GoC and Cypriot firms of an estimated CYP 40 million (USD 88 million). In exchange, Iraq forgave the debts of 3 Cypriot-based companies (USD 7.1. million plus interest) for unpaid oil shipments dating from 1990. (Reftels). End Summary. ¶2. (SBU) On September 27, the local press reported that Cyprus had officially cancelled all Iraqi debts as part of the island's continual support to the war-torn country's reconstruction. Working level Ministry of Finance and MFA officials appeared to be caught by surprise and knew few of the details although they were able to confirm to us that Cypriot Foreign Minister Lilikas, Cypriot Finance Minister Sarris, Iraqi Foreign Minister Zebari and Iraqi Finance Minister Jabbr has signed the agreement during last week's meeting of the General Assemblies of the World Bank and IMF. ¶3. (SBU) Cyprus is reportedly the fourth country to cancel 100 percent of Iraqi debt following the U.S., Malta, and Slovenia. The debt cancellation agreement exceeds the 80 percent debt reduction urged by the Paris Club. According to Finance Ministry sources, the total Iraqi debt to Cyprus (both private and public) was estimated at CYP 40 million, a significant portion of which was made up of Iraqi debts to Cypriot manufacturers covered by GOC state guarantees incurred in the 1980s. The agreement also covers the debt of Cyprus-based oil companies to the Iraqi State Oil Marketing Organization (SOMO) for unpaid oil exports to Cyprus in 1990, valued at USD 7.1 million plus interest. According to the MFA, the exact extent of the debt forgiven will be calculated and released over the next few weeks. ¶4. (SBU) Finance Minister Sarris confirmed the existence of the agreement to the Ambassador on September 29. Sarris noted that the agreement had come around partly because he was seated next to the Iraqi Finance Minister Jabbr on the Dubai-Singapore leg of his flight to the conference. Jabbr had been reluctant to approve off-setting the Cypriot debt to Iraq against the Iraqi debt to Cyprus out of fear of setting a precedent, but had agreed in the end. The agreement comes after several years of regular Embassy demarches urging the GOC to cancel the Iraqi debt and ensure repayment of all monies owed to Iraq. SCHLICHER