Identifier
Created
Classification
Origin
06PARIS1568
2006-03-13 10:16:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Paris
Cable title:  

PARIS CLUB - MARCH 2006 TOUR D'HORIZON

Tags:  EFIN ECON EAID XM XA XH XB XF FR 
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UNCLAS SECTION 01 OF 07 PARIS 001568 

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 - MARCH 2006 TOUR D'HORIZON

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

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

UNCLAS SECTION 01 OF 07 PARIS 001568

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 - MARCH 2006 TOUR D'HORIZON

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

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


1. (SBU) At the March 7 Paris Club meeting, creditors agreed
on an approach for dealing with Angola's arrears to the
Club, consistent with US objectives. The Secretariat will
call on Angola to resume payments to Paris Club creditors in
excess of scheduled debt service, such that arrears are
reduced. If accepted by the authorities, this approach will
ensure that Angola remains current on its debt service to
the US while upholding the Paris Club's principle of no debt
relief without an IMF program. Russia and Germany
reiterated their intention to forgive 100% of Afghanistan's
debt under the Heavily Indebted Poor Countries Initiative
(HIPC),but explained that they would not be able to do so
under the alternative Evian approach. The IMF said it could
not include the $10 billion Russian debt in a Debt
Sustainability Analysis (DSA),which would make it eligible
for HIPC, until Russia and Afghanistan agreed on the amount.
Russia said it was "waiting for Afghanistan" to act. China
appears to have no desire to forge a more cooperative
working relationship with the Paris Club at this time. A
senior Chinese finance ministry official told the
Secretariat that China has its own approach to debt issues

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and is not interested in subjecting itself to the
disciplines of the Club. Creditors agreed to provide
financing assurances for Grenada's new IMF Poverty Reduction
and Growth Facility (PRGF). Other countries on the agenda
included Argentina, Brazil, Burundi, Cambodia, Cameroon,
Republic of Congo (Congo-B),Cuba, Democratic Republic of
Congo (DRC),Georgia, Guinea, Iraq, Moldova, Nicaragua,
Nigeria, and Russia. End Summary.

Afghanistan
--------------

2. (SBU) The IMF said the authorities had requested a three-
year PRGF, which would be conditional on financing

assurances from Paris Club creditors. Although the debt
reconciliation process has been completed, the IMF said
"unverified" debts remain with Russia and other countries,
which were not included in the latest HIPC calculation. The
US said it was important to see the Russian claims reflected
in the DSA. Germany and Russia reiterated their commitment
to forgive 100% of their claims under HIPC, but not under
the Evian approach. Russia added that it was waiting for
Afghanistan to act, and said the process could be
facilitated if Afghanistan cooperated more with the IMF and
with Russia.

Angola
--------------

3. (SBU) Creditors gave the Secretariat a mandate to
approach the Angolan authorities about resolving its
protracted arrears to the Club. The proposed way forward
consists of three elements. First, Angola is to resume
payments to Paris Club creditors in excess of scheduled debt
service, such that arrears are reduced. Second, the Paris
Club chairman will express the goodwill of creditors to
consider a formal Paris Club agreement once Angola has
concluded a Fund-supported program (either a PRGF or Policy
Support Instrument (PSI)). Third, the chairman will note
that a resumption of payments by Angola could lead some
creditors to review their export credit policy toward
Angola.

Argentina
--------------

4. (SBU) The Secretariat presented the results of the data
call launched at the request of the US. As of January 1,
2006, Argentina owed $6.3 billion to Paris Club creditors,
of which $3.5 billion consisted of arrears and past due
interest. Germany is the largest creditor ($2.1 billion),
followed by Japan ($1.4 billion),Spain ($629 million),and
Italy ($516 million). The US is the sixth largest creditor
with $362 million in claims. During the period 2001 to
2005, Italy received the largest percentage (29%) of
payments falling due to it, compared to 8% for the US. The
UK reported that Economy Minister Miceli told the UK's
ambassador in Buenos Aires that normalizing relations with
the Paris Club was not a priority for Argentina at the
moment. There was no discussion in the Club about possible
next steps.

Brazil
--------------

5. (U) Brazil's prepayment of 1992 previously rescheduled
debt is in train. Belgium, Canada, Germany, Italy, Spain,
and Sweden have been fully paid. Austria, France, Japan,
the Netherlands, Switzerland, and the UK are finalizing
their prepayment operations. The US has been partially
paid, with more payments expected later this month.
Denmark, Finland, Norway, and Russia are not participating
in the prepayment. It remains to be seen whether Brazil
will meet its commitment to clear arrears to Canada, France,
and the Netherlands by end-March.

Burundi
--------------

6. (U) The third and fourth reviews of the Burundi's PRGF
will be combined and brought to the executive board in mid-
June. The third phase of Burundi's September 2005 Cologne
treatment will enter into force upon completion of this
review. (The US is not a creditor.)

Cambodia
--------------

7. (SBU) The US reported that its bilateral dispute with
Cambodia was essentially resolved, and that it was prepared
to provide financing assurances for a new PRGF. Russia, on
the other hand, said recent negotiations in Cambodia had
failed to result in an agreement on what interest rate to
charge on rescheduled post-cutoff-date debt. As a result,
Russia continues to withhold financing assurances. The next
round of negotiations between the two countries is scheduled
for May in Moscow.

Cameroon
--------------

8. (U) The IMF and World Bank expect completion point to be
reached in April. Like Congo-B, Cameroon is facing active
litigation from its commercial creditors, though the share
of commercial debt in Cameroon's overall external debt is
not as large as the corresponding ratio in Congo-B. Given
expectations of completion point in April, creditors agreed
not to bother extending the current consolidation period
beyond March 31. The Secretariat suggested that creditors
needn't bill for payments falling due in April.

China
--------------

9. (SBU) The Secretariat met with a senior official in the
Chinese Ministry of Finance to convey the Paris Club's wish
to learn more about China's external creditor status and
explore the possibility of a more cooperative working
relationship. Yang Shao Lin, Deputy Director General for
International Affairs, responded that China is a developing
country that manages its bilateral relations as it wishes.
It has its own approach to debt issues and is not interested
in subjecting itself to the disciplines of the Paris Club.
Although Paris Club Chairman Xavier Musca may revisit this
topic with his Chinese counterpart at some point in the
future, the Secretariat was not optimistic that the response
from the Chinese would be any different.

Congo-B
--------------

10. (U) Creditors agreed in principle to send a letter to
the Congolese authorities granting interim HIPC debt relief
once decision point has been approved by the IMF and World
Bank executive boards. At the request of the US, the
Secretariat will hold off sending the letter until after the

SIPDIS
US has satisfied its internal domestic legal requirements.
The IMF noted that it was not in a position to provide
interim relief even if it approved decision point for Congo-
B given that less than 70% of Congo's creditors had
committed to provide debt relief on comparable terms.
(Note: The IMF approved Decision Point on March 8, but
noted in its press release that, "As the necessary financing
assurances from external creditors are not in place as of
the decision point, no interim relief will be provided by
the IMF at this time.")

Cuba
--------------

11. (SBU) In 2001, some Paris Club members met with Cuba in
an unsuccessful attempt to discuss a possible treatment of
Cuba's external debt. The U.S. had blocked a formal Paris
Club negotiation on the ground that Cuba didn't have an IMF
program and wasn't even a member of the IMF. Sweden
requested that Cuba be placed on this month's agenda to
discuss developments since 2001. Canada, Sweden, and
Switzerland acknowledged that they had restructured Cuba's
short-term debt on a bilateral basis, but said that arrears
on medium- and long-term debt remained. Spain questioned
whether concluding bilateral deals with Cuba was a breach of
the sub-group's solidarity given the existence of arrears to
other creditors. Germany argued that creditors have the
right to restructure short-term debt on a bilateral basis
since short-term debt is excluded from Paris Club
agreements. Other creditors disagreed and called on the
Secretariat to produce a working paper clarifying the Club's

SIPDIS
general policy on short-term debt. The Secretariat will
also distribute the Chairman's Summary that followed the
April 2001 meeting with Cuba.

Democratic Republic of Congo
--------------

12. (U) Creditors decided not to defer a capitalized
moratorium interest payment falling due on March 31, given
the expected expiration of the DRC's PRGF at the end of the
month and uncertainty surrounding a successor arrangement.
(The US, per our HIPC policy, will forgive the payment, as
it falls within the current consolidation period.) The IMF
said a successor arrangement was unlikely to be in place
until after the general elections in June, but indicated
that completion point could still be reached by mid-2007.
Once a successor arrangement is in place, creditors will
decide what to do with other moratorium interest payments
capitalized under the September 2002 Agreed Minute.

Georgia
--------------

13. (U) The Secretariat will send a letter to the
authorities announcing the entry into force of the third
phase of the July 2004 Agreed Minute once the third review
of the PRGF is approved. The review is tentatively
scheduled for March 31.

Grenada
--------------

14. (U) Creditors (France, Netherlands, Russia, UK, US)
agreed to provide financing assurances for Grenada's new
PRGF covering the period 2006-2008. Grenada could come to
the Club for negotiations as early as April. Under the
Evian approach, creditors will provide a rescheduling of
maturities falling due during the period of the PRGF. (The
Secretariat's working paper proposes a rescheduling on

SIPDIS
"Classic" terms.) If, following successful implementation
of the program, creditors determine that Grenada's debt is
unsustainable, they may consider providing an exit
treatment. The IMF estimated a financing gap of $10 million
in 2006, taking into account disbursements under the PRGF.
Paris Club debt relief is expected to cover half of this
amount, with the remainder to be covered by debt relief from
non-Paris Club creditors, including Taiwan.

Guinea
--------------

15. (U) The Secretariat urged creditors to respond to a
data call launched at the request of the IMF. (Two
creditors have yet to respond.) The IMF said a new PRGF
could be in place by mid-2006, for which financing
assurances would be needed from the Club. Guinea reached
decision point in December 2000, but its previous PRGF went
off track and expired in 2004.

Iraq
--------------

16. (U) In response to a request from Central Bank of Iraq
Governor Shabibi, the Secretariat agreed to send letters to
eleven of Iraq's non-Paris Club official creditors updating
them on Iraq's debt restructuring process and urging them to
conclude bilateral agreements with Iraq on terms comparable
to the 2004 Agreed Minute. The group of eleven consists of
those countries that attended the informational session on
Iraq in January 2005 and have not yet concluded a bilateral
with Iraq (Bulgaria, Cyprus, Croatia, Hungary, Poland, Czech
Republic, Slovenia, Turkey),plus
Greece, Malaysia, and the former Yugoslavia (as identified
in Shabibi's letter).

Moldova
--------------

17. (SBU) The IMF said agreement in principle has been
reached on a three-year PRGF arrangement, for which
financing assurances will be requested next month. Russia
said it would not provide financing assurances until Moldova
settles its internal currency debt to the former Soviet
Republics and recognizes all debt owed to Russia (including
Transnistria debt). In addition, Russia said it first needs
to see a data call, a DSA, and a working paper from the
Secretariat.

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Nicaragua
--------------

18. (U) The Secretariat will send a letter to the
authorities taking note of Nicaragua's difficulties
obtaining comparable treatment from its non-Paris Club
official creditors and reminding Nicaragua of its
commitments under the March 2004 Agreed Minute. The letter
is intended to help the authorities negotiate agreements
with those non-PC creditors that have resisted providing
debt reduction comparable to what Nicaragua received at
completion point. The Secretariat said it was reluctant to
address letters to individual non-Paris Club official
creditors, citing the principle that the debtor country
alone is responsible for seeking comparable treatment. On
the other hand, the Secretariat noted that Libya's upcoming
Article IV board discussion would be a good occasion for
creditors, through their IMF executive directors in
Washington, to pressure Libya to deliver debt relief in line
with HIPC.

Nigeria
--------------

19. (U) The IMF said Nigeria was making good progress under
the Policy Support Instrument (PSI),with the first review
tentatively scheduled for mid-April. Austria and Russia are
the only creditors that have yet to conclude their bilateral
agreements with Nigeria. Brazil has concluded its bilateral
but has yet to be paid. All other creditors, including the
US, have concluded their bilaterals and have received their
first and second tranche payments. (Canada, Norway, and
Sweden have no claims.)

Russia
--------------

20. (U) The Secretariat said it had not received an
official proposal from Russia regarding a new prepayment.
In the meantime, Russia's financial position continues to
improve. Reserves stand at $200 billion (2.5 times the
government's external debt),the oil stabilization fund
exceeds $51 billion (2.5 times outstanding debt to the Paris
Club),and spreads on Russian Eurobonds continue to narrow.
In response to a question from Austria, the Secretariat
clarified that there was no link between a new prepayment
operation and creditors' contributions to the World Bank's
International Development Association (IDA).

STAPLETON#