UNCLAS PARIS 002362

SIPDIS

SENSITIVE
SIPDIS

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 - APRIL 2006 TOUR D'HORIZON


SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION

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SUMMARY
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1. (SBU) At the April 5 Paris Club meeting, creditors
accepted in principle Algeria's offer to prepay at face
value its previously rescheduled Paris Club debt. The US is
the third largest creditor with $1.2 billion in claims, just
over half of which are pre-payable without penalty. The US
stressed the importance of international support for
Liberia's efforts to normalize relations with the
international financial institutions (IFIs) and pledged to
mobilize necessary resources for debt relief. Creditors
provided financing assurances for Moldova's new Poverty
Reduction and Growth Facility (PRGF) with the IMF. Moldova
and Grenada are tentatively scheduled to come to the Club
next month to negotiate the terms of non-concessional debt
reschedulings. The final phase of Nigeria's October 2005
Paris Club agreement will enter into force later this month
provided that the first review of Nigeria's Policy Support
Instrument (PSI) is approved by the IMF's executive board,
as anticipated. Other countries on the agenda included
Afghanistan, Angola, Argentina, Brazil, Cameroon, Guinea,
Iraq, and Seychelles. End Summary.

AFGHANISTAN
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2. (SBU) The IMF has reached an agreement ad referendum on
a PRGF covering the period April 2006 to March 2009. The
program will be brought to the executive board at the end of
May, if Paris Club creditors provide assurances of debt
relief at the May 10-12 meeting, which in turn depends on
Afghanistan reaching an agreement with Russia on the amount
of its bilateral debt. The US reported that it met on March
22 with Afghan Deputy Finance Minister Shahrani, who

promised to reach an agreement with the Russians by the May
Paris Club meeting.

ALGERIA
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3. (SBU) Creditors accepted in principle Algeria's offer to
prepay at face value its previously rescheduled Paris Club
debt, which totals $7.7 billion. Most creditors announced
their intention to participate in the transaction; a few
have yet to decide. The USDEL said only debt owed to Exim
(around $665 million) could be prepaid without penalty.
Some creditors (Belgium, Finland, France, Italy, UK)
reported small arrears and/or unreconciled debt but said
they did not intend to block the prepayment. The
authorities hope to complete the transaction by end-May.
Italy is the largest creditor ($1.7 billion), followed by
France ($1.6 billion) and the United States ($1.2 billion).


4. (SBU) Separately, the United States, supported by Canada
and France, characterized as troubling Russia's recently
concluded agreement with Algeria linking debt cancellation
with trade. Under the terms of the agreement, Russia will
freeze Algeria's debt as of February 1, 2006 - a stock of
$4.7 billion - and will cancel the debt once Algeria has
granted commercial contracts to Russia equal to this amount.
The USDEL pointed out that such a linkage amounts to managed
trade and would not be appropriate in the context of a Paris
Club debt treatment. Russia responded that most of the
commercial contracts had already been signed.

ANGOLA
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5. (U) Paris Club Chairman Musca's meeting with the Angolan
finance minister has been postponed until late April. As a
result, it is still unclear at this stage how Angola will
react to the Club's proposal that Angola resume payments in
excess of scheduled debt service so as to begin paying down
arrears. In preliminary discussions with the Secretariat,
the authorities expressed a willingness to resume payments
to the Paris Club as part of a coordinated solution aimed at
restoring commercial ties. The IMF reported that Angola is
finalizing a $10 billion credit line with China's Exim bank,
in addition to a $2 billion credit line that already exists.

ARGENTINA
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6. (SBU) At the request of Germany, the Secretariat will
seek a meeting with the Argentine authorities on the margins
of the IMF-World Bank spring meetings to remind them of
Argentina's arrears to the Paris Club and the process for
normalizing relations. The Secretariat, however, expressed
doubt that such a meeting would produce a positive result,
noting that the authorities are already well aware of the
current situation.

BRAZIL
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7. (U) At the January 2006 meeting, creditors accepted
Brazil's offer to prepay previously rescheduled debt. Debts
to the US, Austria, Belgium, Italy, Spain, Switzerland, and
the UK have now all been fully prepaid. Japan's debt has
been partially prepaid and the balance is expected to be
prepaid later this month. Canada, France, Germany, and the
Netherlands reported that arrears still haven't been
cleared, although discussions with Brazil are ongoing. The
Secretariat will contact the authorities by telephone and

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remind them of their commitment to clear these arrears by
end-March 2006.

CAMEROON
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8. (U) The IMF and World Bank expect completion point under
the Heavily Indebted Poor Countries (HIPC) initiative to be
reached by the end of April. In light of outstanding data
reconciliation issues, the Secretariat will invite Cameroon
to come to the Club in June, rather than May, to negotiate
the terms of the debt treatment it will receive at
completion point.

GRENADA
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9. (SBU) Grenada is scheduled to come to the Club for
negotiations next month. The UK noted that the authorities
were likely to seek a concessional debt treatment (i.e.,
involving some debt reduction); therefore it was important
to manage their expectations. The Secretariat asked the IMF
to pass the message to the authorities that a concessional
treatment was not in the offing. Both the UK and Belgium
reported short-term credits that may need to be rescheduled,
depending on Grenada's capacity to pay.

GUINEA
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10. (U) Guinea's new PRGF could come to the IMF executive
board in the first half of June. Given arrears to Paris
Club creditors, the IMF will request assurances of debt
relief, possibly at the next Paris Club meeting. HIPC
completion point could be reached by the end of the year.

IRAQ
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11. (SBU) Australia expects to conclude its bilateral with
Iraq the week of April 10-14. Russia, on the other hand,
reported no progress since last month's discussion.
Although Russia and Iraq have agreed on the text of a
bilateral, the data reconciliation process remains
incomplete. Russia said it was waiting for a response from
Ernst & Young, who are representing the Iraqis.

LIBERIA
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12. (U) The IMF summarized the long and challenging road to
debt relief under the HIPC program, and called on creditors
to provide documentation of their claims to the authorities.
At the suggestion of the US, the Secretariat agreed to
launch a data call. The USDEL said it is committed to help
mobilize necessary resources for debt relief and new
financing from the IFIs.

MOLDOVA
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13. (SBU) Paris Club creditors (US, Germany, Italy, Japan,
Russia) provided assurances of debt relief for Moldova's
three-year PRGF, which is expected to come to the executive
board in early May. The IMF projects a financing gap of $48
million in 2006, taking into account IMF disbursements and
the government's partial settlement of arrears to the Club.
Based on the latest debt sustainability analysis, Moldova's
debt dynamics appear to be comfortably sustainable. In this
context, the Secretariat has proposed a non-concessional
rescheduling on Houston terms. Comparability of treatment
is not expected to be an issue, since Moldova has already
restructured much of its non-Paris Club debt. Moldova is
tentatively scheduled to come to the Club next month. The US
has $58.1 million in claims.

NIGERIA
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14. (U) The Secretariat has prepared a letter to the
authorities announcing that the final stage of the October
2005 Agreed Minute has entered into force. The letter will
be sent once the first review of Nigeria's PSI has been
approved by the executive board (anticipated for April 17).
The date by which Nigeria must make its final payments to
Paris Club creditors will be fixed at 20 business days after
the date of approval of the PSI review.

SEYCHELLES
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15. (SBU) The Secretariat asked if any creditors were
negotiating bilaterally with the Seychelles. Belgium
acknowledged that, following a meeting between the two
countries' finance ministers, it had agreed to reschedule
the Seychelles' ODA debt, which had fallen into arrears.
The UK said it had spoken with the authorities, but there
was no prospect for an agreement at this time. The UK added
that it was important to continue to press the Seychelles to
pursue a multilateral solution in the Paris Club. The
Secretariat will send a letter to the authorities reminding

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them of the Club's principles and urging them to seek an IMF
program as a first step toward a Paris Club treatment. (The
US is not a creditor.)

METHODOLOGICAL DISCUSSION: SHORT-TERM DEBT
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16. (U) There was broad agreement that short-term debt
should be considered senior to other categories of debt and
therefore should be excluded from most Paris Club
treatments. There were differing views, however, as to
whether creditors had the right to reschedule short-term
claims on a bilateral basis. Germany and Japan stressed the
need to maintain flexibility in order to preserve the
financing of essential imports. The USDEL, joined by
Denmark, Italy, Norway, Spain, Sweden, and Russia, argued
that the Club as a whole, not individual creditors, should
judge the consistency of such bilateral reschedulings with
the principle of creditor solidarity. In the end, creditors
agreed to modify the Secretariat's working paper to require
prior notification of bilateral short-term debt
reschedulings.

STAPLETON#