PARIS CLUB - NOVEMBER 2006 TOUR D'HORIZON

UNCLAS SECTION 01 OF 06 PARIS 007491 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 - NOVEMBER 2006 TOUR D'HORIZON SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION -------------- SUMMARY -------------- ¶1. (U) At the November 15 meeting of the Paris Club, creditors decided on an initial response to Argentine Finance Secretary MacLaughlin's letter to the Club expressing the GOA's desire to restart a dialogue and normalize relations as soon as possible. Creditors agreed that Paris Club Chairman Musca should tell the Argentines at the November 18-19 G-20 Meeting in Melbourne that creditors welcomed his letter, but that Argentina should clear its arrears in full and that any rescheduling would require an IMF program. Meanwhile, Spain appears close to concluding a separate bilateral deal with Argentina to restructure an $850 million loan extended during the 2001 financial crisis. A Spanish deal could complicate Argentina's discussions in the Paris Club. The US briefed creditors on the Iraq Compact and asked that they consider providing 100% debt relief as their contribution to the Compact. There was little reaction, reflecting an understanding among creditors that a decision will be made at higher political levels. Creditors also provided financing assurances for the Central African Republic's new IMF program. The Club will likely consider a "Naples flow" treatment (partial reduction on payments coming due) in January once the program is approved. Other countries on the agenda included Angola, Chad, the Republic of Congo, Cuba, Guyana, Haiti, Cote d'Ivoire, Lebanon, Moldova and the Seychelles. END SUMMARY. -------------- ANGOLA -------------- ¶2. (SBU) Angola has fulfilled its commitment to make a $100 million good faith payment toward arrears, but has not yet resumed payments on 2006 maturities. The secretariat will follow up with the authorities. (Angola has no arrears to the US and is current on its debt service.) At a G-7 debt experts meeting held prior the main Paris Club meeting, the secretariat said now was the time to give the IMF a "gentle push" to play a more proactive role in trying to reach agreement with the authorities on a Standby-Arrangement (SBA). -------------- ARGENTINA -------------- PARIS 00007491 002 OF 006 ¶3. (SBU) Finance Secretary MacLaughlin sent a letter November 9 to the secretariat expressing the government's desire to restart a dialogue with the Paris Club, with the aim of normalizing relations as soon as possible. Creditors will formulate a written response at the December Paris Club meeting. In the meantime, Paris Club Chairman Musca will approach MacLaughlin on the margins of the November 18-19 G-20 meeting in Melbourne to seek more information about Argentina's intentions and to deliver the following five-point message: (1) Creditors appreciate Argentina's desire to restart a dialogue; (2) Given healthy reserves (around $30 billion),the optimal solution would be for Argentina to clear its $3 billion in arrears immediately; (3) Any debt rescheduling would require an IMF program; (4) A separate agreement with Spain, were it to materialize, would not create a precedent for any future debt treatment in the Paris Club; and (5) Chances for normalization would be helped if Argentina did not disclose its discussions with the Paris Club to the press. Italy, concerned about domestic sensitivities, asked that Musca refer to overarching Paris Club principles, rather than present a unified Paris Club position toward Argentina in particular. ¶4. (SBU) The Spanish delegation was unable to confirm an agreement reportedly reached between Prime Minister Zapatero and President Kirchner at a summit in Uruguay earlier in the month. According to press reports, the two leaders have agreed to a seven-year rescheduling of Spain's $835 million loan extended in 2001. (At the G-7 debt experts meeting, France said it believed the reports were accurate.) The Spanish delegation said it had not received any information from the prime minister's office and was not in a position to confirm or deny the press reports. All creditors, with the exception of Spain, stressed that the loan was no different from any other Paris Club loan and should not be treated outside the Paris Club framework. Several expressed concern that a separate Spanish deal would lead Argentina to expect similar or better treatment from the Paris Club. -------------- CENTRAL AFRICAN REPUBLIC -------------- ¶5. (U) Creditors provided financing assurances for CAR's new Poverty Reduction and Growth Facility (PRGF),expected to come to the IMF executive board in late December, pending clearance of CAR's arrears to the World Bank and African Development Bank. The secretariat confirmed that CAR, as a pre-HIPC decision point SIPDIS country, stands to benefit from a Naples flow treatment (67% reduction on flows of non-concessional debt coming due during the PARIS 00007491 003 OF 006 IMF program and rescheduling of concessional debt) once the PRGF is approved. The IMF said decision point could be reached following six months of performance on the program. At decision point, the Club usual increases flow reduction to 90%. -------------- CHAD -------------- ¶6. (U) Chad has still not completed the first review of its three-year PRGF approved in February 2005. As a result, the Paris Club consolidation period ending September 2005 has not been extended, and most creditors are invoicing for maturities falling due. The IMF said a mission was currently in the field, with the aim of completing the first and second reviews. (The US is not a creditor.) -------------- CONGO-BRAZZAVILLE -------------- ¶7. (U) The IMF said large fiscal overruns have prevented completion of the third review of the PRGF. The second phase of Congo-B's decision point agreement, covering maturities falling due between October 2005 and September 2006, entered into force earlier this year. However, the final phase, covering maturities falling due between October 2006 and September 2007, is conditioned on completion of the fourth review of the PRGF before January 1, 2007. Therefore, maturities falling due after September 2006 are due and payable. The secretariat asked creditors, where possible, not to ask for payment. -------------- COTE D'IVOIRE -------------- ¶8. (SBU) The IMF said an Emergency Post-Conflict Assistance (EPCA) agreement was contingent on clearance of arrears to the World Bank and African Development Bank, as well as agreement with the authorities on a macroeconomic framework and continued donor support. (Cote d'Ivoire is a pre-HIPC decision point country.) -------------- CUBA -------------- ¶9. (U) In 2001, the U.S. blocked a formal Paris Club negotiation PARIS 00007491 004 OF 006 with Cuba on the ground that Cuba didn't have an IMF program and wasn't even a member of the IMF. Afterwards, some Paris Club members met with Cuba in an unsuccessful attempt to discuss a possible treatment of Cuba's external debt. At this meeting, Belgium said it had been contacted by the Cuban central bank expressing interest in a debt treatment. Several creditors reported short-term debt agreements with Cuba concluded in recent years. In most of these cases, Cuba has since suspended payments. -------------- GUYANA -------------- ¶10. (SBU) The secretariat will follow-up with the Guyanese authorities to try to learn more about the potential systemic risks of requiring the GOG to implement fully the comparability of treatment provision in Guyana's 2004 HIPC completion point agreement. The US, supported by the UK, said it welcomed the secretariat's efforts to seek more information, but noted it was not SIPDIS going to revoke HIPC debt relief over this issue, regardless of the outcome. Japan agreed, but cautioned against allowing debtor countries to avoid having to seek comparable treatment by transferring debt from non-residents to residents. The US pointed out that the amount of money was relatively modest. Guyana is proposing to cancel about $5 million of $26 million in bonds held by Guyana's fourth largest commercial bank and a number of pension funds, whereas comparable treatment would require cancellation of an additional $15 million. -------------- HAITI -------------- ¶11. (U) Haiti's new PRGF is scheduled to come before the IMF executive board on November 20, together with decision point. Negotiations in the Paris Club will take place in December. -------------- IRAQ -------------- ¶12. (U) The US briefed creditors on the Iraq Compact and asked that they consider providing 100% debt relief as their contribution to the Compact. There was little reaction, reflecting an understanding among creditors that any decision on Iraq debt will be made at higher political levels. The UK encouraged all creditors to press the Gulf countries - especially Saudi Arabia and Kuwait - to provide PARIS 00007491 005 OF 006 at least 80% debt relief. ¶13. (U) Russia said it had nothing new to report on the status of its bilateral agreement. Signature awaits "legal authority," and the final decision will be made "outside of the Ministry of Finance." (Russia remains the only Paris Club creditor that has yet to conclude its bilateral agreement implementing the December 2004 agreed minute.) Commenting on a report provided by the Iraqi government that 96% of its commercial debt has been settled on Paris Club terms, the secretariat declared that Iraq had satisfied the comparability of treatment requirement with respect to its commercial creditors. -------------- LEBANON -------------- ¶14. (U) France said a donors conference is scheduled to take place in Paris in January 2007. The IMF said a mission is currently in Beirut, with the objective of assessing debt sustainability and providing technical support ahead of the conference. Although the financial system has managed to weather the shock of the conflict with Israel, the fiscal situation remains fragile. -------------- MOLDOVA -------------- ¶15. (U) The US and Italy had concluded their bilateral agreements implementing the May 2006 agreed minute. Russia and Japan expected to conclude their bilateral agreements shortly (Japan has since signed). Germany said bilateral discussions were scheduled for the week of November 20. -------------- SEYCHELLES -------------- ¶16. (U) Creditors agreed on a formula for dividing up a 4 million euro arrears payment from the Seychelles. The formula is the same as that agreed last month for dividing up a $100 million arrears payment from Angola, and includes the same stipulation that, on an "exceptional" basis, no payments shall be applied to late interest. Italy, which stood to receive a larger portion of the 4 million euro under an alternative formula, complained that creditors had agreed last month that the Angola solution would not set a precedent for future allocation exercises. (The US is not a creditor.) PARIS 00007491 006 OF 006 -------------- PC Prepayment Policy to be Posted to Website -------------- ¶17. (U) Creditors agreed on text to be posted to the Paris Club website describing the Club's policies on prepayments and buybacks. -------------- Relations between G-8 and non-G-8 creditors -------------- ¶18. (SBU) During the meeting of the G-7 debt experts, G-7 creditors discussed a non-paper from certain non-G-8 members of the Paris Club, calling on the G-8 members to sign a Code of Conduct to enhance inclusiveness and transparency. Under this proposed Code of Conduct, the G-8 would commit not to make any decisions related to the Paris Club without first consulting the non-G-8. The proposal came in reaction to high-profile Paris Club agreements with Iraq in 2004 and Nigeria in 2005 that were mainly decided in the G-8 and generated resentment among the non-G-8. G-7 debt experts agreed that it would be ill-advised to sign a binding code restricting the G-8's freedom of maneuver. At the same time, they acknowledged the need to try to improve the relationship with the non-G-8. The secretariat has drafted a non-paper that lays out steps for better SIPDIS coordination, and will deliver it to the non-G-8 creditors in December. -------------- Confidentiality of Paris Club Discussions SIPDIS -------------- ¶19. (SBU) Also at the G-7 debt experts meeting, the secretariat expressed its displeasure at Norway issuing a press release that divulged internal Paris Club discussions regarding Norway's decision to unilaterally cancel $78 million in ship export debt. Paris Club Chairman Musca sent a letter to the head of the Norwegian delegation rebuking Norway for breaching Paris Club confidentiality. STAPLETON