ANGOLA ANNOUNCES PARIS CLUB AGREEMENT AHEAD OF

UNCLAS LUANDA 001225 SIPDIS SENSITIVE SIPDIS FOR AF/S NSC FOR PITTMAN / LEO E.O. 12958: N/A TAGS: EFIN ECON AO SUBJECT: ANGOLA ANNOUNCES PARIS CLUB AGREEMENT AHEAD OF SIGNING REF: A. PARIS 4622 ¶B. LUANDA 1147 (NOTAL) ¶1. (SBU) Summary. The GRA has reached agreement with the Paris Club on repaying interest in arrears (Reftel A). The news punctuates several announcements of new lines of credit offered as trade promotion vehicles by countries such as China, Germany and Brazil. End Summary. ¶2. (SBU) On Friday, 30 November 2007, Angolan Minister of Finance Joao Pedro Morais publicly announced that Angola had agreed with the Paris Club on a schedule for paying its outstanding interest arrears by January 2010. On December 6, GRA Treasury Director Armando Manuel told us the agreement has not yet been signed, but that Angola conveyed its offer to the Paris Club and received a "verbal agreement" from the Club. According to Manuel, the Angolan Council of Ministers has approved the Angolan offer, a critical step in budgeting the payments. ¶3. (SBU) Fin Min Morais described the following repayment schedule during his public presentation (Note: The initial USD 900 million payment represents 2.6 percent of the proposed 34 billion USD national budget for 2008): Jan. 2008 USD 900 million Jan. 2009 USD 700 million Jan. 2010 USD 400 million -------------- Total USD 1,800 million Renegotiation and New Lines of Credit -------------- ¶4. (SBU) In the wake of Angola,s Paris Club announcement, Manuel said, Angola is busily renegotiating the terms of its bilateral lines of credit, presumably increasing the amounts and lowering the interest rate. Manuel would not say which lines of credit Angola is re-negotiating, but public announcements have been made concerning new or existing agreements with Brazil, China, Germany, Portugal, India, Japan and South Korea. The GRA keeps the terms of the agreements under close wraps, and local embassies have been unwilling to provide details beyond those already made public. ¶5. (SBU) Most, if not all, bilateral credit lines require Angola to use the funds to procure goods and services from the lending country. Trade promotion through a creditor,s window allows these lending countries to absorb virtually all transaction risk and pass the significant cost savings on to their beneficiary companies. ¶6. (U) A survey of recent information concerning Angola's current and recently proposed bilateral lines of credit reveals: China USD 6 billion Brazil USD 1.7 billion Germany USD 2.1 billion Portugal USD 1.1 billion Spain USD 600 million EU USD 200 million India USD 50 million ¶7. (SBU) The Paris Club agreement, an improved ICRAS rating, and continued good credit record should positively affect Angola's eligibility for expanded access to USG medium term credit facility. The USG has already extended short term credit, as well as medium-term credit for Angola's national airline, TAAG, to lease-purchase Boeing airplanes. ¶8. (SBU) Comment: Angola,s agreement to clear its Paris Club obligations will bring cheaper credit to a country focused on accelerating its post-conflict rebuilding efforts. Depending on the specific terms of each credit agreement, bilateral lines of credit may be beneficial to both Angola and the lending country, but will further squeeze nascent domestic lending facilities and delay the development of indigenous businesses that could eventually compete against foreign firms. U.S. companies may be at a disadvantage until Angola qualifies for full export bank cover. MOZENA