SURINAME: CENTRAL BANK REPAYING PL480 DEBT ARREARS

UNCLAS PARAMARIBO 000554 SIPDIS SENSITIVE SIPDIS EEB/IFD/OMA FOR MARLENE SAKAUE AND DAVID FREUDENWALD USDA FOR WILLIAM WILLER E.O. 12958: N/A TAGS: EFIN ECON ETRD PREL NS SUBJECT: SURINAME: CENTRAL BANK REPAYING PL480 DEBT ARREARS REF: A. 06 PARAMARIBO 206 ¶B. 05 PARAMARIBO 684 ¶C. 05 PARAMARIBO 514 ¶1. (SBU) Summary. Central Bank Governor Andre Telting, during an October 15 meeting with the Ambassador and Pol/Econ Chief, said the Central Bank is making payments to bring its PL480 debt to the United States up-to-date but will continue to negotiate on making payments on the GSM102 debt. End Summary. ¶2. (SBU) The Central Bank has already made two payments to bring the PL480 debt up-to-date and has one payment remaining, Central Bank Governor Andre Telting informed the Ambassador during an October 15 meeting. The third payment will be paid on October 31 and will make Suriname up-to-date on the servicing of this debt. ¶3. (SBU) Regarding the GSM102 debt, Telting said he will stick to his offer of repaying principal and interest but not late payment penalties. Telting said he had hoped the USG would accept his offer so the debt could be paid off like a &bullet8 in one lump sum. He was not ready to pay off debt including late penalty charges, however, because late penalty charges constitute approximately 80 percent of the total amount owed. (Note: USG sources indicate that in fact principal arrears, interest arrears and late interest charges total 29.4 million USD so late interest penalties are only about 49 percent of the total amount due. End Note.) ¶4. (SBU) Since the USG did not accept his offer, payment of the GSM102 debt will likely have to wait until the debt issue with the Brazilians has been negotiated, Telting stated. (Note: Suriname,s largest amount of outstanding sovereign debt is currently owed to Brazil totaling approximately 100 million USD. End Note.) If the USG can show him that late interest penalties are not merely punitive measures but are due to losses incurred to the USG by having to pay a creditor, Telting said he could reconsider his position. ¶5. (SBU) The Ambassador reminded Telting that Suriname is not eligible for debt forgiveness and advised him to repay the GSM102 prior to engaging in negotiations with the Brazilians. Time spent not making payments on this debt will only increase the total amount owed, she warned. ¶6. (SBU) Telting stressed that he understands the importance of debt repayment on the international ratings of Suriname. He gave a lengthy example of an event several years ago when Standard and Poor's decreased Suriname's rating after analysts "mistook" (Telting's characterization) a government debt to Spain as commercial debt. A Surinamese company had plans to sign for a loan with a South African bank to go into the tiger shrimp business just after Asian shrimp farming had been decimated by the tsunami. But, after Suriname's rating dropped, the South African bank wanted new studies on the project. Even though Standard and Poor's reinstated Suriname's rating only a week later, the damage was done. The studies required by the South African bank continued and, in the meantime, the South African bank was bought out by another bank. In the end, the Surinamese company did not receive the loan. Telting said this was a regrettable event and showed how international ratings have a significant impact on a country's economy. ¶7. (SBU) Comment: Although committed to servicing Suriname's debt, thereby improving his country's credit rating, Central Bank Governor Telting remains adamant that late interest penalities on GSM102 debt are unfair to Suriname. The Governor argues that the USG originally made the loans when Suriname was at its most vulnerable. Penalties applied now, he implies, violate the spirit in which the original loans were granted. Post will continue to press the GOS to fully pay its debt but anticipates continued resistance on the part of the Central Bank Governor to that portion of the debt that he characterizes as (unfairly) punitive. End Comment. SCHREIBER HUGHES