DUTCH ON CLEARING LIBERIA'S ARREARS TO THE IFIS

UNCLAS SECTION 01 OF 02 THE HAGUE 000222

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IFD/OMA (ABESMER)
STATE ALSO FOR EUR/UBI (RREITER)

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PINR LI NL
SUBJECT: DUTCH ON CLEARING LIBERIA'S ARREARS TO THE IFIS

REF: A. STATE 9925


B. THE HAGUE 70

THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE
ACCORDINGLY.


1. (U) This is an action request; please see para 7.


2. (SBU) SUMMARY. The Dutch agree that a multilateral
solution is needed to address Liberia's arrears to the IFIs
but also stress the need to guard against negatively
impacting the financial integrity of all the IFIs. They
worry that any exceptions made for Liberia will set a
precedent for other countries. They seek further
clarifications on the details for clearing Liberian arrears
to the World Bank and African Development Bank before
addressing arrears at the IMF. See request for further
information. END SUMMARY.

ENSURING THE INTEGRITY OF ALL IFIS
--------------


3. (SBU) Econoffs discussed on February 1 ref A points and
background with Dutch Finance Ministry officials Karen Rot,
Senior Policy Advisor responsible for African Development
Bank (AfDB) issues, and Martine Rutten, Policy Advisor
responsible for World Bank issues, as well as Andre
Westerink, Senior Policy Advisor in the UN and International
Financial Institutions Department, Ministry of Foreign
Affairs. These officials said the GONL shared USG interests
in finding a multilateral and comprehensive solution to the
problem of clearing Liberia's arrears to the International
Financial Institutions (IFIs). Rutten said the GONL,
however, was reluctant to consider a delinking of World Bank
and AfDB arrears clearance processes with that of the IMF.
She also questioned how such a delinking process would
proceed. She and Rot questioned the implications of such a
move on the Heavily Indebted Poor Countries (HIPC) fund,
which they noted was already in deficit. They both stressed
the need to ensure that any proposed solution did not
negatively impact the financial integrity of all the IFIs.

EXCEPTION FOR LIBERIA RISKS SETTING PRECEDENT
--------------


4. (SBU) These officials agreed that Liberia would benefit
from increased engagement by the IFIs. They also
acknowledged that Sudan and Somalia might not be ready and
have the capacity for an arrears clearance exercise.
However, Rot said the same arguments used to justify actions
directed at Liberia could be applied to other African
countries. Therefore, she argued, it was important to
establish an overall framework for addressing arrears before
moving forward with only one country. Introducing exceptions
for Liberia also risked setting a precedent for future cases,
she added. Rutten reiterated that the Netherlands had
limited bilateral interests in Liberia and that the country
was not on the GONL's official list of 43 development
assistance partner countries (36 of which are in sub-Sahara
Africa). See ref B for earlier reporting.

FURTHER CLARIFICATIONS NEEDED ON WB AND AFDB PROPOSALS
-------------- --------------


5. (SBU) Rot said the GONL sought further details on the
World Bank proposal to use a grant from the International
Development Association (IDA) to clear Liberia's arrears,
including the handling of commercial credits. She also
questioned whether the option of increased bilateral donor
funds had been explored sufficiently.


6. (SBU) While still considered "exceptionally high," Rot
said the GONL might agree to funding 50 percent of Liberia's

THE HAGUE 00000222 002 OF 002


arrears through the AfDB's Post-Conflict Country Facility
(PCCF). Much would depend on the size of the gap left by any
donor contribution shortfalls. She said a target of 70
percent was too high and also risked setting a precedent for
other cases. Meanwhile, uncertainties remained about the
contributions expected from donors under this plan and
proposed timelines, she added.

ACTION REQUESTED: MORE INFORMATION NEEDED
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7. (SBU) These officials thanked econoffs for the
background information provided. They noted further
information would be helpful on how the USG envisioned the
proposed delinking process, the implications of such actions
on the HIPC, and the handling of commercial credits under the
World Bank proposal, especially as the GONL reviews its
position on this issue. They also welcomed any information
on future USG donor contributions to offset Liberia's arrears
and any funding through the PCCF. Post would greatly
appreciate any additional information Washington can provide.
ARNALL