IRAQI DEBT TOWARD MOROCCO NOT LARGE, BUT NOT EASY TO

UNCLAS RABAT 000187 C O R R E C T E D C O P Y (CORRECTED SUBJECT LINE TO SAY TOWARD MOROCCO AND NOT TOWARD IRAQ) SENSITIVE SIPDIS DEPT FOR NEA/MAG, EEB TREASURY FOR OFFICE OF MIDDLE EAST AND NORTH AFRICA - VINOGRAD E.O. 12958: N/A TAGS: EFIN ECON EINV MO IZ SUBJECT: IRAQI DEBT TOWARD MOROCCO NOT LARGE, BUT NOT EASY TO FORGIVE REF: 3/2 SMITH-VINOGRAD EMAIL (NOTAL) ¶1. (SBU) Summary: Morocco is likely to eventually forgive all or most of outstanding pre-Gulf War I Iraqi debt owed to the Government of Morocco (GOM). However, a smaller amount is still owed to private enterprises, and GOM officials warn that any attempt to settle the debt will elicit a flood of requests for repayment from those long-dissatisfied creditors. It may be useful to share other countries' experience in similar situations, if such examples exist. End Summary. -------------- NOT A VERY LARGE DEBT -------------- ¶2. (SBU) Director of the Treasury and External Finance Zouhair Chorfi told EconCouns on March 3 that the GOM recently sent a letter to the Government of Iraq (GOI) inviting the visit to Rabat at the end of March of a team of experts from Iraq to decide on the amount of interest associated with the debts owed to Morocco stemming from pre-1991 commercial transactions. In earlier discussions, the GOM and GOI had "quickly" agreed on the value of the principal (USD 11 million),but have debated different formulas to determine interest, resulting in a range from from USD 9 to 24 million (for a total value therefore of USD 20 to 35 million). The Ministry of Finance's role will be only to get an agreement on that value, Chorfi emphasized, but disposition of the debt is a political question "beyond us technocrats." ¶3. (SBU) Chorfi commented that after a value is agreed upon between Morocco and Iraq, the Ministry of Finance will present options to the Council of Ministers on how to deal with the debt, identifying three possibilities. The first, the "Paris Club" option, would forgive 80 percent of the debt and spread out repayment of the remaining 20 percent over 10 to 15 years. The second would forgive 90 percent of the debt upon immediate payment of the remaining 10 percent. And the final option would be forgiveness of one hundred percent of the debt ("your preferred position," Chorfi noted). Ultimately, Chorfi predicted, the decision will likely reside with the King, and would probably be one element in a broader political and economic initiative toward Iraq. The debt is not huge, Chorfi observed, and forgiveness would constitute a "friendly gesture" perhaps in coordination with renewed bilateral commercial deals or oil supply agreements. -------------- BUT IT'S COMPLICATED -------------- ¶4. (SBU) Chorfi and Head of the Balance of Payments Division Younes Zouhair pointed out that the GOM is actually the creditor for only 90 percent of the USD 11 million principal (and its associated interest),having already compensated private Moroccan exporters who had state guarantees for 90 percent of their uncollectible debts. However, those firms (about 26 enterprises) still have a claim to the 10 percent still outstanding. Up to now, Chorfi noted, the GOM has been negotiating with the GOI on defining the amount of principal and interest for 100 percent of those debts, but the GOM does not have the legal authority to take a decision on forgiving the ten percent still owed to private enterprises. In addition, Zouhair added, some exporters who were not protected by government guarantees are owed an additional estimated USD 4.5 million principal, plus interest. Moroccan exporters typically had to pay up to 13 percent in interest on the bank loans that financed these transactions, Chorfi pointed out. They have suffered substantially from the unpaid debts and a unilateral GOM decision (partly on their behalf) to forgive the debts would cause an uproar. -------------- HAS THIS BEEN DONE BEFORE? -------------- ¶5. (SBU) Comment: GOM forgiveness (or near forgiveness) of its share of the debt is highly likely, but we do not expect it will come soon. Chorfi and his staff appeared preoccupied with the political implications private creditors might raise following forgiveness of the state debt. If the Department or our colleagues in Treasury are aware of examples from other countries that may have dealt with such claimants, it may be useful to pass those models to the Moroccans for their consideration. ***************************************** Visit Embassy Rabat's Classified Website; http://www.state.sgov.gov/p/nea/rabat ***************************************** Jackson