Viewing cable 05PARIS2517

05PARIS25172005-04-13 16:10:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A 
¶1. (U) Following are summaries of country discussions 
during the April 5, 2005 Paris Club session.  The Paris 
Club's President, Jean-Pierre Jouyet, chaired the 
session.  Secretary General (SecGen) Emmanuel Moulin 
represented the Secretariat.  Representatives of non- 
Paris Club members Brazil, Israel and Korea attended 
discussions on those countries to which they are 
creditors.  The next session of the Paris Club is 
scheduled for the week of May 9, 2005. 
¶3. (SBU) Discussed in this session: 
Argentina -- Upcoming negotiation (Israel) 
Burundi -- IMF update 
China -- possible accession 
Dominican Republic -- IMF Update, upcoming negotiation 
Gabon -- IMF update (Brazil) 
Grenada -- IMF update 
Honduras -- IMF update 
Kyrgyz Republic -- debt service reduction tables 
Liberia - request for data assistance 
Peru -- buyback (Brazil) 
Russia -- Buyback proposal 
Rwanda -- IMF update 
Sao Tome and Principe -- IMF update, financing assurances 
Serbia and Montenegro -- IMF update 
Tsunami-affected countries -- IMF update, follow up 
actions, requests from Sri Lanka and Indonesia 
Zambia -- IMF update 
Zimbabwe - - IMF update, review of arrears (Brazil) 
May negotiations -- Rwanda; Zambia; Peru buyback 
June negotiation -- Honduras 
July negotiation -- Dominican Republic 
TBD negotiation -- Russia buyback 
¶5. (SBU) The President, Jean-Pierre Jouyet, remarked that 
the GoA published on March 18 its exchange offer, and it 
had attracted a strong participation rate.  He inquired 
whether creditors wished to send a demand letter. 
¶6.  (SBU) The IMF reported that Argentina's macroeconomic 
policies are on track, but there is no progress on 
structural reforms.  The Fund understands that settlement 
of the debt exchange offer has been delayed by another 
appeal in the US federal courts.  On March 6-7, the 
Managing Director met with the GoA Finance Minister.  The 
IMF held Article IV discussions two weeks ago in DC.  The 
problem is that a strategy to restructure debt has to be 
considered in the context of the Fund's lending into 
arrears policy.  The IMF still has no further information 
about the GoA's intentions regarding a possible follow-on 
¶7. (SBU) The World Bank noted that the way forward is 
still unclear.  Adjustment operations valued at USD 870 
million are on hold pending an IMF agreement.  The Bank 
made 3 adjustment loans to the provinces in 2004.  On 
investments, the Bank plans USD one billion in 
commitments for 2005.  [Further lending this year depends 
on what happens with the IMF.  With an IMF program, 
Argentina could benefit from large disbursements 
resulting in a positive net flow in 2005.  Without a 
program, the situation would be reversed. 
¶8. (SBU) Germany said it strongly supports the letter, 
reiterating that an IMF program is a prerequisite to a 
¶9. (SBU) Italy has seen no significant change in 
Argentina's position, and therefore Italy does not agree 
to send a letter.  Italy wants to avoid prejudicing the 
rights of its large population of private creditors for 
as long as possible, and so prefers the current 
fuzziness.  It will take the letter to Rome and if there 
is a change in position, will inform the Secretariat. 
¶10. (SBU) The USDEL remarked that the draft letter's 
implicit suggestion that Argentina should recommence 
borrowing from the IMF went beyond the purview of the 
Paris Club, and suggested the letter be toned down to 
simply remind Argentina of its obligations to Paris Club 
creditors.  The Secretariat produced such a draft for 
consideration by creditors. 
¶11. (SBU) The President noted the consensus for the 
Secretariat to redraft a letter and wait for Italy to 
signal the suitable moment to send it. 
¶12.  (SBU) The IMF reported that there has been progress 
on the PRGF, thanks to a significant rebound in economic 
activity.  The first review was completed on January 25. 
The political transition is proceeding.  A mission to 
conduct the second review just returned, so the second 
review should be completed by June 2005.  Staff also 
reviewed enhanced HIPC eligibility.  Staff will do an 
update to the DSA based on 2004 data.   The World Bank 
rep said that the Board would consider on May 5 an IDA 
grant for budget support and project assistance.  Staff 
is working on the DSA now.  The PSRP is advancing with 
local consultations; the Bank's goal is to have a full 
PSRP in place in 2005.  The Bank is working on a 
demobilization and integration program.  It has concerns 
about conflicting information from donors. 
¶13. (SBU) The President noted the consensus to place 
Burundi on the agenda for another update in July. 
¶14. (SBU) The President again proposed that he write a 
letter to China to open dialogue with the Paris Club. 
The Secretariat circulated a draft letter proposing that 
the President visit China. 
¶15. (SBU) The IMF reported it is preparing for Article IV 
consultations in May, but the Chinese have not agreed to 
a date.  The Fund Managing Director met the Chinese on 
March 15.  The World Bank rep noted that China is the 
Bank's largest borrower, and speculated that the reason 
the Chinese show such a strong interest in borrowing, 
despite their growing economic size, is because they want 
to profit from the Bank's technical expertise. 
¶16. (SBU) The UK rep pointed out that the Paris Club 
could avoid raising China's expectations for eventual 
membership by asking the IMF to conduct a study of all 
non-traditional lenders, including but not limited to 
¶17. (SBU) The USDEL agreed and commented that the draft 
letter failed to put the Fund's potential data request in 
the clear context of the Club's interest in the growing 
role of several countries as sovereign creditors, 
including China.  USDEL made drafting suggestions, which 
the Chair said he would include in a new draft. 
¶18.  (SBU) Italy supports a letter and likes even more 
the idea of the President visiting, to minimize the 
chance of misinterpretation. 
¶19.  (SBU) Germany supports the letter, but wants to be 
part of any talks with the Chinese. 
¶20. (SBU) Japan supports an informal dialogue, and is 
comfortable with any version of the letter.  Japan 
suggested that the letter could suggest creditors might 
participate in informal contacts. 
¶21. (SBU) Russia supports the letter and the idea that 
creditors could take part in later discussions. 
¶22. (SBU) Spain supports the letter and a President 
¶23. (SBU) The President suggested the Secretariat try to 
redraft a letter, responding to the suggestions, which 
will be circulated for comments. 
¶24. (SBU) The IMF reported that staff visited Santo 
Domingo in mid-March, and the Managing Director visited 
last week.  On the macro level, confidence is up, 
inflation is down, but growth is weakening.  Structural 
reforms are stalled due to political difficulties and 
differences among the ministries.  Resolution of the debt 
exchange is slow but moving forward.  Congress approved 
on March 29 the bond exchange.  Absent further delays, 
the bond exchange will be completed in 3-5 weeks.  Late 
interest would need to be included in any debt 
¶25. (SBU) The World Bank rep said the Bank had completed 
negotiations on a power-sector loan, which is nearly 
ready to go to the Board.  A mission is wrapping up work 
on a structural reform loan. 
¶26. (SBU) The Secretariat reported that the authorities 
had thought bilateral agreements would be completed mid- 
April but now have requested an extension of the deadline 
stipulated by the 2004 agreed minute.  It encouraged 
creditors to complete bilateral agreements well before 
¶27. (SBU) Belgium remarked that the arrears it had 
reported at the last session still have not been cleared. 
¶28. (SBU) The USDEL reported a sudden jump in arrears, 
totaling USD 32 million as of the end of March.  While 
only USD 2.7 million of the total is post-ccod, the spike 
was nonetheless worrisome. 
¶29. (SBU) Norway said that the GoDR's technical default 
of USD 7 million has been avoided by an agreement in 
principle.  Norway will know by April 25 whether it will 
be implemented. 
¶30. (SBU) Spain has no arrears, but signaled its hope to 
finish soon its bilateral agreement. 
¶31. (SBU) The President noted the calendar would appear 
to allow a negotiation with the GoDR in July The 
Secretariat agreed to raise the DR's arrears situation in 
the interim. 
¶32. (SBU) The IMF reported that the fourteen-month Stand- 
By Arrangement will expire in June 2005.  Performance has 
been satisfactory, and no funding gaps are anticipated in 
¶2005.  Therefore, the authorities have decided not to 
make further purchases making the arrangement 
precautionary.  The GoG has negotiated bilateral 
agreements with Saudi Arabia, Libya and Korea.  It is now 
negotiating with the London Club.  The third review 
showed major challenges remain with the durability of the 
economic program, and diversification from oil exports. 
The Fund did a debt sustainability analysis, which showed 
good fiscal consolidation but the economy is still highly 
sensitive to external shocks and the degree of fiscal 
¶33. (SBU) The World Bank reported cautious optimism.  It 
is working with the IMF to improve the efficiency of the 
non-oil sectors especially forestry by eliminating the 
monopoly position of the marketing board and partially 
privatizing the national airline.  It supports reform in 
the natural resources sector.  It is considering an IBRD 
development policy loan. 
¶34. (SBU) The Secretariat noted it is not necessary to 
provide further debt relief based on the goodwill clause 
in the 2004 AM thanks to high oil prices that will cover 
Gabon's 2005 financing needs.  The IMF DSA shows a 
decrease in the export/debt ratio in the long term. 
Stability depends on oil prices and development of the 
non-oil sectors, but for now, further debt treatment is 
¶35. (SBU) The IMF reported that following Hurricane Ivan, 
the GoG asked for emergency financial assistance.  The 
economy shrank 3 percent in 2004.  The GoG predicts one 
percent GDP growth this year, although tourism was 
devastated.  The fiscal consolidation program is very 
slow, and large financing gaps are expected in 2005.  The 
GoG acknowledged soon after the hurricane that it would 
not pay its debt service and would be seeking debt 
reschedulings from its external creditors It has hired 
advisors to approach creditors and is working to 
restructure its commercial debt.  It will present an 
exchange offer next month, but that will not be enough to 
close the financing gap.  It will need additional debt 
relief.  No strategy has been determined yet.  Its 
largest creditor is Taiwan; Paris Club debt is less than 
two percent of the total debt.  An Article IV visit will 
take place next month. 
¶36. (SBU) The World Bank reported it has committed USD 10 
million in a blend operation for emergency 
reconstruction.  It has already disbursed USD 194 
million, almost all disaster-related.  A recent mission 
revealed the health and education sectors are key.  A new 
country assistance strategy is in development and should 
go to the Board in May 2005.  IBRD lending is dependent 
on fiscal performance. 
¶37. (SBU) The Secretariat said the debt to Taiwan totals 
USD 51 million, to Kuwait 20 million; to France, the UK 
and the US the debts are all around 2 million.  The 
relative weight of creditors might be a problem. 
Creditors perhaps should consider coordinating with the 
major creditors, perhaps on a bilateral basis. 
¶38. (SBU) France said it holds all ODA debt totaling USD 
3.1 million. 
¶39. (SBU) Russia said it also has some claims against 
Grenada, some USD 260 thousand dollars from 1982 Soviet- 
era claims.  It thinks working with the major creditors 
is a sound policy. 
¶40.  (SBU) The Netherlands reported debts totaling 5.5 
million euros, with no arrears. 
¶41. (SBU) The UK said the Club's key objective should be 
to have a coordinated approach among all creditors, and 
working bilaterally outside the Club probably is best, 
and the UK is happy to work that way. 
¶42. (SBU) The USDEL agreed on the wisdom of a coordinated 
approach, but noted the lack of an IMF program is the 
immediate challenge. 
¶43. (SBU) The President noted a consensus among Paris 
Club creditors to coordinate responses to Grenada's 
plight informally. 
¶44. (SBU) The IMF reported that the Executive Board 
completed its second review on March 28 and had decided 
in principle that Honduras had reached completion point, 
pending World Bank confirmation.  The key problem now is 
protecting reforms after the political transition. 
Honduras made substantial progress in reforms, needing 
but one waiver in the financial sector for new bank 
regulations to comport with the Basel core principles. 
Topping up probably will not be necessary.  Staff will 
visit in May.  The third PRGF review should take place in 
August for October Board consideration. 
¶45. (SBU) The World Bank reported its Board was meeting 
that same day to confirm completion point, and to 
consider an IDA grant to fund IBRD debt.  This would be 
the first instance of such a payment, but no problems are 
¶46. (SBU) Germany pointed out that the GoH has not yet 
been informed that the second phase has entered into 
force.  The Secretariat acknowledged the oversight, and 
agreed to prepare a letter. 
¶47.  (SBU) The President noted the consensus to send a 
letter, and to include an invitation for a June 
¶48. (SBU) The Secretariat reported that to keep the debt 
reduction option equivalent to the debt servicing 
reduction option, since the Kyrgyz negotiation was unique 
and current interest rates are low, the Paris Club's 
standard debt service reduction table b4 may have to be 
used instead of b5.  The Secretariat undertook to do 
further analysis, which Russia and Germany expressed 
interest in double-checking. 
¶49. (SBU) The IMF discussed Liberia's potential HIPC 
eligibility under the enhanced HIPC program's "sunset 
clause" provisions.  Data discrepancies for Liberia are 
substantial, and data for the most part are old (from 
2002), so the IMF would be grateful for updates from 
creditors.  The Secretariat said it would do a detailed 
data call to respond to the request.  In addition, the 
small (almost de minimis)  proportion of Paris Club debt 
relative to large creditors like Taiwan and Kuwait raised 
the question of how the Club could most effectively 
contribute to an eventual resolution of Liberia's debt 
¶50. (SBU) The IMF reported that economic performance has 
been adequate.  Inflation in February was low. 
International reserves are increasing, and Peru is making 
progress on structural reforms.  A second mission on the 
Stand-By arrangement visited in February and will report 
to the Board in mid May. 
¶51. (SBU) The World Bank rep concurred with the IMF views 
on the economy, and supports a prepayment. 
¶52. (SBU) The Secretariat said it had informed the 
Peruvian authorities that the 220 points for liquidity 
premium is not acceptable, but creditors had expressed 
some flexibility with the spread and were willing to 
negotiate a prepayment.  The Peruvians indicated a May 
negotiation would be better for them.  The Finance 
Minister hopes to arrange bilateral meetings beforehand. 
¶53. (SBU) Spain remarked that it is interested in the 
prepayment operation but only at a reasonable price. 
Significantly, interest rates are rising in the US, which 
will affect the spread and the terms of any possible 
deal.  The Peruvians are not going to get a better deal 
as more time goes by. 
¶54.  (SBU) The President noted the consensus to maintain 
the current negotiating position, and let the Peruvians 
know a better deal is unlikely. 
¶55. (SBU) The President reported that after the last 
session, he wrote to Deputy Minister Storchak proposing 
prepayment at par, and had suggested this would be 
especially interesting with Germany participating.  In 
later conversations, Storchak had reported a continuing 
interest in a deal, but things have gotten complicated 
within Russia.  Differences between the Kremlin and the 
Ministry have arisen.  The Kremlin does not want a deal 
if it looks like nothing is gained.  Germany reported it 
had had bilateral talks as well, with no results.  The 
President noted the consensus among the members to stick 
to their previous offer. 
¶56. (SBU) The IMF said the Board meeting to consider the 
fourth review of the PRGF and enhanced HIPC completion 
point is scheduled for April 11.  All completion point 
triggers have been met except for one, for which the Fund 
will request a waiver based on substantial progress.  The 
Fund considered the request for topping up.  A DSA was 
done, which shows a debt to export ration at 362 percent 
at the end of 2003, well above the 193 percent projected 
at the decision point.  The ratio should have peaked in 
2004 before declining gradually to 171 percent in 2023. 
In view of the debt ratios, the Fund supports topping up. 
The bulk (96 percent) will fall on the international 
financial institutions.  Responding to a question from 
Russia (which is not a creditor), the IMF said topping up 
is sensitive to the evolution of export prices, and the 
decline in the discount rate affects the degree of 
concessionality in additional borrowing.  Documents were 
circulated on March 25.  The World Bank rep noted its 
Board date is set for April 12. 
¶57. (SBU) The President took note of the possibility of 
scheduling Rwanda for a negotiation in May. 
¶58. (SBU) The U.S. is not a creditor to STP.  Paris Club 
creditors continued to withhold financing assurances 
pending an assessment of STP's capacity to service 
arrears that have accumulated since 2000.  The IMF 
reported that STP faces large and continuing financing 
gaps going forward, and that oil will not fully come on 
line until 2012.  Moreover, the new PRGF demands a large 
and ambitious fiscal adjustment.  In this context, the 
IMF felt that there was no scope to negotiate even 
partial payment of arrears, as some creditors (Russia, 
Germany) were suggesting.  The secretariat said it would 
follow up with the IMF on STP's capacity to pay, then get 
back to creditors on what portion of arrears - if any - 
can be serviced without jeopardizing financing of new 
¶59. (SBU) The IMF said discussions on the fifth review 
are still ongoing.  Staff differed with the authorities 
about the extent of further fiscal tightening. 
Discussion will continue in April in DC.  If the 
macroeconomic situation continues to improve, the Board 
could take up discussion in June.  A sixth review will be 
necessary.  If the situation does not improve, further 
options will need to be explored.  The World Bank 
reported its attention is focused on the political issue 
of EU candidacy. 
¶60. (SBU) The Secretariat said it had sent a letter and 
had gotten a response about the status of payments due to 
Italy and Russia.  The Japanese bilateral agreement is 
expected soon.  On Italy, the issue is the non- 
recognition of late interest.  In the Secretariat's view, 
that does not concern the Club, it is Italy's problem. 
¶61. (SBU) Russia reported that it had gotten a USD 1.1 
million payment, but it is not prepared to enter into 
force the third phase until SaM clears all its arrears. 
¶62. (SBU) Italy agreed the late interest is a bilateral 
issue, and it does not pose a problem to entry into force 
of the third phase of the Agreed Minute. 
¶63.  (SBU) The President took note of the expectation 
that Serbia would clear its arrears to Russia, in which 
case it would proceed to the third phase in June, which, 
if the fifth review is completed, would lead to a 15 
percent debt stock reduction. 
¶64. (SBU) The IMF reported that it has intensified 
contacts with Indonesian authorities.  It will hold 
Article IV consultations in May for Indonesia as well as 
Sri Lanka, and will prepare DSAs.  The World Bank 
reported it had approved an additional USD 25 million 
grand from surplus. 
¶65. (SBU) The Secretariat reviewed the draft letters and 
MOUs, noting the discrepancy raised by one creditor in 
the repayment period, and presenting a proposed revision. 
¶66. (SBU) The USDEL noted that the grace period in the 
earlier draft did not correspond to creditor discussions 
and welcomed the Secretariat's attempts to eliminate the 
discrepancy.  The USDEL also explained that necessary 
Congressional action to enable the USG to participate in 
the extraordinary relief effort was still pending. 
¶67. (SBU) Sweden apologized for the late notice, but 
requested a de minimis clause be added to the MOUs, as it 
has a small payment due in 2005 of ten thousand dollars. 
¶68. (SBU) Germany agreed to the addition of the de 
minimis clause.  On the repayment schedule, Germany 
argued that the terms are less favorable than previous 
agreements with Nicaragua, Honduras or Macedonia, which 
should be of some solace to the US Congress. 
¶69. (SBU) Austria argued that a repayment date on the 
31st of December would be more convenient to creditors 
than on the 1st. 
¶70. (SBU) Australia countered that the debt suspension 
clock should run from January 1, 2005 to January 1, 2006, 
with repayments ending in 2009 not 2010.  It prefers the 
Secretariat formulation. 
¶71. (SBU) The Netherlands reported it has a small ODA 
credit to Sri Lanka, so it favors the de minimis clause. 
It also has a repayment due in June 2006, so it has a 
problem with the proposed repayment schedule. 
¶72. (SBU) Belgium said it does not understand the 
Austrian proposal, and prefers the Secretariat proposal. 
¶73. (SBU) The UK agreed to the redraft and the addition 
of a de minimis clause. 
¶74. (SBU) Japan said a de minimis clause is fine, as is 
the repayment schedule. 
¶75. (SBU) The President took note of the consensus to 
redraft the MOUs, add a de minimis clause, and await 
creditor approval of the redraft.  The secretariat will 
send memorandums of understanding to the Indonesia and 
Sri Lanka authorities for their consideration.  Paris 
Club creditors, with the exception of the United States, 
are expected to sign the MOUs next month.  The US 
reiterated that it is still awaiting Congressional 
authorization and appropriations to participate in the 
Paris Club offer. 
¶76. (SBU) The IMF reported that the Board will consider 
the second review of the PRGF as well as enhanced HIPC on 
April 8.  All criteria and completion point triggers have 
been met, with two waivers for delays in privatizing the 
integrated financial management system.  The World Bank 
said completion point was going to be considered that 
same day, as well as USD 885 million relief through 2020. 
¶77. (SBU) The President noted the possibility of inviting 
Zambia to a negotiation in May, if the Secretariat 
completes its data collection. 
¶78. (SBU) The IMF reported the March 31 elections had 
generated a large turnout and a great deal of criticism 
from international observers.  An Article IV mission is 
scheduled for May.  The Board will take up Zimbabwe in 
late July or early August. 
¶79. (SBU) The World Bank remarked on problems with human 
rights.  The GoZ has USD 380 million in arrears, of which 
USD 290 million is to the IBRD, therefore it will need a 
complex workout plan. 
¶80. (SBU) The Secretariat said its data call revealed UD 
1.55 billion in debt, with USD 792 million in arrears. 
Germany has about 35 percent of the total, followed by 
France with 20 percent and the UK with 14 percent.  It 
prepared a draft letter. 
¶81. (SBU) The UK noted that in light of a compulsory 
withdrawal, it would like more time to consider what to 
¶82. (SBU) Italy reported that the GoZ had initiated 
bilateral contact through its Embassy in Harare.  The GoZ 
wanted to know if the data call was comprehensive or 
¶83. (SBU) Germany reported its Embassy had been contacted 
as well.  It was given a list of German claims, which it 
is in the process of verifying.  Germany agrees the GoZ 
should be reminded about their arrears, and reminded 
about comparability of treatment, since it has heard that 
non-Paris Club creditors are being paid. 
¶84. (SBU) Norway reported it too had been approached.  It 
supports the letter with the German additions. 
¶85. (SBU) Japan was not approached.  It supports the 
letter with the CoT reminder. 
¶86. (SBU) The USDEL said that while it agreed with the 
CoT reminder, it accepted the UK's desire to take more 
time to consider the letter. 
¶87. (SBU) Sweden and Austria both reported they had not 
been approached, but agree with the letter and the CoT 
¶88.  (SBU) The President took note of the desire to take 
more time on the letter, as well as the consensus to add 
a provision on comparability of treatment.