Viewing cable 05PARIS3305
Title: PARIS CLUB - MAY 2005 TOUR D'HORIZON

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05PARIS33052005-05-16 10:42:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
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UNCLAS SECTION 01 OF 14 PARIS 003305 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD 
TREASURY FOR DO/IDD AND OUSED/IMF 
SECDEF FOR USDP/DSAA 
PASS EXIM FOR CLAIMS -- EDELARIVA 
PASS USDA FOR CCC -- ALEUNG/DERICKSON/KCHADWICK 
PASS USAID FOR CLAIMS 
PASS DOD FOR DSCS -- PBERG 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - MAY 2005 TOUR D'HORIZON 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION 
 
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SUMMARY 
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¶1. (U) Following are summaries of country discussions 
during the May 10, 2005 Paris Club session.  Country 
negotiations will be reported septels.  The Paris Club's 
President, Jean-Pierre Jouyet, chaired the session. 
Secretary General (SecGen) Emmanuel Moulin represented 
 
SIPDIS 
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 
June 14, 2005. 
 
¶2. (U) NOTE: INDIVIDUAL CREDITOR POSITIONS REPORTED IN 
THIS MESSAGE SHOULD BE TREATED AS "PARIS CLUB 
CONFIDENTIAL" AND NOT/NOT DISCUSSED WITH DEBTOR COUNTRY 
 
SIPDIS 
REPRESENTATIVES, NOR WITH NON-PARIS CLUB PARTICIPANTS. 
 
¶3. (SBU) Discussed in this session: 
 
Argentina -- Upcoming negotiation (Israel) 
China -- possible accession 
Dominican Republic -- IMF Update, upcoming negotiation 
Georgia -- IMF update (Turkey) 
Grenada -- IMF update 
Honduras -- upcoming negotiation 
Iraq -- IMF update / bilateral agreements 
Moldova - - IMF update 
Peru -- buyback (Brazil) 
Russia - Buyback/prepayment proposal 
Rwanda -- IMF update 
Sao Tome and Principe -- IMF update, financing assurances 
Zambia - upcoming negotiaiton 
Zimbabwe - - IMF update, review of arrears (Brazil) 
 
¶4. (U) ACTION/FOLLOW-UP/UPCOMING ITEMS 
 
July negotiation -- Dominican Republic 
 
--------- 
ARGENTINA 
--------- 
¶5. (SBU) The IMF remarked that press reports that 
discussions were starting May 10 in DC on a new program 
were not correct.  The IMF would be having technical 
discussions about continuing Article IV consultations; 
the IMF does not know when those discussions will end 
because that depends on the GoA.  At the earliest, the 
Article IV could go to the Board in June, but the GoA may 
be linking its Article IV talks to a May 18 meeting 
concerning Argentina's payment profile of its IMF 
obligations, and the GoA may wait to see what happens 
first before deciding to proceed with the Article IV 
consultations.  Discussions on a program will not begin 
until after the Article IV consultations end.  In line 
with the IMF-C and G7 communiques, a program will also 
depend on progress with structural reforms. 
 
¶6. (SBU) The World Bank is monitoring the situation. IBRD 
exposure totals USD 7.4 billion.  The Bank is shifting to 
investment lending, totaling USD 1 billion in 2005.  With 
an IMF program, it could disburse 875 million in 
adjustment lending. 
 
¶7. (SBU) Germany again pressed for a letter, and after 
the President noted the lack of consensus, asked Italy if 
it had changed its opposition to the letter.  Italy 
informed creditors its position is still the same: a 
letter is not useful.  A message might be interpreted as 
decoupling what the IMF with the need to deal with 
holdout creditors (those who did not participate in the 
bond exchange).  The IMF remarked that it is clear 
Argentina has to develop a strategy to deal with the 
holdouts, and so informed the authorities about 
conforming with the IMF policy on lending into arrears, 
as well as tackling structural reform challenges. 
 
----- 
CHINA 
----- 
¶8. (SBU) The Chair circulated the latest version of a 
letter to the Chinese.  Germany inquired whether the 
letter would be enough for the IMF to request data from 
the Chinese, and the IMF replied affirmatively, although 
it would of course be up to the Chinese.  After 
explaining that either the Chair could go to Beijing or a 
delegation might come to Paris to effect delivery of the 
letter, the Chair took note of the consensus to send it. 
 
------------------ 
DOMINICAN REPUBLIC 
------------------ 
¶9. (SBU) The IMF had a mission return last week for the 
first review of the current SBA and Article IV 
consultations.  The GoDR comfortably met its initial 
participation target in its bond exchange, but has made 
no progress on its structural reforms.  The GoDR economic 
team itself has divergent views on reforms, but in the 
final meeting, authorities said they are committed to 
reforms.  The third week of May a delegation will visit 
the IMF in DC.  The IMF does not know when the Article IV 
report will go to the Board.  Restructuring with the bond 
offer was successfully concluded with a high 
participation rate (93%).  The GoDR is analyzing what 
strategy to pursue with the remaining seven percent of 
non-participating creditors.  DR's 2005 program envisions 
cash flow relief from the bond exchange and Paris Club 
additional debt relief from the Paris Club of USD 140 
million on maturities falling due in 2005 of pre-ccod 
debts. 
 
¶10. (SBU) The World Bank reported ongoing problems on the 
structural side in the electricity sector, manifesting 
itself in power shortages.  The GoDR has started raising 
electricity prices to industrial users, exempting 
residential users but plans are afoot to end those 
subsidies as well.  The Bank is active with new 
disbursements, with USD 25 million for the power sector 
disbursed in April and another 25 million due to be 
disbursed in June.  The Board will consider a loan for 
150 million for the power sector. 
 
¶11. (SBU) The Secretariat noted that all bilateral 
agreements should be signed as soon as possible as it 
would be complicated to begin negotiating a new treatment 
with bilateral agreements related to the July 2004 Agreed 
Minute pending.  The Secretariat will do a Working Paper 
for the next session on CoT and initiate a data call for 
a possible July negotiation. 
 
¶12. (SBU) Belgium said the GoDR cleared its arrears on 
post-ccod debt.  Norway reported its dispute has been 
settled, and so has no technical arrears.  Germany 
reported it concluded its bilateral agreement last month, 
and so would be ready for a July negotiation.  It asked 
if the Secretariat had heard from the commercial banks, 
but the Secretariat replied it had not.  The USDEL 
reported it was still showing some arrears, but 
significantly less than last month.  The USDEL promised 
to check on the nature of the arrears.  France reported 
it had negotiated its bilateral agreement, and although 
it was not quite finished, expected to be ready for a 
July negotiation.  Japan said it is preparing to send the 
bilateral agreement to the GoDR, and has no arrears. 
 
¶13. (SBU) The Chair noted the consensus to aim for a 
negotiation in July.  The Secretariat remarked that the 
Club may get good results on CoT despite earlier fears. 
 
------- 
GEORGIA 
------- 
¶14. (SBU) The IMF reported on economic progress in 
Georgia, where the major challenge is absorption of large 
capital inflows.  If the IMF and the authorities can 
reach agreement in June, the second review may go to the 
Board as soon as July.  The World Bank reported it is 
assisting with two new investment projects, with poverty 
reduction credits being the centerpiece of its efforts. 
 
¶15. (SBU) The Netherlands, Austria and Germany expressed 
pleasure with the economic progress, but noted that 
Georgia still has not signed the respective bilateral 
agreements.  The Chair noted that the Secretariat would 
therefore await the passage of Georgia's second review to 
enter into force the second phase of Georgia's treatment. 
Meanwhile, they would urge Georgia to conclude its 
bilateral agreements with creditors. 
 
------- 
GRENADA 
------- 
¶16. (SBU) The IMF reported that the economic situation is 
still difficult.  The GoG is working on three main areas: 
a significant fiscal effort, cooperative debt 
restructuring, and increased donor support, especially 
via grants.  The GoG passed a budget last month with a 
special five-year income tax for reconstruction, 
increased fuel prices, and increased excise taxes.  On 
debt reduction, the GoG hopes to get substantial relief 
from its commercial creditors.  It has hired financial 
advisors and developed its own DSA.  The GoG hopes to 
launch an exchange offer in the next few weeks.  Even so, 
it still faces a financing gap, and has no strategy on 
how to fill it.  The Fund is working on a medium-term 
plan, and staff has been consulting with the GOG every 
month.  The GoG has not yet requested a formal 
arrangement with the IMF. 
 
¶17. (SBU) The World Bank reported that it has had USD 22 
million in new commitments since the hurricane, focusing 
on reconstruction, health and education.  It is 
rebuilding schools and funding the St George's General 
Hospital.  Total Bank commitments are USD 37.9 million of 
which 26.2 million is still to be disbursed in FY 2005. 
A presentation to the Board on ongoing work with the 
Caribbean states may slip until July. 
 
¶18. (SBU) The Secretariat reported it had met with the 
GoG.  Data are incomplete but it is evident that the 
Paris Club only holds a small portion of the claims. 
Private creditors hold over one-half of the maturities 
falling due through 2010.  The total Paris Club stock of 
debt is in the neighborhood of USD 30 million, with the 
USA, UK, France, Netherlands, Belgium and Russia being 
creditors.  The GoG wants to negotiate its debt outside 
the Paris Club without an IMF program.  The Secretariat 
reminded the GoG of Paris Club rules. 
 
¶19. (SBU) The UK suggested the Secretariat do a data 
call.  The Netherlands said it found to its surprise that 
it has a large loan to Grenada (which is being paid off) 
so a data call is a good idea, along with an IMF program 
and a Paris Club treatment using the Evian approach.  The 
USDEL supported the data call, and noted that a treatment 
without a Fund program would present considerable 
challenges.  Belgium reported it only has short-term 
debt.  France reported a 3.1 million euro ODA debt, and 
relayed to other creditors that the presence of an IMF 
program would facilitate their participation in a debt 
treatment for Moldova.  The IMF remarked that Article IV 
consultations have started, and the IMF will do a DSA. 
The GOM has not taken any position yet on the need for a 
program. 
 
¶20. (SBU) The Chair directed the Secretariat to do a data 
call. 
 
-------- 
HONDURAS 
-------- 
¶21. (SBU) The IMF and the World Bank confirmed Honduras 
reached completion point. Spain and the Netherlands noted 
their readiness to provide a generous treatment; Norway 
remarked it is not a creditor. 
 
---- 
IRAQ 
---- 
¶22. (SBU) The IMF reported on meetings with the ITG.  It 
still does not have data on the 2004 budget.  Available 
data indicates Iraq is roughly meeting its EPCA targets. 
Inflation is starting to subside.  It is clear, however, 
that EPCA implementation is hampered by the poor security 
situation.  The IMF staff will do an oral report to the 
Board on May 27, and anticipates Article IV consultations 
will occur in June (after a 25 year hiatus), with Board 
consideration in July.  Only then could the ITG begin to 
negotiate a Stand-By arrangement.  Progress will depend 
on the ITG's ability to deliver monetary and fiscal data, 
an audit of the central bank, and action on adjusting 
domestic petroleum prices.  If all that happens, Iraq 
could have an agreement by the end of 2005 as envisaged 
in the Agreed Minute.  Responding to subsequent 
questions, the IMF affirmed that it intends to complete a 
Stand-By by year-end.  It is aware of progress with the 
private creditors, who will be meeting in Dubai with the 
ITG.  Advisors have asked what the Paris Club might think 
about a cash buyback of private sector debt, and the IMF 
referred them to the Secretariat. 
 
¶23. (SBU) The World Bank reported it is discussing an 
assistance strategy for the next eighteen months.  It is 
doing a note on an interim strategy that will go to the 
Board by the end of June, which will include USD 500 
million in IDA support. 
 
¶24. (SBU) The Secretariat reported it had sent a letter 
to the ITG re CoT.  Bilateral negotiations are 
continuing.  Belgium expressed concern that a Stand-By 
might not be ready by the end of the year.  The UK said 
it had sent its bilateral agreement several weeks ago. 
Debt reconciliation is going well, with the vast majority 
of claims reconciled. 
 
¶25. (SBU) Italy expressed fears the ITG may not be 
sincere about CoT as some consultants may be suggesting 
Iraq take the Argentinean approach to debt management. 
Canada reported that the Canadian Wheat Board began 
negotiating the bilateral agreement, which it hopes to 
finalize by June. 
 
¶26. (SBU) Germany said it is still working on 
reconciliation, and has a big problem reconciling 
interest.  It is surprised by the reports about buyback 
or prepayments of private sector debt--that would suggest 
Paris Club creditors were too generous.  Germany asked 
about spending from the trust fund, but the World Bank 
had no figures on hand. 
¶27. (SBU) Belgium is reconciling with Iraq.  A prepayment 
clause in the bilateral agreement poses problems.  The 
ITG wants it, saying it would conform to the Paris Club. 
However, CoT and voluntary participation are key Club 
principles that run counter to a prepayment clause. 
 
¶28. (SBU) Spain reported it had met with the ITG the week 
of May 2, and the ITG asked for a prepayment and swap 
clause.  Spain refused.  Spain also raised a technical 
issue concerning the wording of the Agreed Minute, where 
"falling due" and "accrued" might not mean the same for 
payments falling due in 2008 (and subject to a 90% 
deferral) but not payable till January 1, 2009 (2009 
maturities are subject to a 73% deferral). 
 
¶29. (SBU) Denmark said one-third of its claims are 
reconciled, but its short-term claims are not.  It is 
afraid it will not be able to meet the deadline for 
completing the bilateral agreement. 
 
¶30. (SBU) Switzerland reported it as made no progress on 
reconciliation.  It has asked Ernst & Young for data, 
which is needed for getting a negotiating mandate from 
the government.  It is not likely to get the data before 
the summer break, which will delay a bilateral agreement. 
 
¶31. (SBU) Russia reported it has succeeded on reconciling 
principal but not interest.  It has not heard anything 
about prepayment or buyback, but that maybe because it 
has not sent its bilateral agreement yet. 
 
¶32. (SBU) Austria has sent a bilateral agreement to the 
ITG consultants, and has made some progress on 
reconciliation.  However, it needs signature from the 
ITG, not its advisors. 
 
¶33. (SBU) Australia reported its data was reconciled in 
February, and it has sent its draft bilateral agreement. 
 
¶34. (SBU) Sweden said it has only a small amount to 
reconcile, but has seen no progress since November 2004. 
It prepared a bilateral but has not sent it because it 
wants to get reconciliation first. 
¶35. (SBU) Japan, like the UK, has almost completed all 
reconciliation.  It has informally discussed the text of 
a bilateral agreement.  It will check about a prepayment 
clause. 
 
¶36. (SBU) The USDEL remarked that the new ITG FinMin 
seems determined to tackle the outstanding policy reforms 
required under the EPCA arrangement and to work with the 
Fund to get to a Stand-By.  As he announced to the press, 
his first priority is to deal with the debt.  Regarding a 
possible prepayment of debt by commercial creditors, the 
USDEL said that while the theoretical concerns raised by 
some creditors are in the main understandable, without 
seeing a concrete proposal it would be premature to draw 
any conclusions. 
 
¶37. (SBU) France reported it is in the same situation as 
Germany and has not yet sent a bilateral agreement. 
 
¶38. (SBU) The Secretariat reported it had not been 
contacted about buybacks.  There normally should be no 
problem in missing the deadline for bilateral agreement, 
as creditors can just grant an extension.  Regarding 
prepayment or buybacks, the correct course is to reject 
these because those issues were not included in the 
Agreed Minute.  Regarding the technical issue of "falling 
due" versus "accrued," to change the meaning of accrued 
is not in the spirit of the Agreed Minute.  There is no 
nuance intended in the text, so the bilateral agreements 
should not change any wording. 
 
------- 
MOLDOVA 
------- 
¶39. (SBU) The IMF reported that the general economic 
situation is reasonably good, but the economic expansion 
has been largely fueled by workers' remittances, which is 
unlikely to be sustainable.  The country needs structural 
reforms for Fund support.  After the parliamentary 
elections, the new government is anxious to modernize the 
economy, implement growth policies and reduce poverty. 
The outlook for 2005 depends on decisions the GoM will 
take in the next few weeks.  The stock of debt has been 
reduced but is still high and arrears have accumulated. 
Staff will visit next week to lay out the elements of a 
SMP to establish the basis for a PRGF.  If that goes 
well, a Mission will follow in the early summer.  The IMF 
has encouraged the GOM to contact the Secretariat for 
advice on normalizing relations with Paris Club 
creditors.  The World Bank commented that the key 
challenge is sustaining economic growth.  Policy reform 
is needed per the PSRP to increase employment and access 
to social services.  The Secretariat noted that its last 
meeting with the GoM was a year ago in DC. 
 
¶40. (SBU) Italy said it had been prompted to ask that 
Moldova be placed on the agenda by a demarche upon its 
Ambassador in London.  It asked about bilateral contacts. 
Sweden replied that it has a technical assistance program 
in Moldova, and delegation will visit Sweden next week, 
during which Sweden will do its best to explain Paris 
Club principles.  Russia commented that the IMF report 
seems overly optimistic; in its view the situation is 
more critical in both political and economic terms.  The 
Moldavian authorities have devised policies dividing 
their country in two parts to attribute liabilities to 
the Russian Federation, and their arrears stem mostly 
from this division.  The Secretariat should explain that 
nothing can be done while a country is in arrears.  As 
for the IMF, it should pay more attention to the link 
between trade and development.  Moldova has destroyed 
trade with Russia.  It used to be a supplier of fruits 
and vegetables to Russia, but no more.  It has strange 
trade policies. 
 
¶41. (SBU) The Chair noted the consensus to pass the 
message to the GoM. 
 
---- 
PERU 
---- 
¶42. (SBU) The Chair reported it had received a proposal 
the week before for a prepayment at par for part of its 
non-ODA debt, and asked for opinions.  The IMF reported 
that staff thinks a letter of intent and Board review of 
the second review will take place in June.  The World 
Bank supports the prepayment proposal.  The Secretariat 
reviewed the proposal details, for prepayment at par of 
part of the non-ODA previously rescheduled debt (PRD) 
falling due over the period 2005-2009 in an amount of USD 
1.5 billion, with the possibility of retraction depending 
on creditor participation (which requires the Secretariat 
to decide participation allocation).  The Secretariat 
said the simplest solution would be to find out who is 
participating ASAP, and then proceed with an exchange of 
letters. 
 
¶43. (SBU) The USDEL noted that a proportion of USG 
contracts allow prepayment, and so the USG is certainly 
prepared to participate extent, per the Secretariat's 
suggested procedure.  The USG had been looking at the 
2005-2012 window per earlier information, and asked why 
the timeframe is shorter.  Spain said it is willing to 
participate, and the percentage allocation is acceptable. 
Canada is interested, and letters are OK.  The UK, 
subject to verifying figures, accepts the proposal. 
Japan does too, but only for JPIC, not export credits. 
Italy is OK with the proposal but might not participate. 
Belgium will not participate and already told the 
Peruvians.  Norway is OK with written exchange, would 
find original currencies more attractive, and probably 
would participate.  Ditto for Germany.  Brazil finds the 
proposal acceptable but will not participate.  Holland is 
not sure about participation.  Both Sweden and Finland 
indicated interest, but need to check the numbers. 
Austria is undecided but accepts the framework.  France 
welcomes the proposal, and probably will participate. 
 
¶44. (SBU) The Secretariat commented that the figures are 
for principal only without interest, which, in 
combination with the smaller time frame, accounts for the 
differences with the numbers.  Nevertheless, it welcomes 
double-checking of the figures.  The time frame was 
shortened because a prepayment versus a buyback means the 
money available covers less debt. 
 
------ 
RUSSIA 
------ 
¶45. (SBU) The IMF reported the economic situation in 
Russia is unchanged.  Exchange reserves have grown to USD 
141 billion at the end of April.  Russia is under 
extraordinary pressure to spend, and will spend an 
exceptional 2.5 percent of GDP this year on pensions, 
salaries and transfers.  The 2006 budget will move from 
USD 20 to USD 27 per barrel assumptions, which puts more 
money into the budget (another 2 percent of GDP).  The 
IMF will hold Article IV consultations in early June in 
Moscow, and Board consideration will take place in July 
or August. 
 
¶46. (SBU) The Chair announced that the Russians prefer to 
make their own presentation of their new proposal, rather 
than through the Secretariat.  The Secretariat reported 
that it understood the deal outline remains largely the 
same as presented previously: a buyback with a premium of 
around 100 basis points above the risk-free rate.  For 
fixed-rate loans, this means a buyback above par so the 
Russians propose swapping euros into dollars without 
changing the interest rates, which allows a limit to the 
spreads.  This however would not conform to Paris Club 
methodology. 
 
¶47. (SBU) Germany reported it had had bilateral talks via 
phone with Russia, which had made a pitch as described by 
the Secretariat.  Germany had indicated it would be 
acceptable, but only within the context of a Paris Club 
agreement.  Italy remarked that the buyback proposal is 
not a basis for a negotiation.  Japan remarked it 
supports the Secretariat position, and cautioned other 
creditors to be careful in their comments and questions 
to the Russian delegation to avoid confusion.  Subsequent 
creditor comments during the negotiation reported septel. 
 
------ 
RWANDA 
------ 
¶48. (SBU) The IMF reported its Board met in April and 
concluded the fourth review.  The PRGF was extended for 
six months.  The Board found that Rwanda had met the 
targets for completion point for enhanced HIPC, and needs 
exceptional topping up because the deterioration in its 
external position was due to exogenous factors.  Staff 
will visit in the next six months for the fifth review, 
and for the sixth in October 2005.  The World Bank 
reported its Board had agreed on completion point in 
April.  If Rwanda is to meet its goals, it will need new 
external financing from grants.  The Bank is committed to 
providing a large share of IDA grants. 
 
¶49. (SBU) The Secretariat reported that it thought it 
could complete the negotiation in writing but the 
Rwandans had insisted on sending a delegation.  The Club 
has no post-ccod and intends to cancel all debt (which it 
did on May 10).  Old EU loans are bilateral ODA loans so 
member countries participated in the Agreed Minute.  The 
Netherlands said it will cancel these EU loans for all 
countries that come to the Paris Club in the future, but 
will not do so retroactively.  The special loans should 
be mentioned specifically in the Agreed Minute to provide 
domestic justification for cancellation.  Denmark noted 
that its share of the EU loan amounts are very small (USD 
40 thousand), but the UK reminded creditors of the policy 
against de minim clauses for HIPC countries, and said it 
would cancel the EU loans retroactively.  Italy remarked 
it only has USD 45 thousand at stake, and so will be 
happy to sign and cancel. 
 
--------------------- 
SAO TOME AND PRINCIPE 
--------------------- 
¶50. (SBU) The IMF reported that the STP authorities have 
agreed to pay USD 1.5 million to Paris Club creditors, 
equivalent to what they would have paid if they had 
stayed on track and had received a Cologne treatment, 
with reasonable late interest.  This payment will be from 
the oil reserve fund and so is contingent on getting the 
oil bonus.  STP also agreed to put aside USD 1.3 million 
in an escrow account to cover payments to non-Paris Club 
creditors to assure CoT.  STP is aware of the short-term 
debt to Italy and is prepared to negotiate directly with 
Italy about it.  The World Bank reported staff had 
presented a paper to the Board in April, strongly 
supported by the Executive Directors.  The Bank expects 
STP will reach completion point in the second half of 
¶2006.  Staff will present a strategy for the 2006-09 
period. On May 2 a country delegation met with the Bank 
or Fund Managing Director; the World Bank encouraged 
transparency with oil revenues. 
 
¶51. (SBU) The Secretariat said it hopes to resolve 
financing assurances in light of the new cooperative STP 
attitude.  Italy said it is in favor of financing 
assurances.  Its debt is the result of a legal dispute 
not with the GoSTP, and in any event the GoI has agreed 
to write it off once the dispute is settled.  Germany and 
Russia said they support financing assurances per the 
Secretariat Working Paper option "c." 
 
SIPDIS 
 
------ 
ZAMBIA 
------ 
¶52. (SBU) The IMF reported that the Board completed the 
second review of the PRGF on April 8 and agreed on 
completion point.  The third review will assess program 
targets in June, and the fourth review will take place at 
the end of 2005.  The GoZ is doing a revised PSRP, and 
staff will soon visit. 
 
¶53. (SBU) The UK argued that creditors should cancel post- 
ccod commercial debt before pre-ccod ODA to maximize debt 
relief.  Russia called this a revolutionary proposal to 
which it was not ready to agree, preferring the 
Secretariat approach.  Spain spoke out in favor of 
 
SIPDIS 
respecting the cutoff date, noting that creditors are 
always free to provide additional relief.  However, Spain 
is not a creditor to Zambia and is only observing. 
Norway, and later Sweden, said it too is not a creditor, 
but agreed with Spain.  The USDEL spoke out strongly in 
favor of the UK proposal, noting that this would maximize 
debt relief to a HIPC country whose economy faced 
considerable downside risks.  The Netherlands agreed with 
Spain, and argued that touching commercial credits is not 
good for developing access to finance, as evidenced by 
the problems it had with banks after doing so for Ghana. 
Denmark sided with the US and UK.  Germany said it is not 
affected either way because it already cancelled ODA and 
had no commercial claims.  However, Germany reminded 
creditors that they had earlier proposed that if other 
Paris Club creditors were willing to reduce 100% then 
Germany would also forgive 100%.  No consensus was 
reached on that proposal.  So, for now it thinks pre-COD 
ODA cancellation should precede post-COD commercial debt 
cancellation.  Brazil said that due to domestic 
legislation prohibiting total debt cancellation, it would 
no be able to forgive 100% of any of their claims, which 
they would be obligated to do under standard Paris Club 
methodology.  Belgium said it is not affected by the 
issue but prefers respecting the current methodology. 
Canada announced that Zambia qualifies for Canada's debt 
initiative, so it will cancel 100% of all claims. 
 
¶54. (SBU) The Chair reviewed the methodology proposals 
and suggested they warranted further study.  The 
Secretariat pressed Brazil to provide data and join the 
 
SIPDIS 
rest of the Paris Club, pointing out that if Brazil 
retreats every time from debt deals, creditors might need 
to reconsider Brazil's membership. 
 
-------- 
ZIMBABWE 
-------- 
¶55. (SBU) The IMF reported that staff is preparing for an 
Article IV mission in June.  Performance has weakened a 
lot since December 2004.  Despite an election victory, 
authorities have done nothing to address economic 
problems.  Staff will look at the overdue obligations and 
compulsory withdrawal at the next Board meeting, 
tentatively scheduled for August 1.  The World Bank 
reported that external arrears continue to increase, as 
no payments have been made in 2005.  The stock of arrears 
is USD 299 million IBRD, 48 million IDA, and significant 
arrears to the African Development Bank.  Agricultural 
production has dropped and food shortages loom, but no 
progress has been made on land reform. 
 
¶56. (SBU) The Secretariat reported it had sent a letter 
in April.  The data call is progressing slowly, but 
preliminary indications are that total Paris Club debt is 
USD 1,149 million among three principal creditors.  The 
Secretariat has evoked the possibility of partial 
 
SIPDIS 
payments.  It is not sure they will occur, but if so, it 
will need to devise an equitable distribution. 
 
Minimize considered. 
WOLFF