Viewing cable 06PARIS1568

06PARIS15682006-03-13 10:16:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
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E.O. 12958: N/A 
¶1. (SBU) At the March 7 Paris Club meeting, creditors agreed 
on an approach for dealing with Angola's arrears to the 
Club, consistent with US objectives.  The Secretariat will 
call on Angola to resume payments to Paris Club creditors in 
excess of scheduled debt service, such that arrears are 
reduced.  If accepted by the authorities, this approach will 
ensure that Angola remains current on its debt service to 
the US while upholding the Paris Club's principle of no debt 
relief without an IMF program.  Russia and Germany 
reiterated their intention to forgive 100% of Afghanistan's 
debt under the Heavily Indebted Poor Countries Initiative 
(HIPC), but explained that they would not be able to do so 
under the alternative Evian approach.  The IMF said it could 
not include the $10 billion Russian debt in a Debt 
Sustainability Analysis (DSA), which would make it eligible 
for HIPC, until Russia and Afghanistan agreed on the amount. 
Russia said it was "waiting for Afghanistan" to act.  China 
appears to have no desire to forge a more cooperative 
working relationship with the Paris Club at this time.  A 
senior Chinese finance ministry official told the 
Secretariat that China has its own approach to debt issues 
and is not interested in subjecting itself to the 
disciplines of the Club.  Creditors agreed to provide 
financing assurances for Grenada's new IMF Poverty Reduction 
and Growth Facility (PRGF).  Other countries on the agenda 
included Argentina, Brazil, Burundi, Cambodia, Cameroon, 
Republic of Congo (Congo-B), Cuba, Democratic Republic of 
Congo (DRC), Georgia, Guinea, Iraq, Moldova, Nicaragua, 
Nigeria, and Russia.  End Summary. 
¶2.  (SBU) The IMF said the authorities had requested a three- 
year PRGF, which would be conditional on financing 
assurances from Paris Club creditors.  Although the debt 
reconciliation process has been completed, the IMF said 
"unverified" debts remain with Russia and other countries, 
which were not included in the latest HIPC calculation.  The 
US said it was important to see the Russian claims reflected 
in the DSA.  Germany and Russia reiterated their commitment 
to forgive 100% of their claims under HIPC, but not under 
the Evian approach.  Russia added that it was waiting for 
Afghanistan to act, and said the process could be 
facilitated if Afghanistan cooperated more with the IMF and 
with Russia. 
¶3.  (SBU) Creditors gave the Secretariat a mandate to 
approach the Angolan authorities about resolving its 
protracted arrears to the Club.  The proposed way forward 
consists of three elements.  First, Angola is to resume 
payments to Paris Club creditors in excess of scheduled debt 
service, such that arrears are reduced.  Second, the Paris 
Club chairman will express the goodwill of creditors to 
consider a formal Paris Club agreement once Angola has 
concluded a Fund-supported program (either a PRGF or Policy 
Support Instrument (PSI)).  Third, the chairman will note 
that a resumption of payments by Angola could lead some 
creditors to review their export credit policy toward 
¶4.  (SBU) The Secretariat presented the results of the data 
call launched at the request of the US.  As of January 1, 
2006, Argentina owed $6.3 billion to Paris Club creditors, 
of which $3.5 billion consisted of arrears and past due 
interest.  Germany is the largest creditor ($2.1 billion), 
followed by Japan ($1.4 billion), Spain ($629 million), and 
Italy ($516 million).  The US is the sixth largest creditor 
with $362 million in claims.  During the period 2001 to 
2005, Italy received the largest percentage (29%) of 
payments falling due to it, compared to 8% for the US.  The 
UK reported that Economy Minister Miceli told the UK's 
ambassador in Buenos Aires that normalizing relations with 
the Paris Club was not a priority for Argentina at the 
moment.  There was no discussion in the Club about possible 
next steps. 
¶5.  (U) Brazil's prepayment of 1992 previously rescheduled 
debt is in train.  Belgium, Canada, Germany, Italy, Spain, 
and Sweden have been fully paid.  Austria, France, Japan, 
the Netherlands, Switzerland, and the UK are finalizing 
their prepayment operations.  The US has been partially 
paid, with more payments expected later this month. 
Denmark, Finland, Norway, and Russia are not participating 
in the prepayment.  It remains to be seen whether Brazil 
will meet its commitment to clear arrears to Canada, France, 
and the Netherlands by end-March. 
¶6.  (U) The third and fourth reviews of the Burundi's PRGF 
will be combined and brought to the executive board in mid- 
June.  The third phase of Burundi's September 2005 Cologne 
treatment will enter into force upon completion of this 
review.  (The US is not a creditor.) 
¶7.  (SBU) The US reported that its bilateral dispute with 
Cambodia was essentially resolved, and that it was prepared 
to provide financing assurances for a new PRGF.  Russia, on 
the other hand, said recent negotiations in Cambodia had 
failed to result in an agreement on what interest rate to 
charge on rescheduled post-cutoff-date debt.  As a result, 
Russia continues to withhold financing assurances.  The next 
round of negotiations between the two countries is scheduled 
for May in Moscow. 
¶8.  (U) The IMF and World Bank expect completion point to be 
reached in April.  Like Congo-B, Cameroon is facing active 
litigation from its commercial creditors, though the share 
of commercial debt in Cameroon's overall external debt is 
not as large as the corresponding ratio in Congo-B.  Given 
expectations of completion point in April, creditors agreed 
not to bother extending the current consolidation period 
beyond March 31.  The Secretariat suggested that creditors 
needn't bill for payments falling due in April. 
¶9.  (SBU) The Secretariat met with a senior official in the 
Chinese Ministry of Finance to convey the Paris Club's wish 
to learn more about China's external creditor status and 
explore the possibility of a more cooperative working 
relationship.  Yang Shao Lin, Deputy Director General for 
International Affairs, responded that China is a developing 
country that manages its bilateral relations as it wishes. 
It has its own approach to debt issues and is not interested 
in subjecting itself to the disciplines of the Paris Club. 
Although Paris Club Chairman Xavier Musca may revisit this 
topic with his Chinese counterpart at some point in the 
future, the Secretariat was not optimistic that the response 
from the Chinese would be any different. 
¶10.  (U) Creditors agreed in principle to send a letter to 
the Congolese authorities granting interim HIPC debt relief 
once decision point has been approved by the IMF and World 
Bank executive boards.  At the request of the US, the 
Secretariat will hold off sending the letter until after the 
US has satisfied its internal domestic legal requirements. 
The IMF noted that it was not in a position to provide 
interim relief even if it approved decision point for Congo- 
B given that less than 70% of Congo's creditors had 
committed to provide debt relief on comparable terms. 
(Note:  The IMF approved Decision Point on March 8, but 
noted in its press release that, "As the necessary financing 
assurances from external creditors are not in place as of 
the decision point, no interim relief will be provided by 
the IMF at this time.") 
¶11.  (SBU) In 2001, some Paris Club members met with Cuba in 
an unsuccessful attempt to discuss a possible treatment of 
Cuba's external debt.  The U.S. had blocked a formal Paris 
Club negotiation on the ground that Cuba didn't have an IMF 
program and wasn't even a member of the IMF.  Sweden 
requested that Cuba be placed on this month's agenda to 
discuss developments since 2001.  Canada, Sweden, and 
Switzerland acknowledged that they had restructured Cuba's 
short-term debt on a bilateral basis, but said that arrears 
on medium- and long-term debt remained.  Spain questioned 
whether concluding bilateral deals with Cuba was a breach of 
the sub-group's solidarity given the existence of arrears to 
other creditors.  Germany argued that creditors have the 
right to restructure short-term debt on a bilateral basis 
since short-term debt is excluded from Paris Club 
agreements.  Other creditors disagreed and called on the 
Secretariat to produce a working paper clarifying the Club's 
general policy on short-term debt.  The Secretariat will 
also distribute the Chairman's Summary that followed the 
April 2001 meeting with Cuba. 
Democratic Republic of Congo 
¶12.  (U) Creditors decided not to defer a capitalized 
moratorium interest payment falling due on March 31, given 
the expected expiration of the DRC's PRGF at the end of the 
month and uncertainty surrounding a successor arrangement. 
(The US, per our HIPC policy, will forgive the payment, as 
it falls within the current consolidation period.)  The IMF 
said a successor arrangement was unlikely to be in place 
until after the general elections in June, but indicated 
that completion point could still be reached by mid-2007. 
Once a successor arrangement is in place, creditors will 
decide what to do with other moratorium interest payments 
capitalized under the September 2002 Agreed Minute. 
¶13.  (U) The Secretariat will send a letter to the 
authorities announcing the entry into force of the third 
phase of the July 2004 Agreed Minute once the third review 
of the PRGF is approved.  The review is tentatively 
scheduled for March 31. 
¶14.  (U) Creditors (France, Netherlands, Russia, UK, US) 
agreed to provide financing assurances for Grenada's new 
PRGF covering the period 2006-2008.  Grenada could come to 
the Club for negotiations as early as April.  Under the 
Evian approach, creditors will provide a rescheduling of 
maturities falling due during the period of the PRGF.  (The 
Secretariat's working paper proposes a rescheduling on 
"Classic" terms.)  If, following successful implementation 
of the program, creditors determine that Grenada's debt is 
unsustainable, they may consider providing an exit 
treatment.  The IMF estimated a financing gap of $10 million 
in 2006, taking into account disbursements under the PRGF. 
Paris Club debt relief is expected to cover half of this 
amount, with the remainder to be covered by debt relief from 
non-Paris Club creditors, including Taiwan. 
¶15.  (U) The Secretariat urged creditors to respond to a 
data call launched at the request of the IMF.  (Two 
creditors have yet to respond.)  The IMF said a new PRGF 
could be in place by mid-2006, for which financing 
assurances would be needed from the Club.  Guinea reached 
decision point in December 2000, but its previous PRGF went 
off track and expired in 2004. 
¶16.  (U) In response to a request from Central Bank of Iraq 
Governor Shabibi, the Secretariat agreed to send letters to 
eleven of Iraq's non-Paris Club official creditors updating 
them on Iraq's debt restructuring process and urging them to 
conclude bilateral agreements with Iraq on terms comparable 
to the 2004 Agreed Minute.  The group of eleven consists of 
those countries that attended the informational session on 
Iraq in January 2005 and have not yet concluded a bilateral 
with Iraq (Bulgaria, Cyprus, Croatia, Hungary, Poland, Czech 
Republic, Slovenia, Turkey), plus 
Greece, Malaysia, and the former Yugoslavia (as identified 
in Shabibi's letter). 
¶17.  (SBU) The IMF said agreement in principle has been 
reached on a three-year PRGF arrangement, for which 
financing assurances will be requested next month.  Russia 
said it would not provide financing assurances until Moldova 
settles its internal currency debt to the former Soviet 
Republics and recognizes all debt owed to Russia (including 
Transnistria debt).  In addition, Russia said it first needs 
to see a data call, a DSA, and a working paper from the 
¶18.  (U) The Secretariat will send a letter to the 
authorities taking note of Nicaragua's difficulties 
obtaining comparable treatment from its non-Paris Club 
official creditors and reminding Nicaragua of its 
commitments under the March 2004 Agreed Minute.  The letter 
is intended to help the authorities negotiate agreements 
with those non-PC creditors that have resisted providing 
debt reduction comparable to what Nicaragua received at 
completion point.  The Secretariat said it was reluctant to 
address letters to individual non-Paris Club official 
creditors, citing the principle that the debtor country 
alone is responsible for seeking comparable treatment.  On 
the other hand, the Secretariat noted that Libya's upcoming 
Article IV board discussion would be a good occasion for 
creditors, through their IMF executive directors in 
Washington, to pressure Libya to deliver debt relief in line 
with HIPC. 
¶19.  (U) The IMF said Nigeria was making good progress under 
the Policy Support Instrument (PSI), with the first review 
tentatively scheduled for mid-April.  Austria and Russia are 
the only creditors that have yet to conclude their bilateral 
agreements with Nigeria.  Brazil has concluded its bilateral 
but has yet to be paid.  All other creditors, including the 
US, have concluded their bilaterals and have received their 
first and second tranche payments.  (Canada, Norway, and 
Sweden have no claims.) 
¶20.  (U) The Secretariat said it had not received an 
official proposal from Russia regarding a new prepayment. 
In the meantime, Russia's financial position continues to 
improve.  Reserves stand at $200 billion (2.5 times the 
government's external debt), the oil stabilization fund 
exceeds $51 billion (2.5 times outstanding debt to the Paris 
Club), and spreads on Russian Eurobonds continue to narrow. 
In response to a question from Austria, the Secretariat 
clarified that there was no link between a new prepayment 
operation and creditors' contributions to the World Bank's 
International Development Association (IDA).