Viewing cable 06PARIS3247
Title: PARIS CLUB - MAY 2006 TOUR D'HORIZON AND DEBT NEGOTIATIONS

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06PARIS32472006-05-16 15:27:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
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DE RUEHFR #3247/01 1361527
ZNR UUUUU ZZH
R 161527Z MAY 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7394
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6044
RUEHSW/AMEMBASSY BERN 1760
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RUEHHE/AMEMBASSY HELSINKI 1176
RUEHLO/AMEMBASSY LONDON 6090
RUEHMD/AMEMBASSY MADRID 2331
RUEHMO/AMEMBASSY MOSCOW 5289
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RUEHTC/AMEMBASSY THE HAGUE 2461
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RUEHAS/AMEMBASSY ALGIERS 0735
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RUEHBU/AMEMBASSY BUENOS AIRES 1229
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RUEHKI/AMEMBASSY KINSHASA 1324
RUEHWN/AMEMBASSY BRIDGETOWN 0245
RUEHGB/AMEMBASSY BAGHDAD 0466
RUEHEK/AMEMBASSY BISHKEK 0305
RUEHCH/AMEMBASSY CHISINAU 0327
RUEHUJA/AMEMBASSY ABUJA 1073
RUEHOS/AMCONSUL LAGOS 1201
RUEHBW/AMEMBASSY BELGRADE 0664
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RUEHFN/AMEMBASSY FREETOWN 0414
RUEHPU/AMEMBASSY PORT AU PRINCE 0612
UNCLAS PARIS 003247 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB/IFD/OMA 
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 2006 TOUR D'HORIZON AND DEBT NEGOTIATIONS 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION 
 
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SUMMARY 
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¶1. (U) At the May 10-12 meeting of the Paris Club, Afghanistan's 
three creditors, Russia, Germany and the United States, took the 
first step toward fulfilling their pledges to cancel 100% of 
Afghanistan's debt by providing assurances of debt relief during the 
period of Afghanistan's new IMF program, which is expected to be 
approved in early June.  Creditors rescheduled the debt of Moldova 
and Grenada on non-concessional terms, and formally accepted 
Algeria's offer to prepay at face value its previously rescheduled 
Paris Club debt.  The U.S. will partially participate in the 
prepayment by accepting $665 million owed by Algeria to Eximbank. 
Creditors welcomed Angola's offer to pay the Club $2.7 billion over 
the next two years (out of $4.5 billion owed), but rejected Angola's 
request to negotiate the balance ($1.8 billion) on a bilateral 
basis.  Paris Club Chairman Musca will continue to press the Angolan 
authorities to seek a multilateral solution to normalizing relations 
with Paris Club creditors.  Other countries on the agenda included 
Argentina, Brazil, Cameroon, DRC, Iraq, Kyrgyz Republic, Nigeria, 
Russia, Serbia Montenegro, and Sierra Leone.  END SUMMARY. 
 
 
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Afghanistan 
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¶2.  (SBU) Germany, Russia, and US provided financing assurances for 
Afghanistan's Poverty Reduction and Growth Facility (PRGF) with the 
IMF.  Russia said $8.4 billion of the $9.4 billion in debt owed by 
Afghanistan was reconciled two years ago, and that meetings are 
scheduled in Kabul in coming weeks to reconcile the remaining $1 
billion.  The US pointed out that full reconciliation was not 
necessary at this stage, but would have to take place before 
Afghanistan received a Naples treatment on its debt.  The IMF added 
that full reconciliation was necessary for Afghanistan to be 
declared eligible for the Heavily Indebted Poor Countries (HIPC) 
initiative.  In response to a question from Germany, the Secretariat 
said it was not opposed in principle to capitalizing interest 
payments during the period of the PRGF (this would be done so that 
Afghanistan will not have to make any payments during that time), 
but that any decision should be based on Afghanistan's capacity to 
 
pay.  The Secretariat will launch a data call in preparation for 
Afghanistan's Naples treatment, likely to occur in July. 
 
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Algeria 
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¶3.  (SBU) Creditors signed an agreement formally accepting Algeria's 
offer to prepay at face value its previously rescheduled Paris Club 
debt, which totals $7.7 billion.  The prepayment transactions will 
take place between May 31, 2006 and November 30, 2006, at a date 
determined bilaterally between Algeria and participating creditors. 
Nearly all creditors committed to participate either in full or in 
part, notwithstanding some arrears.  Russia, having recently 
concluded a separate debt restructuring agreement with Algeria, was 
an observer to the agreement.  The US reiterated that only debt owed 
to EXIM (around $665 million) can be prepaid at face value.  Germany 
pressed for a buyback option, but France insisted that creditors had 
already agreed in principle last month to prepayment at face value. 
 
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Angola 
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¶4.  (SBU) Paris Club Chairman Musca reported on his April meeting 
with Angolan Minister of Finance de Morais.  In response to the 
Club's proposal that Angola resume debt service in excess of 
maturities falling due, Angola offered to pay $2.7 billion over the 
next 12 to 24 months, an amount intended to cover outstanding 
principal ($0.4 billion) and arrears ($2.3 billion) but not late 
interest ($1.8 billion).  As a condition for this payment, Angola 
would reserve the right to negotiate with creditors bilaterally on 
the $1.8 billion residual, presumably in the expectation of securing 
favorable restructuring terms.  Creditors agreed that this part of 
Angola's counteroffer was unacceptable, but authorized Musca to 
continue contacts with the Angolan authorities on a multilateral 
approach to arrears clearance.  Musca will also indicate that 
creditors would consider a more favorable debt treatment if Angola 
concludes an IMF program, and that a resumption of payments by 
Angola could lead some creditors to reopen credit lines.  Musca is 
scheduled to meet with the Finance Minister at the end of May. 
 
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Argentina 
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¶5.  (SBU) Creditors reacted to reports that Argentina may be 
 
interested in addressing its Paris Club debt in the second half of 
¶2006.  Germany, Italy, the Netherlands, and the UK stressed that the 
Club needed to act in unison and encourage the authorities to pursue 
a multilateral solution.  Germany urged the Secretariat to contact 
the authorities immediately.  In response, the Secretariat said it 
had already requested a meeting with Argentina on the margins of the 
IMF-World Bank spring meetings, only to be turned down.  In the end, 
creditors agreed that the ball was in Argentina's court. 
 
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Brazil 
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¶6.  (U) Although Brazil has concluded its Paris Club prepayment 
operation, arrears remain to Canada, Germany, Italy, and the 
Netherlands.  The Secretariat sent a letter to the authorities 
urging them to clear these arrears by June 30, 2006.  There was no 
discussion of a reported Brazilian request to become a full member 
of the Club. 
 
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Cameroon 
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¶7.  (U) The Secretariat confirmed that Cameroon will come to the 
Paris Club next month to negotiate the terms of its HIPC completion 
point treatment. 
 
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Democratic Republic of the Congo 
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¶8.  (SBU) The DRC is no longer on a PRGF or other type of IMF 
program that would qualify it for HIPC interim debt relief. 
Germany, supported by Belgium, proposed that creditors nonetheless 
extend HIPC interim relief on the basis of a Staff Monitored Program 
(SMP) that the IMF is discussing with the DRC.  The US explained 
that it had a legal obligation to resume billing now that the DRC no 
longer has a PRGF in place.  The Secretariat said extending interim 
relief on the basis of an SMP would set a bad precedent.  However, 
in light of the DRC's limited payment capacity, the Secretariat 
suggested that creditors who are able to do so not send bills for 
the next interest payment. 
 
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Grenada 
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¶9.   (U) Creditors (Belgium, France, Russia, the UK and the US)) 
agreed to reschedule Grenada's 2006-2008 debt service, in support of 
the country's PRGF.  Medium and long-term debt was rescheduled over 
12 years, with a 5-year grace period (so-called classic terms), 
while Belgium and the UK's short-term debt will be repaid over the 
period 2009-2013. 
 
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Iraq 
----- 
¶10.  (U) Australia announced that it would sign its bilateral with 
Iraq on May 11.  Russia, on the other hand, reported no progress 
since last month's discussion.  Although Russia and Iraq have agreed 
on the text of a bilateral, the data reconciliation process remains 
incomplete.  Russia said it was nevertheless hopeful that an 
agreement could be reached within the next two months. 
 
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Kyrgyz Republic 
-------------------- 
¶11.  (U) The IMF said the Kyrgyz Republic has begun the HIPC 
process.  Staff is working on a preliminary HIPC document, which is 
likely to be presented to the IMF Executive Board this summer. 
Decision Point could be reached in late 2006 or early 2007.  There 
were no comments from creditors.  The IMF noted that Haiti is 
another country that may soon enter the HIPC process. 
 
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Moldova 
----------- 
¶12.  (SBU) Creditors (Germany, Italy, Japan, Russia, and the US) 
agreed to reschedule Moldova's debt on so-called Houston terms, in 
support of the country's PRGF.  Development assistance debt was 
rescheduled over 20 years, with a 10-year principal grace period, 
while commercial debt was rescheduled over 15 years, with a 5-year 
grace period.  Moldova agreed to pay 70% of its Paris Club arrears 
over the next three years, with the balance rescheduled on Houston 
terms together with maturities falling due between May 1, 2006 and 
December 31, 2008.  Russia took the hardest line during the 
negotiations, initially arguing for a rescheduling over a shorter 
time horizon and with a shorter grace period. 
 
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Nigeria 
--------- 
¶13.  (U) All creditors except Austria, Brazil, and Denmark have 
received their final payment from Nigeria.  Brazil and Denmark 
reported that their bilateral agreements had yet to enter into 
force.  Austria said it expected to close its deal with Nigeria 
early next year. 
 
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Russia 
-------- 
¶14.  (SBU) Russia will come to the club in June to negotiate the 
terms of its offer to prepay all of its remaining Paris Club debt at 
face value.  A majority of creditors signaled their intention to 
participate, although several creditors holding a substantial 
portion of Russia's Paris Club debt indicated they would only 
participate if the prepayment included an option to buy back the 
debt at more than face value.  In particular, Germany said its 
securitized Aries debt could not be prepaid at face value.  Russia 
advised the U.S. delegation privately that it would not pay more 
than face value. 
 
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Serbia Montenegro 
----------------------- 
¶15.  (SBU) The IMF and Secretariat briefed creditors on the 
potential implications of an independent Kosovo, noting that if 
Kosovo were allocated a significant portion of Serbia's debt, it 
would not likely be in a position to service it, and therefore some 
type debt relief would probably be necessary.  The US and Russia 
said it was important to monitor the debt allocation process to 
ensure that it was fair and to avoid creating perverse incentives 
for Serbia to unload debt on Kosovo.  The World Bank cautioned that 
it would be very difficult to restructure World Bank debt. 
 
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Sierra Leone 
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¶16.  (U) The IMF said approval of the Sierra Leone's new PRGF could 
lead to HIPC completion point by the end of the year.  The 
Secretariat said it would draft a letter to the authorities 
 
SIPDIS 
announcing the extension of interim HIPC relief. 
 
STAPLETON#