Viewing cable 07PARIS4622
Title: PARIS CLUB - November 2007 TOUR D'HORIZON

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07PARIS46222007-12-03 15:38:00 2011-08-30 01:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
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UNCLAS PARIS 004622 
 
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 - November 2007 TOUR D'HORIZON 
 
 
Summary 
------- 
 
¶1.  (U) At the November 14, 2007 Paris Club tour d'horizon, Chairman 
Musca urged countries to stay on message in their contacts with the 
government of Argentina - Argentina should clear its arrears. 
Iraq's recent agreement with Bulgaria was deemed roughly comparable 
to Iraq's Paris Club agreement, and Russia was urged to sign its 
debt agreement with Iraq.  Other countries discussed included 
Angola, Gabon, Gambia, Guinea, Jordan, and Liberia.  Creditors also 
discussed a number of methodological issues, including relations 
with China and litigating creditors. 
 
Angola 
------ 
 
¶2.  (SBU) Creditors are waiting for Angola to notify the Secretariat 
that it has accepted the Paris Club's proposal for settling late 
interest. (Under the terms of the proposal, Angola would commit to 
pay, in three installments over the next 26 months, $1.8 billion out 
of $2.2 billion in late interest due.  The U.S. was not part of the 
agreement, as it was not owed any late interest.)  The Secretariat 
does not anticipate a negative response.  Japan said it was willing 
to fix Angola's payments in dollars because of the need to seize 
this opportunity, but insisted that, in the future, the debtor 
should be required to pay amounts owed in original currency, so that 
the debtor, not creditors, will bear exchange rate risk.  The 
Secretariat assured Japan that Angola would not set a precedent. 
 
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Creditors approved without comment the draft press release that will 
announce that economic and financial relations with Angola will be 
normalized.  The Secretariat said creditors could implement the late 
interest settlement either through an exchange of letters or through 
a simple bilateral agreement. 
 
Argentina 
--------- 
 
¶3.  (SBU) Paris Club Chairman Musca met Javier Alvaredo, Argentina's 
point person on Paris Club issues, on the margins of the IMF/World 
Bank meetings.  The meeting, however, was not particularly fruitful. 
 Musca reiterated that, in the absence of an IMF program, the only 
solution was a voluntary arrears payment plan, without any 
restructuring of the debt.  The Secretariat told creditors that the 
next step was to wait for the new cabinet to be named.  In the 
meantime, the Secretariat urged creditors to stay on message:  there 
can be no rescheduling without an IMF program; Argentina should 
clear its arrears (using reserves, its fiscal surplus, or proceeds 
from new borrowing); and the Paris Club is ready to listen to any 
proposals.  Cohesion on export credit agency (ECA) cover policy is 
key to PC leverage.  Asked about press reports of a possible Policy 
Support Instrument (PSI), the IMF noted that GOA authorities have 
not expressed any interest in an IMF program, and Argentina would 
not qualify for a PSI.  The IMF is available to provide policy 
advice.  The Secretariat does not intend to respond to the American 
Task Force Argentina's (AFTA) recent letter.  Referring to that 
letter, Spain stated that it knew nothing about an offer from 
Argentina and insisted that it had been, and would continue to be, 
transparent. 
 
Gabon 
----- 
 
¶4.  (U) Creditors agreed to extend from December 1 until December 17 
the deadline for Gabon to declare how much debt it wishes to buy 
back under the Paris Club agreement reached in July 2007 (the U.S. 
will not participate in the buyback).  Gabon requested the 
extension, citing the need to obtain parliamentary approval for new 
borrowing - a $1 billion international bond issue - that will help 
finance the buyback. S&P and Fitch have given Gabon a BB- rating. 
For now, Gabon still intends to conduct the buyback by the original 
settlement deadline of January 30, 2008.  If delays develop, the 
Secretariat said there was scope to push back the date, as the next 
 
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maturity is March 30, 2008.  The U.S. reported $3.5 million in 
arrears; Japan and Spain reported small technical arrears ($40 and 
55,000 Euros, respectively).  The Secretariat said it would tell the 
authorities to clear these arrears as soon as possible. 
 
Gambia 
------ 
 
¶5.  (U) The IMF reported that a mission just returned with a 
positive assessment and that the IMF's Executive Board will consider 
Gambia's "Completion Point" under the enhanced Heavily Indebted Poor 
Countries Initiative (HIPC) in December, together with the second 
review of the Poverty Reduction and Growth Facility (PRGF) program. 
The World Bank's International Bank for Reconstruction and 
Development's (IBRD) did not collect a payment in November, 
foregoing interest owed to the International Development Association 
(IDA), with the expectation of forgiving it at Completion Point. 
The Secretariat said it would launch a data call, in anticipation of 
negotiations in January.  (The U.S. is not a creditor.) 
 
Guinea 
------ 
 
¶6.  (U) Creditors provided provisional financing assurances for 
Guinea's new PRGF, pending confirmation from Russia (Russia has 
since provided this confirmation).  Approval of the PRGF will 
trigger a resumption of interim HIPC debt relief (i.e. "Cologne 
terms").  The IMF said Guinea's capacity to pay was very limited. 
The Secretariat said standard Cologne terms would not suffice and 
indicated that creditors would need to defer post-cutoff debt (i.e., 
debt originally contracted after January 1, 1986) and short-term 
debt, and capitalize interest payments, similar to what was done for 
the Central African Republic and Haiti.  IMF Executive Board 
discussion is tentatively set for December 17, 2007 subject to 
completion of some prior actions.  Guinea could meet 2002 
"Completion Point" requirements by end-2008 under an optimistic 
scenario. 
 
Iraq 
---- 
 
¶7.  (U) The Secretariat commented on two documents received from 
Iraq: (1) a press release announcing a bilateral debt agreement 
signed with Bulgaria, and (2) a status report on Iraq's efforts to 
conclude debt restructuring agreements with its remaining bilateral 
creditors.  The Secretariat said its analysis showed that the 
agreement with Bulgaria broadly met the comparability of treatment 
terms of the Paris Club agreement.  There was no comment from 
creditors about the upfront cash payment involved - the first of its 
kind Iraq will make to a bilateral creditor.  The Secretariat 
briefly summarized the contents of the progress report but suggested 
postponing further discussion until the December session. 
 
¶8.  (SBU) Russia reported that a meeting would take place at the end 
of November 2007 between Russian and Iraqi officials, after which 
the prospect for finalizing the long-delayed bilateral agreement 
implementing the 2004 Paris Club Agreed Minute would be clearer. 
The Russian delegate said the objective was to finalize the 
bilateral as soon as possible, and he expressed optimism that this 
could happen by year-end.  Finalization of the agreement was one of 
the key objectives in Russia's relations with Iraq.  The Secretariat 
stated that creditors should implement PC agreements, and that 
appropriate senior Russian officials should be reminded of this. 
Belgium questioned why Brazil still has not concluded a bilateral 
agreement with Russia on Paris Club-comparable terms.  The 
Secretariat said it would put the question to Brazil next month. 
 
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Jordan 
------ 
 
¶9.  (U) Canada reported that it has decided to participate in 
Jordan's buyback. (Canada accounts for just 1.0 percent of Paris 
Club debt eligible to be bought back.) 
 
Liberia 
------- 
 
¶10.  (U) Creditors agreed to provide financing assurances for 
Liberia's new PRGF, following the IMF's announcement that it had 
received sufficient pledges from donors to proceed with arrears 
clearance.  The Netherlands and Norway again expressed concerns 
about litigating creditors.  The World Bank said the oversight 
committee for the IDA's Debt Reduction Facility (DRF) had approved 
the financing of an operation for Liberia at HIPC "Decision Point" 
(until now, DRF financing has been at Completion Point).  The World 
Bank said it would be counterproductive to start negotiations with 
commercial creditors until the common reduction factor was 
determined.  The IMF pledged to move as quickly as possible.  The 
Fund needs to change the HIPC Trust instrument to make a Staff 
Monitored Program part of the economic reform track record, 
equivalent to other IMF programs such as a Stand-By Arrangement 
(SBA) or an Emergency Post-Conflict Assistance (EPCA); if approved, 
this change would apply to other HIPCs in the future.  The IMF has 
started work on a debt sustainability analysis (DSA) and will 
circulate a preliminary HIPC document in December.  Arrears 
clearance, PRGF approval, and Decision Point are likely to take 
place in January 2008.  Paris Club negotiations would take place in 
March, following the February break.  As in Guinea's case, the 
Secretariat said standard Cologne terms would not suffice and 
 
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indicated that creditors would need to defer post-cutoff (debt 
contracted after January 1, 1983) and short-term debt, and 
capitalize interest payments. 
 
Countries having no relations with the IMF and the Paris Club 
------------------- 
 
¶11.  (U) Several creditors (Denmark, Germany, Italy, Japan, 
Netherlands) commented that the Secretariat's working paper was 
either too restrictive or lacked clarity.  (The paper outlines under 
what circumstances creditors are free to act bilaterally to recover 
their claims.)  Some creditors requested more clarity on the scope 
of debts concerned (e.g., whether to include non-rescheduled or 
short-term debt); others requested that the Secretariat prepare a 
list of countries considered "away from the Club."  The Secretariat 
explained that the guidelines in the working paper were not 
absolute, and that the main point was that creditors should decide 
collectively when it is appropriate to act bilaterally.  The 
Secretariat agreed to update the working paper to respond to the 
 
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questions and concerns raised.  Several creditors (Austria, Denmark, 
Finland, Netherlands, Russia, Sweden) reported Libya was in arrears 
and asked the Secretariat to recommend a way forward.  The 
Secretariat will draft a letter from Chairman Musca to the Libyan 
 
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authorities and prepare a working paper on possible next steps. 
(The U.S. is not a creditor to Libya.) 
 
Relations with China 
-------------------- 
 
¶12.  (SBU) The Secretariat will seek a meeting with Chinese Ministry 
of Finance and other PRC officials to make a presentation on the 
principles and functions of the Paris Club.  The Secretariat said 
Chinese membership in the Paris Club was not a realistic near-term 
goal.  Rather, the purpose of the meeting is to initiate a technical 
dialogue, with the ultimate aim of encouraging China to cooperate in 
providing PC-comparable debt treatments.  Creditors agreed that it 
would be prudent to exclude Taiwan, which had approached the Club, 
from the dialogue.  The Secretariat said an initial meeting could 
take place in Beijing, followed by a meeting in Paris.  Creditors 
agreed with the Secretariat's suggestion that creditors mention in 
their own bilateral meetings with China the Paris Club's desire to 
initiate a technical dialogue, while clarifying that the Club does 
not seek Chinese membership.  The IMF said that, according to PRC 
officials, China already has a policy on canceling debt owed by 
African countries, but does not participate in the HIPC initiative, 
a policy of the West.  Although China does cancel official 
development assistance (ODA) debt, it does not cancel credits 
extended by China Exim Bank, nor does it reschedule debt.  Many PRC 
entities are active in low-income countries, and the PRC lacks a 
unified reporting system, though a council meets to discuss 
individual countries.  The Secretariat agreed to incorporate 
creditors' concerns and questions into a presentation on debt 
treatment, which it will first share with creditors. 
 
Litigating creditors 
-------------------- 
 
¶13.  (U) The Secretariat summarized the results of the data call 
(which the U.S. initiated) on legislation related to the protection 
of sovereign assets.  Creditors offered little reaction.  The UK 
suggested that the Paris Club revisit the issue once lawyers have 
had a chance to digest the results.  Belgium expressed interest in 
learning more about how countries and institutions (such as the 
World Bank) protect their own aid flows from being attached by 
litigating creditors.  The World Bank said its funds were protected 
under UN international immunity rules.  The Secretariat said it 
would circulate information about France's laws protecting overseas 
development assistance. 
 
Status of escrow accounts 
------------------------- 
 
¶14.  (U) Creditors discussed the Secretariat's proposed guidelines 
for closing escrow accounts opened by HIPC-eligible countries to 
service debt owed to the Paris Club.  According to the Secretariat's 
research, 24 HIPC countries opened escrow accounts in the past, as 
required by their agreements with the Paris Club.  Fourteen of these 
countries have since reached Completion Point.  The Secretariat 
proposed that the accounts be closed and the money returned only if 
the debtor has reached HIPC Completion Point and either has no more 
debt to the Paris Club or has established a two-year track record of 
servicing its remaining Paris Club debt after Completion Point.  In 
the end, creditors agreed to examine the accounts on a case-by-case 
basis, rather than apply rigid rules.  The amounts involved are 
small.  Mozambique's account at the Banque de France contains $2.4 
million; Benin, Cameroon, Congo, Cote d'Ivoire, and Niger also have 
accounts at the Banque de France which together are worth just 
$630,000.  The Secretariat is seeking more information about 
accounts at the Bank of England. 
 
OECD export credit working group proposal on sustainable lending 
-------------------------- 
 
¶14.  (U) Italy and the Netherlands summarized recent efforts in the 
OECD export credit working group to reach agreement on a set of 
guidelines to promote sustainable lending from export credit 
agencies to low-income countries.  The Netherlands noted that 
although nothing had been agreed yet (responses are due by November 
30, 2007), the fact that a number of non-OECD members (including 
China, Brazil and India) had participated in the discussions was 
very encouraging.  The guidelines would send an important signal, 
and this message will complement efforts in other fora (IMF, IBRD, 
G-20, etc.).  There is an outreach process, with a February 20, 2008 
meeting with non-OECD countries to follow.  While the Paris Club is 
not the right forum to go into further details, the Secretariat said 
the PC can help raise awareness of the issue.  The IMF underscored 
the importance of this OECD work, which complements the Fund's 
ongoing outreach efforts. 
 
 
 
STAPLETON