Search

 

Cablegate: Paris Club - July 2007 Tour D'horizon and Gabon Debt

VZCZCXYZ0000
RR RUEHWEB

DE RUEHFR #3209/01 2081543
ZNR UUUUU ZZH
R 271543Z JUL 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 9191
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6641
RUEHSW/AMEMBASSY BERN 2015
RUEHBS/AMEMBASSY BRUSSELS 6412
RUEHCP/AMEMBASSY COPENHAGEN 1486
RUEHLO/AMEMBASSY LONDON 6632
RUEHMD/AMEMBASSY MADRID 2668
RUEHMO/AMEMBASSY MOSCOW 5923
RUEHNY/AMEMBASSY OSLO 1512
RUEHRO/AMEMBASSY ROME 8513
RUEHSM/AMEMBASSY STOCKHOLM 1541
RUEHTC/AMEMBASSY THE HAGUE 2838
RUEHKO/AMEMBASSY TOKYO 2538
RUEHBS/USEU BRUSSELS 2054
RUEHBUL/AMEMBASSY KABUL 0517
RUEHLU/AMEMBASSY LUANDA 0873
RUEHPL/AMEMBASSY PORT LOUIS 0901
RUEHLC/AMEMBASSY LIBREVILLE 1244
RUEHSI/AMEMBASSY TBILISI 0443
RUEHGB/AMEMBASSY BAGHDAD 0647
RUEHAM/AMEMBASSY AMMAN 0978
RUEHMV/AMEMBASSY MONROVIA 7287
RUEHBW/AMEMBASSY BELGRADE 0832
RUEHFN/AMEMBASSY FREETOWN 0478

UNCLAS PARIS 003209

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 - JULY 2007 TOUR D'HORIZON AND GABON DEBT
BUYBACK NEGOTIATION

-------
SUMMARY
-------

1. (SBU) Summary: At the July 17-18 meetings of the Paris Club,
creditors accepted a stand-alone discounted debt buyback offer from
Gabon, the first such operation by the Club. While welcoming
Gabon's efforts to use USD 500 million in oil revenues toward debt
management, the USG lacked legal authority to accept a discount and
therefore could not participate in this voluntary operation.
Further, the USG did not sign the Agreed Minute because a
comparability of treatment provision restricted Gabon's contractual
right to repay U.S. debts at face value in the future. PC creditors
reacted favorably to the principle of a similar discounted buyback
offer from Jordan and will seek more details on the structure of the
operation Jordan envisions. Time-compressed discussion of the Gabon
deal, however, revealed a need for more thorough Club consideration
of both policy and practical aspects of this new type of operation,
and the Secretariat undertook to prepare a paper.

2. (SBU) The United States, Germany, and Russia, Afghanistan's three
PC creditors, signed an agreement to provide additional interim debt
relief. The Club discussed the status of debt relief implementation
for Iraq and a future treatment for Liberia. Based on assessments
by the IMF, the PC concluded that Georgia does not currently need
additional relief and that the Comoros is not ready due to ongoing
political instability. Creditors also reviewed plans to collect
late interest from Angola, the status of negotiations to divide debt
between Serbia and Montenegro, and a request by Sierra Leone to
release funds held in escrow in the UK. The Paris Club accepted an
action plan for addressing the problem of private litigation by
so-called "vulture funds," which "free rides" on debt relief given
to Heavily Indebted Poor Countries (HIPCs). Russia reiterated its
request for the return of promissory notes. Spain announced its
decision to expand the scope of its HIPC debt relief. End Summary.

-----------
Afghanistan
-----------

3. (U) Afghanistan's three Paris Club creditors (Germany, Russia,
and the United States) concluded an agreement providing additional
interim relief for reaching Decision Point in the Heavily Indebted
Poor Countries (HIPC) initiative. The agreement calls for 90%
cancellation of non-Official Development Assistance (non-ODA) debt
service falling due after July 1, 2007. The United States will go
beyond this requirement and forgive 100% of both ODA and non-ODA
debt service falling due. Although the resulting debt reduction is
modest, the agreement is nevertheless crucial in that it establishes
a path for 100% reduction of the remaining stock of Paris Club debt
at Completion Point in the HIPC process.

------
Angola
------

4. (SBU) The Netherlands and Sweden reported that Angola had
cleared its remaining arrears to them (excluding late interest),
paving the way for the Paris Club to pursue a previously agreed
strategy for recovering the approximately $1.8 billion in late
interest due. Paris Club Chairman Xavier Musca will approach
Angolan Finance Minister de Morais to ask for an immediate payment
of $1 billion. In return, as soon as the payment is made, the Paris
Club will lift its objection to members' export credit agencies
(ECAs) reopening in Angola. (NOTE: Although the Paris Club has no
direct control over ECA cover policy, creditors have tried to
influence it and keep ECAs off cover until all Paris Club arrears
are cleared. In the case of Angola, this is the Paris Club's only
immediate tool to leverage repayment. END NOTE.) Finally, Musca
will ask the Minister to establish a schedule for paying off the
balance of late interest over time. As an alternative inducement,
Musca can offer a reduction in the late interest rate or any penalty
charges, as a way to "soften" but not forgive late interest charges.
(No late interest is owed to the United States.)

-------
Comoros
-------

5. (U) The IMF reported that the Poverty Reduction and Growth
Facility (PRGF) program request had been withdrawn from Board
consideration due to a sustained political crisis in the Comoros. A
staff mission will visit the Comoros and revise the program once the
political situation allows. The Comoros is a pre-HIPC Decision
Point country. (The United States is not a creditor.)

-----
Gabon
-----

6. (SBU) Creditors concluded an agreement that will allow Gabon to
buy back its non-ODA debt from participating creditors at an average
discount of 15% below face value. This is the first time the Club
has accepted a stand-alone discounted buyback. While full Club
approval of the operation is required, individual creditor
participation is voluntary. Belgium, Brazil, France, the
Netherlands, Spain, Switzerland, and the UK signaled their likely
participation. These creditors represent around 80% of the $2.5
billion in eligible debt, with France alone accounting for 60%.
(NOTE: France informed us on the margins that it intends to go
beyond the Club agreement to provide an even larger discount -- 20%
or more -- as a bilateral concession. Embassy understands President
Nicolas Sarkozy, who met with President Bongo on July 26, may have
promised such terms in an initial bilateral meeting in May. END
NOTE.) Canada, Germany, Italy, Japan, and the United States will
not participate. Creditors must confirm participation by October
15.

7. (SBU) Gabon must commit by December 1 to the precise amount it
intends to buy back. This will depend on how much money it is able
to raise in regional and international markets at advantageous
rates. Germany floated an alternative proposal consisting of a

partial prepayment at par, combined with an undefined re-profiling
of the balance. While the Secretariat and Gabon did not support the
proposal, it did serve to highlight concerns shared by several
creditors that Gabon might have trouble raising funds in
international capital markets on terms that would improve its debt
profile.

8. (SBU) While other countries had raised concerns at the June
meeting about the implications of this unprecedented operation, the
United States was the only country not to sign the Agreed Minute.
The United States joined consensus in allowing the operation to
proceed, but cited legal concerns surrounding the Agreed Minute's
"comparability of treatment" provision, which restricted Gabon's
ability to offer prepayments at face value in the future. This
specifically contravened prepayment provisions in U.S. debt
contracts with Gabon.

9. (SBU) The U.S. delegation initially attempted to strike the
comparability of treatment provision, arguing that it had no place
in this voluntary operation and that Gabon should retain the right
to prepay at face value in future if its circumstances improved.
U.S. del later suggested, as a compromise, adding either a time
limit or a face-value repayment exclusion to the comparability of
treatment provision. The Paris Club Chairman rejected these
proposals. Canada, Germany, and Japan supported the U.S. position
but ultimately agreed to sign the agreement with minor changes that,
for them, left open the possibility of a future early repayment at
face value. The United States provided a side letter welcoming
Gabon's efforts to pursue sound debt management through a buyback
operation and explaining that our lack of participation was due to
domestic legal reasons.

-------
Georgia
-------

10. (U) Creditors agreed that Georgia does not require further debt
relief from the Paris Club at this time. (Georgia's 2004
rescheduling agreement with the Paris Club contained a goodwill
clause expressing creditors' willingness to consider a follow-up
debt treatment under the Evian approach, should it be necessary to
restore debt sustainability.) The IMF reported that Georgia's debt
indicators have consistently improved in recent years, thanks to
strong economic growth and prudent debt management. The IMF's most
recent analysis concluded that Georgia was at a low risk of debt
distress. Separately, the Netherlands said it had received a letter
from the Georgian Finance Minister proposing, on a bilateral basis,
a discounted buyback of Georgia's debt to the Netherlands. The
Netherlands said it would refer the minister to the Paris Club.

----
Iraq
----

11. (U) The IMF said Iraq had requested a technical extension of the
current Stand-By Arrangement (SBA) until end-December 2007 to avoid

any gap in programming. (A gap could conceivably jeopardize the
third and final tranche of Paris Club debt relief, which requires
three years under an IMF program.) A successor arrangement could be
in place by the end of the year.

12. (SBU) Russia asserted that Iraq's May 2007 letter to the
Secretariat complaining that Russia is attempting to tie debt relief

SIPDIS
to oil contracts presented a distorted view of the situation.
Russia reiterated its intention to implement the terms of Iraq's
2004 Paris Club agreement and noted that a final draft was ready for
signature. Treatment of Iraq's debt has received much attention in
Moscow, including in the Duma, which explains why "internal
procedures" have been slow and difficult. Russia stated that an
intergovernmental commission with the Iraqi authorities to review a
range of bilateral issues should take place sometime after planned
preparatory meetings in late July. The Russian delegation was
hopeful this would lead to signature of the bilateral agreement.

13. (SBU) Germany circulated a paper defending its decision to
pursue a post-1990 claim on Iraq. The United States said creditors
would need more time to examine the arguments made in the paper.
Although the Secretariat suggested that Germany's claim is not a
clear-cut case of a transfer (as opposed to a debt, and thus subject
to treatment), it said it lacked sufficient information to determine
the precise nature of the claim and therefore could not say
conclusively whether the claim should fall within the scope of
Iraq's July 2004 Paris Club agreement. Moreover, the Secretariat
did not think it was appropriate to take sides in a disagreement
between a debtor and creditor or to respond to the letter from the
Iraqi authorities on this matter.

------
Jordan
------

14. (SBU) Creditors welcomed Jordan's proposal to buy back its Paris
Club debt at a "fair discount rate," which they viewed as an
indication that Jordan wishes to pursue sound debt management. The
UK said it was prepared to consider Jordan's offer "flexibly."
Germany expressed support and said it was looking forward to
learning more details. Spain noted that Jordan had exited from the
Paris Club and was therefore a legitimate candidate for a buyback.
Japan, which accounts for over 50% of Jordan's debt to the Paris
Club, said it supported a discounted buyback in principle, but could
only participate in a prepayment at face value. The United States
echoed this position. Canada voiced support, but said its
participation was unclear.

15. (SBU) The Secretariat will collect loan data from all PC
creditors and seek additional details from Jordan on the structure
of its offer. The IMF noted that an early repayment operation could
represent prudent debt management for Jordan, provided financing is
on appropriate terms. Gabon's buyback operation raised a number of
issues that will require further USG and Paris Club consideration
before acting on Jordan's request. The Secretariat will prepare a
working paper to facilitate this review.


-------
Liberia
-------

16. (U) The IMF briefed creditors on the latest strategy for
clearing Liberia's arrears to the international financial
institutions (IFIs) and moving directly from a Staff Monitored
Program (SMP) to a financed arrangement, followed immediately, or
soon thereafter, by HIPC Decision Point. The IMF asked if creditors
were prepared to provide financing assurances during the August
break (when no Paris Club meetings are held), if necessary.
Creditors agreed this could be done by email. The Netherlands asked
if the IMF had a plan for dealing with private creditors who might
pursue litigation to collect in full rather than provide Liberia
debt relief on Paris Club terms. The IMF said it had met with the
GOL and private creditors and was hopeful that most of Liberia's
private debt could be settled on HIPC-comparable terms.

------
Serbia
------

17. (SBU) Following further discussions with the Serbian
authorities, Germany is no longer confident that Serbia and
Montenegro will agree to apportion their debt to Germany based on
the debtor/guarantor principle, rather than the final beneficiary
principle. The Netherlands said it had not made any progress
either. Japan said it was sending a delegation to Belgrade later
this month and hoped to reach a compromise solution. The
Secretariat said it would wait for the results of the Japanese

SIPDIS
meeting, then circulate to creditors a revised letter to the newly
appointed Serbian Finance Minister. Creditors will decide in
September whether to send the letter.

------------
Sierra Leone
------------

18. (SBU) The Secretariat asked whether any creditors objected to
releasing to Sierra Leone the $4.5 million held in an escrow account
at the Bank of England. (The account was opened in 1984 to meet
debt service payments under the 1984 Paris Club agreed minute and
subsequent agreed minutes. Sierra Leone reached Completion Point in
2006, at which time all of its Paris Club debt was canceled. Sierra
Leone's central bank governor has asked the Paris Club to release
the funds in the account so they can be directed to other government
obligations.) The United States said it was in the process of
confirming whether it could agree to release the funds and promised
to keep the Secretariat informed. Italy said the Paris Club should
urge Sierra Leone to use the funds for poverty reduction.

--------------------
Litigating Creditors
--------------------

19. (SBU) Creditors endorsed without controversy a working paper
distributed by the Secretariat aimed at identifying concrete and
practical options for countering aggressive litigating creditors.
Ahead of the Paris Club meeting, G7 review of the Secretariat's
paper had forged agreement on actions that fall clearly within Paris
Club expertise. Germany raised the possibility of broadening
efforts to support non-HIPC countries, but the United States and
other creditors agreed to keep the focus on HIPCs for now. The
Netherlands said it was important to look at data on actual assets
seized, as opposed to judgments awarded, to have a better
understanding of the scope of the problem. Italy, the UK, and the
United States commented that amicus briefs or supplements drafted by
the Secretariat would not be useful in their domestic courts.
Australia and Canada stressed the importance of distinguishing
so-called "vulture funds" from legitimate claimants seeking to
enforce their contracts rights. Australia added that the notion of
changing contract design was problematic. The United States stated
that the Secretariat's reference to modifying legislation to limit
amounts awarded to litigating creditors was a non-starter.
Australia agreed that new legislation would likely be a non-starter.


20. (U) The Secretariat committed to: (1) coordinate any debt
management technical assistance with other organizations; (2)
initiate a survey (at U.S. suggestion) of creditors' national
legislation regarding the protection of sovereign assets, including
central bank assets; (3) renew outreach to non-Paris Club creditors,
including China; and (4) invite the legal team that defended Zambia
against Donegal to brief the Paris Club at the September session.

------------------------------------
Return of Promissory Notes to Russia
------------------------------------

21. (U) Russia reiterated its April request that creditors return
promissory notes and bills of exchange that had been cancelled as a
result of previous prepayment operations. If the promissory notes
cannot be located, Russia asked creditors to provide a letter to
Russia listing all loan agreements covered. Russia offered to
provide a template that would meet its needs. (Note: The United
States does not hold any of these promissory notes and had
previously provided Russia a letter acknowledging repayment of its
debts.)

-----------------------
Spain's New HIPC Policy
-----------------------

22. (U) Spain announced its new policy to cancel all ODA and non-ODA
debt contracted before 2004 for HIPC countries having reached
completion point. The new policy will result in 380 million euros
in additional debt reduction, to be implemented through debt swaps
(40%) and direct budgetary aid (60%).

STAPLETON

© Scoop Media

 
 
 
World Headlines

 

Ramzy Baroud: Year in Review Will 2018 Usher in a New Palestinian Strategy

2017 will be remembered as the year that the so-called ‘peace process’, at least in its American formulation, has ended. And with its demise, a political framework that has served as the foundation for US foreign policy in the Middle East has also collapsed. More>>

ALSO:


North Korea: NZ Denounces Missile Test

Foreign Affairs Minister Winston Peters has denounced North Korea’s latest ballistic missile test. The test, which took place this morning, is North Korea’s third test flight of an inter-continental ballistic missile. More>>

ALSO:

Campbell On: the US demonising of Iran

Satan may not exist, but the Evil One has always been a handy tool for priests and politicians alike.

Currently, Iran is the latest bogey conjured up by Washington to (a) justify its foreign policy interventions and (b) distract attention from its foreign policy failures.

Once upon a time, the Soviet Union was the nightmare threat for the entire Cold War era – and since then the US has cast the Taliban, al Qaeda, and Islamic State in the same demonic role. Iran is now the latest example…More


Catalan Independence:
Pro-independence parties appear to have a narrow majority. More>>