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Cablegate: Paris Club - November 2007 Tour D'horizon

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DE RUEHFR #4622/01 3371538
ZNR UUUUU ZZH
R 031538Z DEC 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 1334
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6722
RUEHSW/AMEMBASSY BERN 2043
RUEHBS/AMEMBASSY BRUSSELS 6551
RUEHCP/AMEMBASSY COPENHAGEN 1517
RUEHHE/AMEMBASSY HELSINKI 1315
RUEHLO/AMEMBASSY LONDON 6771
RUEHMD/AMEMBASSY MADRID 2747
RUEHMO/AMEMBASSY MOSCOW 6008
RUEHNY/AMEMBASSY OSLO 1557
RUEHOT/AMEMBASSY OTTAWA 2189
RUEHRO/AMEMBASSY ROME 8659
RUEHSM/AMEMBASSY STOCKHOLM 1567
RUEHTC/AMEMBASSY THE HAGUE 2915
RUEHKO/AMEMBASSY TOKYO 2601
RUEHVI/AMEMBASSY VIENNA 1773
RUEHBS/USEU BRUSSELS 2141
RUEHLU/AMEMBASSY LUANDA 0899
RUEHRY/AMEMBASSY CONAKRY 1090
RUEHGB/AMEMBASSY BAGHDAD 0689
RUEHAM/AMEMBASSY AMMAN 1033
RUEHMV/AMEMBASSY MONROVIA 7307
RUEHBU/AMEMBASSY BUENOS AIRES 1469
RUEHLC/AMEMBASSY LIBREVILLE 1269
RUEHJL/AMEMBASSY BANJUL 0336
RUEHBJ/AMEMBASSY BEIJING 1601
RUEHIN/AIT TAIPEI 1351

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.

SIPDIS

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

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