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Cablegate: Debt Reduction for Iraq - Follow-Up with Non-Paris

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BRASILIA 003136

SIPDIS

SENSITIVE

TREASURY FOR DEBT POLICY OFFICE AND OASIA
STATE FOR WHA/BSC, WHA/EPSC, AND EB/IFD/OMA

E.O. 12958: N/A
TAGS: EFIN ECON PGOV PREL BR IZ
SUBJECT: DEBT REDUCTION FOR IRAQ - FOLLOW-UP WITH NON-PARIS
CLUB CREDITORS

REF: A) STATE 238110, B) BRASILIA 2698

1. (U) ACTION REQUEST - PARAGRAPH 5.

2. (U) PER INSTRUCTIONS, ECONOFFS PRESENTED REFTEL A
DEMARCHE (ALONG WITH FACT SHEET) TO BOTH THE BRAZILIAN
FINANCE AND FOREIGN MINISTRIES.

3. (SBU) FINANCE MINISTRY INTERNATIONAL SECRETARY LUIS
PEREIRA TOLD ECONOFF DECEMBER 17 THAT BRAZIL WAS FOLLOWING
THE IRAQ PARIS CLUB NEGOTIATIONS CLOSELY AND WELCOMED
CONTACT WITH THE IRAQI AUTHORITIES TO DISCUSS DEBT
RESTRUCTURING. THE IRAQIS HAD NOT YET BEEN IN TOUCH.
PEREIRA NOTED THAT HOW BRAZIL DEALT WITH IRAQ WOULD DEPEND
IN PART ON THE TACK TAKEN BY THE LARGE NON-PARIS CLUB
CREDITORS, WHOM HE REMARKED HELD A MAJORITY OF IRAQI DEBT.
BEING SEEN AS ACTING IN CONCERT WITH OTHER CREDITORS AS
PART OF A CREDIBLE MULTILATERAL PROCESS WAS IMPORTANT TO
OBTAINING CONGRESSIONAL APPROVAL OF AN IRAQ DEBT WRITE-OFF.
DEBT WRITEOFFS WERE A PARTICULARLY SENSITIVE POLITICAL
ISSUE, WITH CONGRESSIONAL DELEGATIONS FROM STATES WITH
LARGE DEBTS TO THE BRAZILIAN FEDERAL GOVERNMENT QUESTIONING
WRITE-OFFS FOR FOREIGNERS WHEN THE FEDERAL GOVERNMENT
INSISTED ON REPAYMENTS FROM THEIR OWN STATES. PEREIRA
NEVERTHELESS IMPLIED THERE WOULD BE POLITICAL WILL TO WORK
WITH IRAQ ON A RESTRUCTURING OF WHAT BRAZIL ESTIMATES IS
$602.9 MILLION IN BILATERAL GOVERNMENT TO GOVERNMENT DEBT.
(NOTE: $163.7 MILLION IN PRINCIPAL, $22.3 MILLION IN
INTEREST AND $416.9 MILLION IN PAST DUE INTEREST.) PEREIRA
SAID BRAZIL'S BUSINESS COMMUNITY WOULD BE CLOSELY WATCHING
NEGOTIATIONS WITH PRIVATE SHAREHOLDERS. THE BULK OF IRAQ'S
DEBT TO BRAZIL IS HELD BY PRIVATE CREDITORS, HE EMPHASIZED.

4. (SBU) IN CONTRAST, THE HEAD OF THE MFA'S ECONOMIC
DEPARTMENT, AMB. PIRAGIBE TARRAGO, TOLD ECONCOUNS DECEMBER
20 THAT THE MAXIMUM DEBT REDUCTION THAT BRAZIL COULD OFFER
IRAQ WAS 50 PERCENT, THOUGH A DECISION HAD NOT YET BEEN
TAKEN TO GO UP TO THE LEVEL. IT COULD WELL BE THAT THE GOB
MIGHT OPT FOR A LEVEL LESS THAN 50 PERCENT, TARRAGO NOTED.
TARRAGO SAID THAT THIS POSITION WAS BASED STRICTLY UPON
ECONOMIC FACTORS, THOUGH IT WAS CLEAR THAT THE LIKELIHOOD
THAT THE BRAZILIAN CONGRESS WOULD OBJECT TO ANY LEVEL
HIGHER THAN 50 PERCENT WEIGHED HEAVILY IN HIS THINKING.
THE GOB OBSERVER DELEGATION TO THE NOVEMBER 21 PARIS CLUB
SESSION HAD MADE THIS POSITION CLEAR AT THE TIME OF THAT
MEETING, HE ADDED. TARRAGO WAS PARTICULARLY INTERESTED IN
USG THINKING WITH RESPECT TO HOW COMMERCIAL DEBT
RESCHEDULING (WASHINGTON CLUB AND LONDON CLUB) WOULD
PROCEED. HE NOTED THAT SOME BRAZILIAN PRIVATE SECTOR
CREDITORS WERE CURRENTLY INVOLVED IN THESE TALKS.

5. (U) ACTION REQUEST - ANY INFORMATION DEPARTMENT CAN
PROVIDE WITH RESPECT TO THE STATUS OF THE COMMERCIAL DEBT
RESCHEDULING TALKS WOULD BE MOST HELPFUL. WE WILL PASS
SUCH INFORMATION TO BOTH TARRAGO AND PEREIRA.

6. (SBU) COMMENT. WHILE PEREIRA AND TARRAGO EACH PUT A
DIFFERENT SPIN ON THEIR MESSAGE, THE OVERALL IMPORT SEEMS
CLEAR: GOB THINKING HAS NOT YET CRYSTALIZED WITH RESPECT
TO THE LEVEL OF IRAQ DEBT REDUCTION, THOUGH IT APPEARS IT
WILL BE EXTREMELY DIFFICULT FOR THE GOB TO OFFER ANYTHING
OVER THE 50 PERCENT LEVEL. END COMMENT.

MINIMIZE CONSIDERED.

DANILOVICH

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