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Cablegate: Paris Club - April 2005 Tour D'horizon

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





E.O. 12958: N/A



1. (U) Following are summaries of country discussions
during the April 5, 2005 Paris Club session. The Paris
Club's President, Jean-Pierre Jouyet, chaired the
session. Secretary General (SecGen) Emmanuel Moulin
represented the Secretariat. Representatives of non-
Paris Club members Brazil, Israel and Korea attended
discussions on those countries to which they are
creditors. The next session of the Paris Club is
scheduled for the week of May 9, 2005.



3. (SBU) Discussed in this session:

Argentina -- Upcoming negotiation (Israel)
Burundi -- IMF update
China -- possible accession
Dominican Republic -- IMF Update, upcoming negotiation
Gabon -- IMF update (Brazil)
Grenada -- IMF update
Honduras -- IMF update
Kyrgyz Republic -- debt service reduction tables
Liberia - request for data assistance
Peru -- buyback (Brazil)
Russia -- Buyback proposal
Rwanda -- IMF update
Sao Tome and Principe -- IMF update, financing assurances
Serbia and Montenegro -- IMF update
Tsunami-affected countries -- IMF update, follow up

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actions, requests from Sri Lanka and Indonesia
Zambia -- IMF update
Zimbabwe - - IMF update, review of arrears (Brazil)


May negotiations -- Rwanda; Zambia; Peru buyback

June negotiation -- Honduras

July negotiation -- Dominican Republic

TBD negotiation -- Russia buyback

5. (SBU) The President, Jean-Pierre Jouyet, remarked that
the GoA published on March 18 its exchange offer, and it
had attracted a strong participation rate. He inquired
whether creditors wished to send a demand letter.

6. (SBU) The IMF reported that Argentina's macroeconomic
policies are on track, but there is no progress on
structural reforms. The Fund understands that settlement
of the debt exchange offer has been delayed by another
appeal in the US federal courts. On March 6-7, the
Managing Director met with the GoA Finance Minister. The
IMF held Article IV discussions two weeks ago in DC. The
problem is that a strategy to restructure debt has to be
considered in the context of the Fund's lending into
arrears policy. The IMF still has no further information
about the GoA's intentions regarding a possible follow-on

7. (SBU) The World Bank noted that the way forward is
still unclear. Adjustment operations valued at USD 870
million are on hold pending an IMF agreement. The Bank
made 3 adjustment loans to the provinces in 2004. On
investments, the Bank plans USD one billion in
commitments for 2005. [Further lending this year depends
on what happens with the IMF. With an IMF program,
Argentina could benefit from large disbursements
resulting in a positive net flow in 2005. Without a
program, the situation would be reversed.

8. (SBU) Germany said it strongly supports the letter,
reiterating that an IMF program is a prerequisite to a

9. (SBU) Italy has seen no significant change in
Argentina's position, and therefore Italy does not agree
to send a letter. Italy wants to avoid prejudicing the
rights of its large population of private creditors for
as long as possible, and so prefers the current
fuzziness. It will take the letter to Rome and if there
is a change in position, will inform the Secretariat.

10. (SBU) The USDEL remarked that the draft letter's
implicit suggestion that Argentina should recommence
borrowing from the IMF went beyond the purview of the
Paris Club, and suggested the letter be toned down to
simply remind Argentina of its obligations to Paris Club
creditors. The Secretariat produced such a draft for
consideration by creditors.

11. (SBU) The President noted the consensus for the
Secretariat to redraft a letter and wait for Italy to

signal the suitable moment to send it.

12. (SBU) The IMF reported that there has been progress
on the PRGF, thanks to a significant rebound in economic
activity. The first review was completed on January 25.
The political transition is proceeding. A mission to
conduct the second review just returned, so the second
review should be completed by June 2005. Staff also
reviewed enhanced HIPC eligibility. Staff will do an
update to the DSA based on 2004 data. The World Bank
rep said that the Board would consider on May 5 an IDA
grant for budget support and project assistance. Staff
is working on the DSA now. The PSRP is advancing with
local consultations; the Bank's goal is to have a full
PSRP in place in 2005. The Bank is working on a
demobilization and integration program. It has concerns
about conflicting information from donors.

13. (SBU) The President noted the consensus to place
Burundi on the agenda for another update in July.

14. (SBU) The President again proposed that he write a
letter to China to open dialogue with the Paris Club.
The Secretariat circulated a draft letter proposing that
the President visit China.

15. (SBU) The IMF reported it is preparing for Article IV
consultations in May, but the Chinese have not agreed to
a date. The Fund Managing Director met the Chinese on
March 15. The World Bank rep noted that China is the
Bank's largest borrower, and speculated that the reason
the Chinese show such a strong interest in borrowing,
despite their growing economic size, is because they want
to profit from the Bank's technical expertise.

16. (SBU) The UK rep pointed out that the Paris Club
could avoid raising China's expectations for eventual
membership by asking the IMF to conduct a study of all
non-traditional lenders, including but not limited to

17. (SBU) The USDEL agreed and commented that the draft
letter failed to put the Fund's potential data request in
the clear context of the Club's interest in the growing
role of several countries as sovereign creditors,
including China. USDEL made drafting suggestions, which
the Chair said he would include in a new draft.

18. (SBU) Italy supports a letter and likes even more
the idea of the President visiting, to minimize the
chance of misinterpretation.

19. (SBU) Germany supports the letter, but wants to be
part of any talks with the Chinese.

20. (SBU) Japan supports an informal dialogue, and is
comfortable with any version of the letter. Japan
suggested that the letter could suggest creditors might
participate in informal contacts.

21. (SBU) Russia supports the letter and the idea that
creditors could take part in later discussions.

22. (SBU) Spain supports the letter and a President

23. (SBU) The President suggested the Secretariat try to
redraft a letter, responding to the suggestions, which
will be circulated for comments.

24. (SBU) The IMF reported that staff visited Santo
Domingo in mid-March, and the Managing Director visited
last week. On the macro level, confidence is up,
inflation is down, but growth is weakening. Structural
reforms are stalled due to political difficulties and
differences among the ministries. Resolution of the debt
exchange is slow but moving forward. Congress approved
on March 29 the bond exchange. Absent further delays,
the bond exchange will be completed in 3-5 weeks. Late
interest would need to be included in any debt

25. (SBU) The World Bank rep said the Bank had completed
negotiations on a power-sector loan, which is nearly
ready to go to the Board. A mission is wrapping up work
on a structural reform loan.

26. (SBU) The Secretariat reported that the authorities
had thought bilateral agreements would be completed mid-
April but now have requested an extension of the deadline
stipulated by the 2004 agreed minute. It encouraged
creditors to complete bilateral agreements well before

27. (SBU) Belgium remarked that the arrears it had
reported at the last session still have not been cleared.

28. (SBU) The USDEL reported a sudden jump in arrears,
totaling USD 32 million as of the end of March. While
only USD 2.7 million of the total is post-ccod, the spike
was nonetheless worrisome.

29. (SBU) Norway said that the GoDR's technical default
of USD 7 million has been avoided by an agreement in
principle. Norway will know by April 25 whether it will
be implemented.

30. (SBU) Spain has no arrears, but signaled its hope to
finish soon its bilateral agreement.

31. (SBU) The President noted the calendar would appear
to allow a negotiation with the GoDR in July The
Secretariat agreed to raise the DR's arrears situation in

the interim.
32. (SBU) The IMF reported that the fourteen-month Stand-
By Arrangement will expire in June 2005. Performance has
been satisfactory, and no funding gaps are anticipated in
2005. Therefore, the authorities have decided not to
make further purchases making the arrangement
precautionary. The GoG has negotiated bilateral
agreements with Saudi Arabia, Libya and Korea. It is now
negotiating with the London Club. The third review
showed major challenges remain with the durability of the
economic program, and diversification from oil exports.
The Fund did a debt sustainability analysis, which showed
good fiscal consolidation but the economy is still highly
sensitive to external shocks and the degree of fiscal

33. (SBU) The World Bank reported cautious optimism. It
is working with the IMF to improve the efficiency of the
non-oil sectors especially forestry by eliminating the
monopoly position of the marketing board and partially
privatizing the national airline. It supports reform in
the natural resources sector. It is considering an IBRD
development policy loan.

34. (SBU) The Secretariat noted it is not necessary to
provide further debt relief based on the goodwill clause
in the 2004 AM thanks to high oil prices that will cover
Gabon's 2005 financing needs. The IMF DSA shows a
decrease in the export/debt ratio in the long term.
Stability depends on oil prices and development of the
non-oil sectors, but for now, further debt treatment is

35. (SBU) The IMF reported that following Hurricane Ivan,
the GoG asked for emergency financial assistance. The
economy shrank 3 percent in 2004. The GoG predicts one
percent GDP growth this year, although tourism was
devastated. The fiscal consolidation program is very
slow, and large financing gaps are expected in 2005. The
GoG acknowledged soon after the hurricane that it would
not pay its debt service and would be seeking debt
reschedulings from its external creditors It has hired
advisors to approach creditors and is working to
restructure its commercial debt. It will present an
exchange offer next month, but that will not be enough to
close the financing gap. It will need additional debt
relief. No strategy has been determined yet. Its
largest creditor is Taiwan; Paris Club debt is less than
two percent of the total debt. An Article IV visit will
take place next month.

36. (SBU) The World Bank reported it has committed USD 10
million in a blend operation for emergency
reconstruction. It has already disbursed USD 194
million, almost all disaster-related. A recent mission
revealed the health and education sectors are key. A new
country assistance strategy is in development and should
go to the Board in May 2005. IBRD lending is dependent
on fiscal performance.

37. (SBU) The Secretariat said the debt to Taiwan totals
USD 51 million, to Kuwait 20 million; to France, the UK
and the US the debts are all around 2 million. The
relative weight of creditors might be a problem.
Creditors perhaps should consider coordinating with the
major creditors, perhaps on a bilateral basis.

38. (SBU) France said it holds all ODA debt totaling USD
3.1 million.

39. (SBU) Russia said it also has some claims against
Grenada, some USD 260 thousand dollars from 1982 Soviet-
era claims. It thinks working with the major creditors
is a sound policy.

40. (SBU) The Netherlands reported debts totaling 5.5
million euros, with no arrears.

41. (SBU) The UK said the Club's key objective should be
to have a coordinated approach among all creditors, and
working bilaterally outside the Club probably is best,
and the UK is happy to work that way.

42. (SBU) The USDEL agreed on the wisdom of a coordinated
approach, but noted the lack of an IMF program is the
immediate challenge.

43. (SBU) The President noted a consensus among Paris
Club creditors to coordinate responses to Grenada's
plight informally.

44. (SBU) The IMF reported that the Executive Board
completed its second review on March 28 and had decided
in principle that Honduras had reached completion point,
pending World Bank confirmation. The key problem now is
protecting reforms after the political transition.
Honduras made substantial progress in reforms, needing
but one waiver in the financial sector for new bank
regulations to comport with the Basel core principles.
Topping up probably will not be necessary. Staff will
visit in May. The third PRGF review should take place in
August for October Board consideration.

45. (SBU) The World Bank reported its Board was meeting
that same day to confirm completion point, and to
consider an IDA grant to fund IBRD debt. This would be
the first instance of such a payment, but no problems are

46. (SBU) Germany pointed out that the GoH has not yet
been informed that the second phase has entered into
force. The Secretariat acknowledged the oversight, and
agreed to prepare a letter.

47. (SBU) The President noted the consensus to send a
letter, and to include an invitation for a June

48. (SBU) The Secretariat reported that to keep the debt
reduction option equivalent to the debt servicing
reduction option, since the Kyrgyz negotiation was unique
and current interest rates are low, the Paris Club's
standard debt service reduction table b4 may have to be
used instead of b5. The Secretariat undertook to do
further analysis, which Russia and Germany expressed
interest in double-checking.

49. (SBU) The IMF discussed Liberia's potential HIPC
eligibility under the enhanced HIPC program's "sunset
clause" provisions. Data discrepancies for Liberia are
substantial, and data for the most part are old (from
2002), so the IMF would be grateful for updates from
creditors. The Secretariat said it would do a detailed
data call to respond to the request. In addition, the
small (almost de minimis) proportion of Paris Club debt
relative to large creditors like Taiwan and Kuwait raised
the question of how the Club could most effectively
contribute to an eventual resolution of Liberia's debt

50. (SBU) The IMF reported that economic performance has
been adequate. Inflation in February was low.
International reserves are increasing, and Peru is making
progress on structural reforms. A second mission on the
Stand-By arrangement visited in February and will report
to the Board in mid May.

51. (SBU) The World Bank rep concurred with the IMF views
on the economy, and supports a prepayment.

52. (SBU) The Secretariat said it had informed the
Peruvian authorities that the 220 points for liquidity
premium is not acceptable, but creditors had expressed
some flexibility with the spread and were willing to
negotiate a prepayment. The Peruvians indicated a May
negotiation would be better for them. The Finance
Minister hopes to arrange bilateral meetings beforehand.

53. (SBU) Spain remarked that it is interested in the
prepayment operation but only at a reasonable price.
Significantly, interest rates are rising in the US, which
will affect the spread and the terms of any possible
deal. The Peruvians are not going to get a better deal
as more time goes by.

54. (SBU) The President noted the consensus to maintain
the current negotiating position, and let the Peruvians
know a better deal is unlikely.

55. (SBU) The President reported that after the last
session, he wrote to Deputy Minister Storchak proposing
prepayment at par, and had suggested this would be
especially interesting with Germany participating. In
later conversations, Storchak had reported a continuing
interest in a deal, but things have gotten complicated
within Russia. Differences between the Kremlin and the
Ministry have arisen. The Kremlin does not want a deal
if it looks like nothing is gained. Germany reported it
had had bilateral talks as well, with no results. The
President noted the consensus among the members to stick
to their previous offer.

56. (SBU) The IMF said the Board meeting to consider the
fourth review of the PRGF and enhanced HIPC completion
point is scheduled for April 11. All completion point
triggers have been met except for one, for which the Fund
will request a waiver based on substantial progress. The
Fund considered the request for topping up. A DSA was
done, which shows a debt to export ration at 362 percent
at the end of 2003, well above the 193 percent projected
at the decision point. The ratio should have peaked in
2004 before declining gradually to 171 percent in 2023.
In view of the debt ratios, the Fund supports topping up.
The bulk (96 percent) will fall on the international
financial institutions. Responding to a question from
Russia (which is not a creditor), the IMF said topping up
is sensitive to the evolution of export prices, and the
decline in the discount rate affects the degree of
concessionality in additional borrowing. Documents were
circulated on March 25. The World Bank rep noted its
Board date is set for April 12.
57. (SBU) The President took note of the possibility of
scheduling Rwanda for a negotiation in May.


58. (SBU) The U.S. is not a creditor to STP. Paris Club
creditors continued to withhold financing assurances
pending an assessment of STP's capacity to service
arrears that have accumulated since 2000. The IMF
reported that STP faces large and continuing financing
gaps going forward, and that oil will not fully come on
line until 2012. Moreover, the new PRGF demands a large
and ambitious fiscal adjustment. In this context, the
IMF felt that there was no scope to negotiate even
partial payment of arrears, as some creditors (Russia,
Germany) were suggesting. The secretariat said it would
follow up with the IMF on STP's capacity to pay, then get
back to creditors on what portion of arrears - if any -
can be serviced without jeopardizing financing of new

59. (SBU) The IMF said discussions on the fifth review
are still ongoing. Staff differed with the authorities
about the extent of further fiscal tightening.
Discussion will continue in April in DC. If the
macroeconomic situation continues to improve, the Board
could take up discussion in June. A sixth review will be
necessary. If the situation does not improve, further
options will need to be explored. The World Bank
reported its attention is focused on the political issue
of EU candidacy.

60. (SBU) The Secretariat said it had sent a letter and
had gotten a response about the status of payments due to
Italy and Russia. The Japanese bilateral agreement is
expected soon. On Italy, the issue is the non-
recognition of late interest. In the Secretariat's view,
that does not concern the Club, it is Italy's problem.

61. (SBU) Russia reported that it had gotten a USD 1.1
million payment, but it is not prepared to enter into
force the third phase until SaM clears all its arrears.

62. (SBU) Italy agreed the late interest is a bilateral
issue, and it does not pose a problem to entry into force
of the third phase of the Agreed Minute.

63. (SBU) The President took note of the expectation
that Serbia would clear its arrears to Russia, in which
case it would proceed to the third phase in June, which,
if the fifth review is completed, would lead to a 15
percent debt stock reduction.


64. (SBU) The IMF reported that it has intensified
contacts with Indonesian authorities. It will hold
Article IV consultations in May for Indonesia as well as
Sri Lanka, and will prepare DSAs. The World Bank
reported it had approved an additional USD 25 million
grand from surplus.

65. (SBU) The Secretariat reviewed the draft letters and
MOUs, noting the discrepancy raised by one creditor in
the repayment period, and presenting a proposed revision.

66. (SBU) The USDEL noted that the grace period in the
earlier draft did not correspond to creditor discussions
and welcomed the Secretariat's attempts to eliminate the
discrepancy. The USDEL also explained that necessary
Congressional action to enable the USG to participate in
the extraordinary relief effort was still pending.

67. (SBU) Sweden apologized for the late notice, but
requested a de minimis clause be added to the MOUs, as it
has a small payment due in 2005 of ten thousand dollars.

68. (SBU) Germany agreed to the addition of the de
minimis clause. On the repayment schedule, Germany
argued that the terms are less favorable than previous
agreements with Nicaragua, Honduras or Macedonia, which
should be of some solace to the US Congress.

69. (SBU) Austria argued that a repayment date on the
31st of December would be more convenient to creditors
than on the 1st.

70. (SBU) Australia countered that the debt suspension
clock should run from January 1, 2005 to January 1, 2006,
with repayments ending in 2009 not 2010. It prefers the
Secretariat formulation.


71. (SBU) The Netherlands reported it has a small ODA
credit to Sri Lanka, so it favors the de minimis clause.
It also has a repayment due in June 2006, so it has a
problem with the proposed repayment schedule.

72. (SBU) Belgium said it does not understand the
Austrian proposal, and prefers the Secretariat proposal.

73. (SBU) The UK agreed to the redraft and the addition
of a de minimis clause.

74. (SBU) Japan said a de minimis clause is fine, as is
the repayment schedule.

75. (SBU) The President took note of the consensus to
redraft the MOUs, add a de minimis clause, and await
creditor approval of the redraft. The secretariat will
send memorandums of understanding to the Indonesia and
Sri Lanka authorities for their consideration. Paris
Club creditors, with the exception of the United States,
are expected to sign the MOUs next month. The US
reiterated that it is still awaiting Congressional
authorization and appropriations to participate in the
Paris Club offer.

76. (SBU) The IMF reported that the Board will consider
the second review of the PRGF as well as enhanced HIPC on
April 8. All criteria and completion point triggers have
been met, with two waivers for delays in privatizing the
integrated financial management system. The World Bank
said completion point was going to be considered that
same day, as well as USD 885 million relief through 2020.

77. (SBU) The President noted the possibility of inviting
Zambia to a negotiation in May, if the Secretariat
completes its data collection.

78. (SBU) The IMF reported the March 31 elections had
generated a large turnout and a great deal of criticism
from international observers. An Article IV mission is
scheduled for May. The Board will take up Zimbabwe in
late July or early August.

79. (SBU) The World Bank remarked on problems with human
rights. The GoZ has USD 380 million in arrears, of which
USD 290 million is to the IBRD, therefore it will need a
complex workout plan.

80. (SBU) The Secretariat said its data call revealed UD
1.55 billion in debt, with USD 792 million in arrears.
Germany has about 35 percent of the total, followed by
France with 20 percent and the UK with 14 percent. It
prepared a draft letter.

81. (SBU) The UK noted that in light of a compulsory
withdrawal, it would like more time to consider what to

82. (SBU) Italy reported that the GoZ had initiated
bilateral contact through its Embassy in Harare. The GoZ
wanted to know if the data call was comprehensive or

83. (SBU) Germany reported its Embassy had been contacted
as well. It was given a list of German claims, which it
is in the process of verifying. Germany agrees the GoZ
should be reminded about their arrears, and reminded
about comparability of treatment, since it has heard that
non-Paris Club creditors are being paid.

84. (SBU) Norway reported it too had been approached. It
supports the letter with the German additions.

85. (SBU) Japan was not approached. It supports the
letter with the CoT reminder.
86. (SBU) The USDEL said that while it agreed with the
CoT reminder, it accepted the UK's desire to take more
time to consider the letter.

87. (SBU) Sweden and Austria both reported they had not
been approached, but agree with the letter and the CoT

88. (SBU) The President took note of the desire to take
more time on the letter, as well as the consensus to add
a provision on comparability of treatment.

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