Cablegate: Paris Club - March 2005 Tour D'horizon, Part I
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SUBJECT: PARIS CLUB - MARCH 2005 TOUR D'HORIZON, PART I
SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET
1. (U) Following are summaries of country discussions
during the March 9-10, 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, Korea and Turkey
attended discussions on those countries to which they are
creditors. This section, Part I, includes countries
Angola-Honduras; Part II includes countries Iraq-Sao Tome
and Principe; Part III includes countries Serbia-
Zimbabwe, as well as methodological discussions on
improving HIPC debt relief and avoiding prepayment costs.
2. (U) NOTE: INDIVIDUAL CREDITOR POSITIONS REPORTED IN
THIS MESSAGE SHOULD BE TREATED AS "PARIS CLUB
CONFIDENTIAL" AND NOT/NOT DISCUSSED WITH DEBTOR COUNTRY
REPRESENTATIVES, NOR WITH NON-PARIS CLUB PARTICIPANTS.
3. (SBU) Discussed in this session:
Angola -- IMF Update (Brazil)
Argentina -- Upcoming negotiation (Israel)
Chad - IMF update, extension of the current agreement
China -- possible accession
Dominican Republic -- IMF Update, upcoming negotiation
Guinea -- IMF update (Brazil)
Honduras -- IMF update, phase 2 implementation,
completion point calendar
Iraq -- IMF update (Korea)
Jordan -- IMF update, phase 2 entry-into-force
Kyrgyz Republic -- Upcoming negotiation (Turkey)
Liberia - request for data assistance
Nigeria -- 2005 debt repayment schedule (Brazil/Israel)
Nicaragua -- Comparability of Treatment with Brazil
Peru -- buyback, Secretariat report (Brazil)
Poland -- Prepayments (Brazil)
Russia -- Buyback proposal
Rwanda -- IMF update, completion point calendar
Sao Tome and Principe -- IMF update, financing assurances
Serbia and Montenegro -- IMF update, phase 2 entry-into-
Sudan -- IMF update (Brazil)
Tsunami-affected countries -- IMF update, follow up
actions, requests from Sri Lanka and Indonesia
Zambia -- IMF update, completion point calendar
Zimbabwe - - IMF update, arrears and payments (Brazil)
4. (U) ACTION/FOLLOW-UP/UPCOMING ITEMS
Methodology -- Possible publication of rules concerning
buybacks and prepayments; new HIPC debt relief initiative
April negotiation -- Peru buyback
TBD negotiation -- Russia buyback
5. (SBU) The IMF reported that the Board discussed
Article IV last week. The IMF welcomes the peace,
economic performance, transparency, and structural
reforms. An agreement for a Staff Monitored Program
(SMP) could help, according to the Board, to lay the
groundwork for donors and external creditors. A mission
will visit in April on the SMP.
6. (SBU) The World Bank representative said that the
Board approved an interim strategy to provide basic
services. The Bank is looking at the investment climate,
and a consultant is looking at the linkage between the
poverty reduction strategy and the budget.
7. (SBU) The Secretariat reported that it had held a
meeting with the Angolan authorities, who had outlined
their progress. The Angolans reported that they are
about to complete bilateral agreements with non-Paris
Club members Hungary and Bulgaria, and maybe China. They
want a debt treatment without the IMF. The Secretariat
pointed out that Paris Club principles, especially
linkage to an IMF program, conditionality and
Comparability of Treatment (CoT), make a deal difficult.
The Angolans still think it is possible to treat the debt
without the IMF (cf. LUANDA 367). The Secretariat has no
sense that there will be a rapid resolution, but in any
event, dialogue has been established.
8. (SBU) The IMF observed that "there is much to say, but
maybe it is premature to say anything." The Board met
last week on the debt exchange offer. Argentina's fiscal
performance is strong; it is running a fiscal surplus of
5.4% of GDP. It has made no structural reforms.
According to preliminary data released March 3rd, the
debt exchange offer had achieved a 76% participation rate
of eligible debt (USD 62 billion, not including 19.6
billion of "ineligible" debt and 5 billion in arrears).
Is too early to know what will happen next. The Managing
Director met with the Finance Minister on Sunday, March 6
and technical discussions will continue in DC over the
next few weeks. No agreement has been reached about
Article IV. The Argentineans have not said what else
they want. They continue to pay the fund. A USD 145
million repurchase expectation payment was made and
another 145 million payment is expected today. Argentina
owes the fund USD 5.6 billion in debt servicing payments.
9. (SBU) The World Bank noted that the way forward is
unclear. Structural reforms have been slow, especially
with the utility. Further lending this year depends on
what happens with the IMF.
10. (SBU) The Secretariat said that our situation also
depends on the Fund. It had prepared a draft letter
encouraging Argentina to resume discussion with the Paris
Club on the basis of an IMF-supported program and to meet
its obligations to Paris Club creditors, and seeks
11. (SBU) Germany said it strongly supports the letter,
which has a good friendly tone.
12. (SBU) Italy observed that it was premature for the
Paris Club to send any signal, in particular a friendly
gesture, towards Argentina. Argentina has not yet
approached the Paris Club, and Italy is not suggesting
that they do so.
13. (SBU) The USDEL voiced concern over sending the wrong
signals to Argentina and said that it was not really
within the purview of the Paris Club to prescribe a
course of action to Argentina that would increase the
IMF's exposure to the country. It is up to Argentina to
make the first gesture. He suggested that an appropriate
form of approach to Argentina would be simply be to
remind the country of the need for it to meet its
financial obligations to creditors.
14. (SBU) The Netherlands agrees, but prefers that a
letter be sent.
15. (SBU) Japan said that the Paris Club should just
write a letter telling Argentina to repay.
16. (SBU) The UK said it is clear the Paris Club should
not endorse what has or is about to happen. It prefers a
17. (SBU) The President noted the consensus to draft a
more severe letter, and after clarification from Italy
that there is no consensus to send a letter at this time,
agreed to wait until the suitable moment.
18. (SBU) The IMF said the Board approved on February 16
a new Poverty Reduction Growth Facility (PRGF).
Assistance to strengthen fiscal management relies on HIPC
debt relief. The first review will take place in the
summer of 2005. The World Bank rep noted that the Chad
pipeline is flowing but oil revenues are already
19. (SBU) The President noted the consensus to grant Chad
an extension through September 30, 2005 thanks to the
approval of a new PRGF.
20. (SBU) The President reported that the Secretariat has
made no progress on collecting data regarding China's
debt position. He proposed that the Presidency write a
letter to China to open the dialogue and circulated a
draft for consideration.
21. (SBU) The IMF reported it is preparing for Article IV
consultations in May to cover the macroeconomic policies
and economic opening. The World Bank rep noted that
China is the Bank's largest borrower, with USD 21 billion
combined IBRD/IDA exposure. Although it is no longer
eligible for IDA loans, it is still active with the IBRD,
which anticipates another 1.3 to 1.4 billion this year.
The Chinese have made a large prepayment of high-fixed-
interest rate loans.
22. (SBU) Russia said it generally supports the idea of
maintaining a dialogue with China given its increasing
role as a creditor. It will be important to establish
contact in the near future. The first meeting should
include all creditors to be acceptable to Russia. The
best place for that would be in Paris. The meeting would
be political, not technical.
23. (SBU) Germany said it thinks it important to consider
the wish of China to join the Paris Club. However, the
Paris Club should not be too hasty, as it does not yet
have enough information. China has not yet even made an
official request, so it would be best to keep any talks
informal with just the President. Germany needs a formal
request first. It remembers that when Russia was
invited, the Club was very sensitive to the first steps.
With China it will be even more delicate, as Germany has
no idea whether the Chinese respect Paris Club
24. (SBU) The UK argued that a small informal approach is
best, and more time is needed to consider a letter of
25. (SBU) The USDEL agreed that caution is needed.
Although the USG shared the general sentiment in favor of
seeking means to further integrate China into the world
economy, a letter at this time would be premature.
Creditors should have a detailed assessment of China's
position as an official creditor; once such data were
available, members could make an informed decision about
how to proceed.
26. (SBU) Italy agreed that the Club should not send any
message. Italy too would have liked to have data. It
can support a letter, with the Paris Club taking the
first move, to take stock of what the Chinese think.
China has said it would be willing to implement the HIPC
27. (SBU) Japan supports sending a letter, but agrees
that the first meeting should include all Paris Club
creditors, and would like more data.
28. (SBU) Australia said it is cautious but positive,
with caution about how China might affect the consensus.
29. (SBU) Canada said it is not sure if it is too early
to send a letter but is positive to the idea. It needs
more information and the Chinese need to know their
30. (SBU) The President noted the consensus that
integrating China is important, but the lack of consensus
about everything else. He also raised the conundrum of
the IMF saying no official request for data has been
made, so it is difficult for the IMF to collect data.
The IMF clarified that in order for the exercise to be
useful, the Chinese should view the request in a positive
fashion. The topic cannot simply be tacked onto the
Article IV consultations. The President suggested the
Secretariat would try to redraft a letter to be
circulated for comments.
31. (SBU) The IMF reported that the Board approved a new
Stand-By on January 31. Staff will visit next week to
discuss the Metro project. The GoDR would like staff to
participate in its roadshow, and the IMF is amenable.
The GoDR understands it needs financing for its 2005
programs. The GoDR authorities are confident that
commercial bank reschedulings will be initiated in early
April. As of February 21, the GoDR has USD 56 million in
arrears to the banks. The GoDr expects to launch its
bond exchange by the end of March, and anticipates a high
level of participation; the Secretariat was less
sanguine. Exact timing of the launch depends on
32. (SBU) The World Bank rep said the Bank had disbursed
two conditional tranches in 2004, and was finishing
another USD 25 million for electricity that week. Another
25 million is earmarked for the social sector, 3 of 8
conditions are completed but progress is good so the Bank
expects to disburse the funds in April. It is also
working on a power-sector loan of USD 150 million, which
should go to the Board in June, subject to congressional
passage of enabling legislation. Power shortages
33. (SBU) The Secretariat reported that only one
bilateral agreement has been completed. The Secretariat
can check on CoT in May and perhaps aim for a negotiation
34. (SBU) Belgium reported new post-ccod arrears of USD
2.9 million from the Health Ministry (but noted it was
only an observer to the last Agreed Minute).
35. (SBU) Norway said that the GoDR's technical default
of USD 7 million has been preliminarily resolved; if an
agreement is concluded there will be no actual default.
Norway would appreciate that the IMF and the Paris Club
communicate its concerns.
36. (SBU) The President noted the consensus to
communicate concerns about arrears to the GoDR.
37. (SBU) The IMF reported that Guinea has accumulated
short-term arrears, but hopes they will be cleared soon.
The World Bank rep remarked that Guinea routinely accrues
arrears for 30 days at a time; it appears to be rolling
over its arrears but always stays short of the 45-day
limit. It is operating in a low lending scenario, with
support restricted to vital sectors and no budget support
38. (SBU) Russia reported arrears are accumulating. It
will continue to monitor.
39. (SBU) The IMF reported that the PRGF is on track as
was achievement of HIPC completion point. The second
review and completion date is scheduled to come to the
Board on March 30. No topping up will be needed. There
is, however, one technical point: a revision of the
database in NPV of a USD 30 million decrease. Under HIPC
rules, the country is not obligated to accept the change,
and Honduras does not, therefore there will be no
40. (SBU) The World Bank rep said the Board date is set
for April 5. IBRD claims are significant and so the Bank
will deliver relief against these with an IDA credit. In
the decision point document, the Bank had envisioned
these would be delivered in their entirety, however,
because of the delay and the maximizing of interim
relief, interim relief was not enough. Residual debt
relief will be delivered on a reduction of the debt
service on the IDA portfolio.
41. (SBU) The Secretariat noted that an April negotiation
might be possible, but it will need to further refine the
timeframe. There will be no fiscal impact if the
negotiation takes place in May.
Baghdad minimize considered.