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Cablegate: Cyprus Extends Full Debt Relief to Iraq

VZCZCXYZ0005
PP RUEHWEB

DE RUEHNC #1692 2721314
ZNR UUUUU ZZH
P 291314Z SEP 06
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6974
INFO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0031
RUEHTH/AMEMBASSY ATHENS PRIORITY 3679
RUEHLO/AMEMBASSY LONDON PRIORITY 1241
RUEHHE/AMEMBASSY HELSINKI PRIORITY 0382
RUEHBS/USEU BRUSSELS PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS NICOSIA 001692

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EAID PREL IZ CY
SUBJECT: CYPRUS EXTENDS FULL DEBT RELIEF TO IRAQ

REFS: (A) 05 NICOSIA 958, (B) 05 NICOSIA 433, (C) 05 NICOSIA 88, (D)
05 STATE 8646

(U) This cable is sensitive but unclassified -- please protect
accordingly.

1. (U) Summary. The Government of Cyprus (GOC) and the Government
of Iraq agreed on a full, mutual debt cancellation at the recent
meeting of the General Assemblies of the IMF and World Bank in
Singapore. As part of the agreement, Cyprus forgave Iraqi debts to
the GoC and Cypriot firms of an estimated CYP 40 million (USD 88
million). In exchange, Iraq forgave the debts of 3 Cypriot-based
companies (USD 7.1. million plus interest) for unpaid oil shipments
dating from 1990. (Reftels). End Summary.

2. (SBU) On September 27, the local press reported that Cyprus had
officially cancelled all Iraqi debts as part of the island's
continual support to the war-torn country's reconstruction. Working
level Ministry of Finance and MFA officials appeared to be caught by
surprise and knew few of the details although they were able to
confirm to us that Cypriot Foreign Minister Lilikas, Cypriot Finance
Minister Sarris, Iraqi Foreign Minister Zebari and Iraqi Finance
Minister Jabbr has signed the agreement during last week's meeting
of the General Assemblies of the World Bank and IMF.

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3. (SBU) Cyprus is reportedly the fourth country to cancel 100
percent of Iraqi debt following the U.S., Malta, and Slovenia. The
debt cancellation agreement exceeds the 80 percent debt reduction
urged by the Paris Club. According to Finance Ministry sources, the
total Iraqi debt to Cyprus (both private and public) was estimated
at CYP 40 million, a significant portion of which was made up of
Iraqi debts to Cypriot manufacturers covered by GOC state guarantees
incurred in the 1980s. The agreement also covers the debt of
Cyprus-based oil companies to the Iraqi State Oil Marketing
Organization (SOMO) for unpaid oil exports to Cyprus in 1990, valued
at USD 7.1 million plus interest. According to the MFA, the exact
extent of the debt forgiven will be calculated and released over the
next few weeks.

4. (SBU) Finance Minister Sarris confirmed the existence of the
agreement to the Ambassador on September 29. Sarris noted that the
agreement had come around partly because he was seated next to the
Iraqi Finance Minister Jabbr on the Dubai-Singapore leg of his
flight to the conference. Jabbr had been reluctant to approve
off-setting the Cypriot debt to Iraq against the Iraqi debt to
Cyprus out of fear of setting a precedent, but had agreed in the
end. The agreement comes after several years of regular Embassy
demarches urging the GOC to cancel the Iraqi debt and ensure
repayment of all monies owed to Iraq.

SCHLICHER

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