Search

 

Cablegate: Paris Club - September 2007 Tour D'horizon

VZCZCXYZ0003
RR RUEHWEB

DE RUEHFR #3994/01 2671459
ZNR UUUUU ZZH
R 241459Z SEP 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 0384
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6676
RUEHSW/AMEMBASSY BERN 2030
RUEHBS/AMEMBASSY BRUSSELS 6509
RUEHCP/AMEMBASSY COPENHAGEN 1500
RUEHLO/AMEMBASSY LONDON 6703
RUEHMD/AMEMBASSY MADRID 2713
RUEHMO/AMEMBASSY MOSCOW 5974
RUEHNY/AMEMBASSY OSLO 1521
RUEHRO/AMEMBASSY ROME 8603
RUEHSM/AMEMBASSY STOCKHOLM 1551
RUEHTC/AMEMBASSY THE HAGUE 2888
RUEHKO/AMEMBASSY TOKYO 2566
RUEHBS/USEU BRUSSELS 2083
RUEHBUL/AMEMBASSY KABUL 0542
RUEHLU/AMEMBASSY LUANDA 0882
RUEHPL/AMEMBASSY PORT LOUIS 0908
RUEHLC/AMEMBASSY LIBREVILLE 1253
RUEHWN/AMEMBASSY BRIDGETOWN 0289
RUEHGB/AMEMBASSY BAGHDAD 0666
RUEHAM/AMEMBASSY AMMAN 1016
RUEHMV/AMEMBASSY MONROVIA 7293
RUEHBW/AMEMBASSY BELGRADE 0862
RUEHFN/AMEMBASSY FREETOWN 0484

UNCLAS PARIS 003994

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 - SEPTEMBER 2007 TOUR D'HORIZON

1. (SBU) Summary: At the Paris Club's September 12 Tour d'Horizon,
creditors welcomed in principle Jordan's proposal to buy back debt
and generally supported the Secretariat's assessment of a 6-8
percent market discount. In a significant move, the Secretariat and
creditors agreed with the U.S. position that the comparability of
treatment clause needs to be adapted for early repayment agreements
to preserve the debtor's right to make subsequent early repayment
offers. Russia said it had no news to report on its bilateral
agreement with Iraq. The Netherlands postponed formal replies to
the IMF's request for financing assurances for Liberia's IMF
program, pending a September 14 IMF Board discussion and citing
concerns that Liberia was not negotiating in good faith with its
private creditors. In a special presentation on so-called "vulture
funds," UK attorney Janet Legrand briefed creditors on her
experience defending Zambia (a HIPC) against Donegal International's
aggressive litigation tactics. Paris Club creditors also discussed
relations with Angola, Antigua and Barbuda, Argentina, Central
African Republic, Congo-Brazzaville, Ecuador, Gabon, Grenada, and
Serbia and Montenegro, and a UK proposal on the monetization of
Paris Club claims. End Summary.


------
Angola
------

2. (U) The Secretariat reported that Paris Club Chairman Musca had
spoken with Angolan Vice Finance Minister de Morais (no relation to
Finance Minister de Morais) and reiterated that creditors were
willing to show some flexibility on late interest. De Morais said
his government had some questions about the late interest data
provided by the Secretariat. Sweden and the Netherlands still
reported some overpayments. The Secretariat informed creditors that
further data reconciliation work was necessary, but that the
situation was evolving in the right direction.

-------------------
Antigua and Barbuda
-------------------

3. (U) The Secretariat circulated a draft letter urging the
authorities to clear their arrears as soon as possible and stressing
the importance of equity of treatment among Paris Club creditors and
the need for an IMF program if the country seeks a Paris Club debt
treatment. Antigua and Barbuda owes the Paris Club $100 million, of
which nearly half is in arrears. The U.S. is the third largest
creditor with $17 million in claims. The IMF said the authorities
have hired advisers to look into restructuring external debt, but
have no interest in an IMF program. The Secretariat said creditors
could decide at a later stage that the country has no prospect of
relations with the IMF and Paris Club, in which case the next step
would be to consider terms of reference that would establish a
common framework for bilateral negotiations.

---------
Argentina
---------

4. (U) The Secretariat expressed hope that new Argentine Economy
Minister Peirano's recent letter signifies a new phase in the effort
to normalize financial relations with the Paris Club. In the
letter, Peirano announced that Argentina's Secretariat of Finance
will be strengthened through the creation of a working group headed
by Javier Augusto Alvaredo, who will be the point person on Paris
Club issues. The Secretariat also noted recent comments from
Dominique Strauss-Kahn to journalists that Argentina should either
tap its $43 billion in official reserves to pay its Paris Club debt,
or reach an agreement with the IMF and seek a restructuring in the
Paris Club.

------------------------
Central African Republic
------------------------

5. (U) The IMF said CAR's performance on its macroeconomic reform
program under the IMF's Poverty Reduction and Growth Facility has
been satisfactory. On September 28 and 29, respectively, the IMF
and World Bank's Executive Boards are scheduled to discuss CAR
reaching "Decision Point" under the Enhanced Heavily Indebted Poor
Countries Initiative (HIPC). An October 2007 pledging conference is
expected to take place in Brussels. The Fund calculates that all of
CAR's creditors will need to reduce their claims by 68 percent --
the common reduction factor -- to bring CAR's debt to sustainable
levels. Germany asked about CAR's earlier plans for a $92 million
bond issue. The Fund said the authorities decided to drop the idea
after staff conveyed their concerns.

-----------------
Congo-Brazzaville
-----------------

6. (U) The IMF said discussions with the authorities on a new
Poverty Reduction and Growth Facility (PRGF) program could resume by
the end of the year, noting that a staff-monitored program was
approved in June 2007 and an IMF staff mission was currently
underway. Italy was concerned that new PRC lending was posing a
threat to debt sustainability. The IMF said the Congolese
parliament ratified a loan in 2006 for the purchase of three Chinese
airplanes. The loan was on non-concessional terms and required a
waiver at the time of the second review of the PRGF. The IMF did
not have any information about any new loans that may have been
contracted with China but agreed to research the matter further and
provide an update at the October 2007 Paris Club meeting.

-------
Ecuador
-------

7. (U) The Paris Club expressed no interest in Ecuador's proposal,
sent on a bilateral basis to some creditors, to carry out debt swaps
in exchange for a commitment not to develop its oil fields. (The
GOE estimates that the oil fields could potentially yield $700
million per annum, and it wants donors to compensate Ecuador for at
least 50 percent of that amount.) The Secretariat opined that the
proposal was consistent with the debt swap provisions of Ecuador's
prior Paris Club agreements, noting that creditors would decide
bilaterally about individual participation. Italy questioned
whether it was appropriate to discuss creditors' interest at this
juncture since Ecuador had not sent its proposal to the Paris Club.

-----
Gabon
-----

8. (U) Regarding Gabon's proposed buyback agreed in July 2007, the
IMF said it did not have any information at this time about the
extent to which recent financial market turbulence may have affected
Gabon's plans to borrow money in regional and international markets
to finance the partial buyback, at a discount, of its Paris Club
debt. The Secretariat asked the IMF to follow up on this question
during the October Paris Club meeting. A Fund mission is headed to
Libreville at the end of September. Brazil reported receiving a
letter from the authorities asking Brazil to participate in the
buyback and provide additional relief through debt swaps, similar to
what France provided, in order to increase the overall discount from
15 percent to 20 percent. The Netherlands and Italy said they had
received similar letters but had no intention of engaging in debt
swaps. The UK had not received such a letter but indicated it will
participate in the discounted buyback operation. The U.S. and Japan
reported arrears ($500,000 and 21 million Japanese yen,
respectively) that they expect to be cleared before the buyback
takes place.

-------
Grenada
-------

9. (U) The Secretariat circulated a draft letter to the authorities
informing them that the second phase of Grenada's 2006 Paris Club
agreement, covering maturities falling due in calendar year 2007,
has not entered into force. In the letter, creditors urge the GOG
to make the necessary reform efforts to allow the IMF to complete
its first review of Grenada's program under the Poverty Reduction
and Growth Facility, which is the condition for resuming debt
relief.

----
Iraq
----

10. (SBU) Despite some limited expectations prior to the plenary
session that Russia would announce the imminent conclusion of the
long-delayed agreement, the Russian delegation said it had no news
to report on its bilateral agreement with Iraq. Russia gave no
further explanation, other than to restate the "cautious optimism"
Deputy Finance Minister Storchak expressed, at the August 6 signing
of the Russia-Afghanistan bilateral debt agreement, that the
agreement with Iraq could be concluded by the end of the year.

------
Jordan
------

11. (SBU) The U.S. delegation congratulated Jordan on its strong
economic reform initiatives and wished it continued success in
strengthening its economy through sound policies. In that context,
the U.S. expressed strong support for Jordan's efforts to improve
its debt management. The U.S. noted Jordan's plans to use
privatization proceeds and favorable market conditions to retire and
refinance some of its debt to smooth payment streams and reduce
exchange rate risks, and encouraged other creditors to participate
in Jordan's proposal to buy back its Paris Club debt at a
market-based discount, while noting we had legal constraints on
participation. The IMF said Jordan's macroeconomic performance
remains strong and expressed support for the buyback operation,
noting that current data on privatization proceeds were consistent
with Jordan's claim that $1 billion, combined with as yet
unspecified new grants and concessional loans from Arab Gulf
countries, would be available to finance the buyback.

12. (SBU) The Secretariat explained its methodology for estimating
a market discount on Jordan's debt and called for the GOJ to provide
a formal proposal of the discount it seeks. Many creditors welcomed
Jordan's proposal in principle and agreed with the Secretariat's
analysis that a 6-8 percent discount would be appropriate. Germany
and the UK said they had met with Jordan's financial advisers, who
disputed the Secretariat's methodology for determining the
appropriate market spread. The advisers said that other
circumstances needed to be taken into account, including interest
rates of 10-11 percent on domestic debt, which would lead to a
larger discount.

13. (SBU) The announced positions of the five largest creditors
were as follows:

-- The U.S. and Japan expressed support for the buyback, but
indicated they could not accept discounted buybacks for legal
reasons.

-- France said it was inclined to participate, depending on the
price.

-- The UK said it was almost certain to participate if the discount
was between 6-8 percent and might have some flexibility beyond that
range.

-- Germany said it was inclined to participate, depending on the
price.

-------
Liberia
-------

15. (SBU) The Netherlands delayed formal responses to the IMF's
request for financing assurances, pending the September 14 IMF
Executive Board discussion and, in particular, citing concerns that
Liberia was not negotiating in good faith with its private
creditors. The Netherlands argued that the longer Liberia waits to
negotiate with its private creditors, the more likely those
creditors will free ride on Paris Club debt relief and hold out for
better terms. The IMF said the Liberian finance minister had, in
fact, met with private creditors in New York, and that the talks
were constructive. The World Bank added that its International
Development Association (IDA) had begun the process of preparing a
buyback of Liberia's debt to commercial creditors under the IDA's
Debt Reduction Facility. The U.S., Denmark, Germany, Italy, Sweden,
and the UK all said they were prepared to provide financing
assurances immediately. Japan said it would go along with the
consensus but would prefer to wait for the outcome of the September
14 discussion on financing modalities for arrears clearance. The
Secretariat agreed to use a written procedure to obtain financing

SIPDIS
assurances after the discussion. (Note: At the September 14 IMF
meeting, Executive Directors approved the G-8 arrears clearance
plan, although approximately $140 million remain to be pledged to
fully finance the operation. End Note.)

---------------------
Serbia and Montenegro
---------------------

16. (U) Japan reported that it had reached a compromise with Serbia
and Montenegro to apportion the debt between the two countries in a
way that is consistent with the debtor/guarantor principle. Germany
said it had also concluded an agreement with the authorities in
accordance with the debtor/guarantor principle. Encouraged by these
successes, the Netherlands, Sweden, and Switzerland said they were
willing to hold off on sending a letter to the newly appointed
Serbian finance minister. The Paris Club will review the situation
in November.

--------------------------------------------- ---
Comparability of Treatment in Buyback Agreements
--------------------------------------------- ---

17. (SBU) The U.S. produced significant movement on the issue of
comparability of treatment. Following circulation of the U.S.
working paper, the Secretariat and a surprising number of creditors
(Belgium, Canada, Japan, Netherlands, Germany, and Russia) supported
the U.S. position that the COT clause needs to be adapted for early
repayment agreements to preserve the debtor's right to make
subsequent early repayment offers. (Japan circulated a separate
working paper based largely on the U.S.' ideas.) Canada and Spain
proposed a compromise solution whereby those creditors that
participate in an early repayment offer at market value would
receive compensation if the debtor proposed a subsequent early
repayment offer above market value. The U.S. and Canada asserted
that compensation should be contemplated only during a limited
length of time as determined on a case-by-case basis during the
initial buyback negotiation. Details still need to be worked out
regarding the time period during which the debtor would be obligated
to provide compensation. This movement toward a compromise solution
represented a positive development that may allow the U.S. to sign
buyback agreements in the future.

--------------------------------------------- ---
Methodological Discussion: Litigating Creditors
--------------------------------------------- ---

18. (U) Janet Legrand, an attorney from the law firm of DLA Piper,
provided a detailed account of the highly publicized case of Donegal
International Limited vs. the Republic of Zambia, in which Donegal
attempted to sue Zambia for $55 million based on a claim purchased
from Romania for $3.2 million. Legrand's presentation shed light on
the secretive activities of so-called "vulture funds" against HIPC
countries and offered several insights for Paris Club creditors
interested in addressing this problem.

19. (U) Strengthen Capacity Building: Legrand said there were many
steps the Zambian authorities could have taken to help defend
themselves, and that Zambia's early legal missteps, such as waiving
its sovereign immunity and accepting the British Virgin Islands'
jurisdiction over Donegal's claims, severely weakened Zambia's
position. Since internal corruption usually plays a significant
role in vulture fund cases, according to Legrand, measures to
promote transparency and good governance can be part of the
solution. Highlighting her cooperation with the African Development
Bank, Legrand noted that seminars to train finance ministers and
attorneys general would be useful. Funding travel for such
technical assistance could be one way for donors to address the
threat of litigating creditors.

20. (U) Expert Testimony can be Helpful: In the case of Zambia,
where there were questions surrounding the legitimacy of the debt,
expert testimony on the HIPC initiative by a former IMF general
counsel proved very damaging to Donegal's case that Zambia was
simply unwilling to pay its debts. However, Legrand said expert
testimony on the HIPC initiative would probably have no impact in a
situation where the debt is recognized to be legitimate.

21. (U) "Vulture Funds" Dislike Publicity: Legrand underscored how
the attention of media and non-governmental organizations was an
effective weapon in the case of Zambia, since Donegal did not want
to draw public scrutiny of its activities. Distinguishing a
"Vulture Fund" from a legitimate litigating creditor, however, can
be difficult. Donegal was an extreme case. Legrand said there are
many other organizations that seek to make a financial return by
buying and selling distressed debt, but whose objective is not to
bleed a country dry.

22. (U) Legrand declined to comment on the scope of problem of
litigating creditors against HIPC countries, saying she didn't have
hard numbers. But she warned that there was a potential for the
problem to grow given the magnitude of the potential financial
returns. Despite Donegal's failure to collect the full $55 million
sought, Zambia is paying Donegal on a judgment of $15.7 million for
claims Donegal originally purchased for $3.2 million.

---------------------------------
Methodological Discussion:
Monetization of Paris Club Claims
---------------------------------

23.(U) The UK's Export Credits Guarantee Department (ECGD) presented
a proposal it is studying to improve the management of a limited
portion of its non-HIPC Paris Club debt through monetization. The
ECGD arrangement would transfer to a private commercial bank a
proportion of the cash flows it receives from the debtor country.
In exchange, ECGD would conclude a sub-participation agreement with
the private bank and receive a discounted cash settlement. ECGD
would remain the lender of record (consistent with Paris Club
principles) and would retain control over the implementation and any
renegotiation of the debt agreements in the Paris Club. Provided
that HIPC claims were excluded, the Secretariat expressed general
support for the UK's concept of monetization, noting that creditors
must adhere to the guidelines of the 1999 Working Paper on
securitization of Paris Club claims. Unlike securitization,
however, monetization would be a private transaction that would not
involve the issuance of any notes or paper. The Secretariat and
Japan expressed concern that, under the scheme described, the
sub-participant could influence the UK's positions at the Paris Club
concerning debt relief. The ECGD asserted that the sub-participant
would bear all risks (the price of which were reflected in the
discounted cash settlement) associated with the particular repayment
stream the bank took over, including the risk of a future Paris Club
action.

STAPLETON

© Scoop Media

 
 
 
World Headlines

 

UN: As COVID Deaths Pass Two Million Worldwide, Guterres Warns Against Self-Defeating ‘Vaccinationalism'

With more than two million lives now lost worldwide to COVID-19, the UN Secretary-General appealed on Friday for countries to work together and help each other to end the pandemic and save lives. In a video statement , Secretary-General António Guterres ... More>>

Gordon Campbell: On The Washington Riot And The Georgia Results

Hong Kong and Washington DC. On the same morning, the tyrants in power in Beijing and their counterpart in the White House have shown how they refuse to accept the legitimacy of any different points of view, and the prospect of losing power… More>>

UN: Violent Attempt At US Capitol To ‘overturn’ Election, Shocking And Incendiary

Unsplash/ElevenPhotographs The US Capitol building in Washington D.C. A group of independent UN rights experts released ... More>>

UN: Guterres To Seek Second Five-year Term
António Guterres will be seeking a second five-year term as UN Secretary-General, which would begin in January 2022.... More>>