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Cablegate: September 2009 Paris Club Meeting; Negotiation with Car

DE RUEHFR #1387/01 2871159
R 141159Z OCT 09

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E.O. 12958: N/A

1. (SBU) Summary: On September 15, the Paris Club and the Central
African Republic (CAR) negotiated a new debt relief agreement
recognizing that country's completion of the enhanced Heavily
Indebted Poor Countries (HIPC) initiative. Creditors agreed
voluntarily to go beyond HIPC terms to forgive all but $3.7 million
of their claims on the CAR. After disagreeing about the Paris
Club's proper role in the debt restructuring negotiations between
Kazakh banks and foreign export credit agencies, the Club agreed on
a new letter to the Finance Minister. The letter emphasized the
need for a fair process and "insisted" that creditors be given
adequate time to consider options. Creditors discussed Argentina's
stated new willingness to address arrears, recognizing that previous
similar Argentine overtures were not implemented. Regarding the
Brazilian loan to Argentina, creditors accepted U.S. suggestions to
strengthen a draft letter to the Brazilian finance minister; the
letter makes clear the Club's disappointment that Brazil made the
loan, as well as that it had not notified the club.

2. (SBU) On the Democratic Republic of the Congo (DRC), the IMF was
still awaiting China's signature of the revised loan agreement for a
Chinese-financed project. The French-led Secretariat hailed the
significant progress the revised loan agreement represented. Other
creditors were very skeptical, insisting on adequate time to review
and discuss the IMF's forthcoming debt sustainability analysis
before the Club meets in October or November to provide financing
assurances for the DRC's IMF program. Brazil confirmed that it had

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signed an agreement with Suriname for clearing arrears, granting a
38% nominal discount on a total of $118 million, in exchange for
immediate payment of the balance. The Secretariat was bluntly
critical, saying that creditor "solidarity had been breached." The
Club would send a letter urging Suriname to clear its arrears to the
U.S. in full. The UK Government has held consultations but not yet
decided whether to move forward with legislation on "vulture" funds'
efforts to secure full repayment from poor debtors. Further work
had uncovered some difficult legal issues.

3. (U) Other countries discussed included: Algeria, Angola,
Bahrain, Comoros, Cote d'Ivoire, Republic of Congo, Dominican
Republic, Guinea, Jamaica, Seychelles, Ukraine, Vietnam, and
Zimbabwe. Methodological issues discussed included the working
group on treatment of guarantees, the Club's global data call, the
reform of IMF programs and the Debt Sustainability Framework (DSF),
and the Club's debt service reduction methodology. END SUMMARY.


4. (U) France reported that state-owned Credit Populaire d'Algerie
had requested to prepay at face value EUR 55 million of official
development assistance (ODA) loans that had not been previously
treated in a Paris Club agreement. The Algerian Ministry of

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Finance had also asked about ODA debts, though no formal proposal
was made. France observed that it seemed odd, from a financial
perspective, for Algeria to pre-pay low interest rate ODA loans.
Some of the debts had contractual provisions allowing prepayment at
any time.

5. (U) Italy argued that Algeria should make its offer to all Club
creditors, particularly in view of Algeria's ample resources. The
Secretariat agreed that it could look into coordinating a response
if other creditors were interested. The Fund confirmed that Algeria
was in a strong position, with few debts and large reserves. It had
been little affected by the crisis, due to a lack of financial
integration, and non-oil GDP growth was expected to reach 6% in


6. (SBU) The IMF reported that Angola's heavily oil-dependent
economy had taken a turn for the worse, with a sharp contraction in
GDP. Angola had expressed interest in an IMF lending program, and a
mission had been there in early August to discuss one. Debt
sustainability had worsened, with the country now rated at "moderate
risk" of debt distress. The Fund still expected the risk to fall in
the long run, however. The World Bank mentioned that it planned to

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loan about $80 million to Angola in Fiscal Year 2010.

7. (SBU) In July, no creditors had expressed interest in
participating in the debt swap initiative proposed by the Angolan
Parliament. The Paris Club approved a reply from the Club
Co-Chairperson rejecting the proposal and asserting that creditors
expected to be paid as agreed. (Several days after the meeting, the
finance minister sent another letter reiterating the request, but
the substance of the Club's reply will remain unaffected.)


8. (SBU) The discussion of Argentina focused on renewed hints that
the country wanted to normalize relations with creditors, and on the
Brazilian aircraft loan. The IMF reported that markets had calmed,
although H1N1 influenza had had a major effect. Reserves remained
stable at $45 billion gross and an estimated $35 billion net.
Economy Minister Boudou had hinted at a desire to improve relations
with the Fund, including by agreeing in principle to an Article IV
review, though no date has been set.

9. (SBU) The Bank reported that the government was engaged in an
effort to regain access to capital markets, and 76% of eligible debt
had been tendered in the recent inflation-linked bond exchange. The

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Bank's new strategy foresaw $3.3 billion in new investment lending.
The Secretariat reported some informal contacts with the new
minister's team, and that Club Chairman Fernandez was available to
meet with Boudou. In their informal contacts, the Argentines had
emphasized their desire to normalize relations. The U.S. delegation
reported on AmEmbassy Buenos Aires DCM Tom Kelly's recent meeting
with Minister Boudou and on Treasury DAS for Western Hemisphere
Affairs Nancy Lee's previous meeting with Argentine Ambassador to
the U.S. Timerman.

10. (SBU) Discussion then turned to the proposed letter to Brazil.
The Secretariat had circulated a draft, which had criticized Brazil
for not communicating with the Club about the loan and had asked a
number of questions - the answers to many of which were already
known. The U.S. had argued in advance that the letter should object
to the fact of the loan, not just to Brazil's failure to inform the
Club. The Secretariat and almost all other creditors argued that
the U.S. position was too harsh, particularly since Brazil was not a
Club member. The Club eventually agreed to a UK-proposed
compromise, supported by Germany, that criticized both the fact of
the loan and the lack of prior communication.


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11. (U) In July, the Netherlands had complained about nagging
arrears issues with two Bahraini ministries. The Ministry of
Housing had since made a payment of EUR 300,000, but another due
date had passed so arrears had actually risen, to EUR 8.3 million.
The Netherlands had heard nothing from the other debtor, the
Ministry of Works. The Paris Club agreed to send a letter to the

Central African Republic

12. (SBU) The Paris Club's September 15 HIPC "Completion Point" debt
negotiations with the Central African Republic (CAR) went smoothly.
In his opening statement, CAR Minister of Finance Abdalla-Kadre
Assane touted reforms in the diamond and telecom sectors as well as
in financial and business regulations. Assane also emphasized the
CAR's commitment to seek comparable debt relief from its non-Paris
Club creditors so that the CAR does not remain heavily indebted even
after HIPC. The IMF reported that the CAR had made steady progress
in implementing its Poverty Reduction and Growth Facility (PRGF)
program, while noting the fragility of fiscal reforms and very low
level of revenue collection. The World Bank highlighted the CAR's
new forestry code and the country's first report under the
Extractive Industries Transparency Initiative (EITI). Nevertheless,
the CAR remains vulnerable to debt distress and its per capita

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income is among the lowest in the world.

13. (SBU) The Paris Club accounted for only a small portion of the
country's debts, just $46.1 million of $854.3 million outstanding as
of September 2007 when CAR entered the HIPC Initiative ("Decision
Point") process. Following its normal seniority rules, the
remaining debts after the agreed treatment were $5.7 million owed to
France, $2.5 million to Japan, $360,000 to the U.S. and small
amounts to Austria, Germany, Italy, Switzerland, Russia and the U.K.

14. (SBU) Under creditors' various bilateral policies providing for
voluntary debt cancellation beyond the HIPC initiative, creditors
planned to forgive all of these debts except for $5.5 million of the
French claim, which represented previously-rescheduled, short-term
debts. Perhaps because of the awkward optics, France later in the
day indicated that it would go beyond its own policies to forgive
the portion of that debt contracted before the Paris Club's 1983
cut-off date, leaving $3.7 million outstanding.

15. (SBU) The U.S. delegation emphasized the importance of obtaining
comparable treatment from other creditors, especially Taiwan, the
largest bilateral official creditor. In response, Finance Minister
Assane said that the CAR can only engage Taiwan through third
parties and would continue its efforts to seek Paris Club-comparable
debt relief from Taiwan.

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16. (U) The Fund said the situation in Comoros was difficult,
particularly because of political instability. However, GDP was
expected to grow 1% in 2009, and the budget situation was improving.
Comoros' track record of reform during its Emergency Post-Conflict
Assistance (EPCA) IMF program had been "solid." This performance
would allow the IMF Executive Board to consider a new PRGF program
as soon as a payment issue with the World Bank had been resolved.
(Comoros was over 45 days late on an $824,000 payment, which had
caused disbursements to be suspended. Comoros made the payment and
the IMF approved the PRGF the following week.) The IMF reported
that Comoros' debt was "clearly unsustainable," equivalent to more
than 260% of exports. 80% of the debt was owed to multilaterals,
just 4.5% to the Club. If the forthcoming debt sustainability
analysis (DSA) confirms that Comoros is eligible for the HIPC
initiative, the country could reach HIPC "Decision Point" in the
first half of 2010.

17. (U) The new PRGF program paves the way for a Paris Club debt
treatment. Even though there are just three Club creditors --
France, Italy and the U.K. (The USG is not a creditor.) -- a formal
negotiation will be required. The Secretariat suggested inviting

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Kuwait and the UAE to participate in the negotiations (only Italy
responded, expressing support, although the probability of
acceptance seems slight). Negotiations are expected to take place
in October or November.

Democratic Republic of Congo (DRC)

18. (SBU) The IMF had hoped to request financing assurances from the
Paris Club at the September meeting to support a new PRGF lending
program. The Fund was unable to do so, however, since the joint
IMF/World Bank debt sustainability analysis (DSA) and other
documents were not yet released. The delay was due to the fact that
the Fund was still awaiting confirmation that China had signed the
amendment to the mining/infrastructure loan package. (The physical
document had to be sent to Beijing after the DRC authorities had
signed.) The amendment reportedly cancels the second $3 billion
infrastructure loan, removes the DRC sovereign guarantee on the
mining portion of the deal, and specifies that the sovereign
guarantee on the remaining $3 billion infrastructure loan can only
be triggered after 25 years. The Secretariat characterized these
developments as a great step forward. Once Fund staff see and
review the signed amendment, the final DSA will be circulated, along
with a technical note on the loan package's concessionality. The
Fund now hoped that it could seek financing assurances at the

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October meeting, with negotiations possible in November or December.
World Bank staff added that because of the loan's large potential
macroeconomic impact, the Bank's Committee on Non-Concessional
Borrowing would also need to assess the loan.

19. (SBU) The Netherlands asked whether the Secretariat foresaw a
new Paris Club agreement, or a reactivation and extension of the
previous one. They also asked whether forgiveness of arrears in a
new agreement would reward the DRC's years of bad behavior, and
whether relief could therefore be back-loaded. The Secretariat
replied that a new agreement would be needed to cover payments
coming due during the PRGF, that there would be no way to backload
the treatment, and that attempting to do so would raise questions
about equality of treatment relative to other HIPCs under similar
circumstances, such as the Republic of Congo (Brazzaville).

20. (SBU) Japan asked about the long-delayed mining project
feasibility study, indicating that Japan would not provide financing
assurances until there was a clearer picture of how the project fit
into the DRC's macroeconomic framework. The IMF opined that since
there would no longer be a sovereign guarantee on the mining portion
of the loan, the study was no longer relevant to the program.
Belgium, Japan, and Germany disagreed, arguing that it was relevant
in that revenues from the mining portion would be dedicated to
paying for the infrastructure-related loan. Creditors were
generally very skeptical toward the DRC, and were adamant that they

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expected to receive ample time to review the DSA and conditionality
documents before providing financing assurances for the PRGF

Republic of Congo (Brazzaville)

21. (SBU) The IMF reported that Congo's performance on its PRGF
program had been broadly satisfactory and that a Fund staff mission
was in country to conduct the first stage of a HIPC "Completion
Point" assessment. In particular, IMF staff planned to verify legal
texts and action plans for fulfilling performance "triggers" and to
reconcile external debt data. In the fall, they would begin
verifying implementation for those triggers that included
implementation requirements.

22. (SBU) The Fund had examined Congo's recent $800 million payment
to so-called "vulture funds," including whether the settlement
implied a need to revise debt data (since the debt stock was much
larger than previously reported). The Secretariat said it still
could not assess the comparability of the settlement until further
clarifications were received from the authorities, and that the
finance minister had said in a September 15 letter that there had
been errors in the Congo's June 12 report on comparable treatment.
As a result, the vulture fund settlement payment was likely even

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less comparable to Paris Club terms than previously thought. The
IMF warned of possible problems in securing participation from 80%
of Congo's creditors, a requirement of HIPC "Completion Point."

Cote d'Ivoire

23. (SBU) The IMF reported that a mission was in country to review
the PRGF program. Preliminary indications were that end-June
targets seemed to be on track, although progress on structural
reforms was slow. The Bank reported the authorities were pursuing a
London Club rescheduling of commercial debt. Talks with the London
Club had been difficult, since that club was asserting that it had
already provided HIPC-comparable treatment in its earlier agreement
with the Cote d'Ivoire.

24. (SBU) The Secretariat said that the London Club's proposed terms
were "rather comparable" to the Paris Club's treatment. London Club
creditors were willing to apply a low 2.4% interest rate and accept
a very long payment period - a six year grace period without
principal payments followed by 23 years of repayment. The final
deal, formally announced on September 28, results in a 90% reduction
in debt service due while the PRGF is in effect and an overall 20%
reduction (in present value terms) of the total debt. Non-London
Club commercial creditors presented a more complex picture, with

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some debts being recent (related to multilateral arrears clearance),
some securitized, and some denominated in CFA francs. Claims
totaled some $264 million, due by the end of 2011. Cote d'Ivoire
had made an offer to these creditors similar to that made to the
London Club, but the response had been very negative.

Dominican Republic

25. (U) The IMF reported that the Dominican Republic's strong
economic growth had stagnated and would amount to an annualized rate
of just 1% for the first half of 2009. An IMF mission was in the
country to discuss a three-year lending program; however, the Fund
did not expect that the Dominican Republic would seek a Paris Club
treatment. The World Bank reported that $150 million in new lending
was under discussion.


26. (SBU) Guinea had been on the verge of receiving HIPC "Completion
Point" debt forgiveness at the time of December's coup. The Fund
reported that short-term prospects had deteriorated, due to the
global financial crisis and a fall in mining revenues. While the

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official exchange rate had not changed, the parallel market premium
had risen significantly, to 16% in early September. The junta had
made some attempts at maintaining fiscal discipline, and the primary
fiscal balance remained positive. This discipline was slipping,
however, giving way to increased central bank financing.

27. (SBU) Several creditors, including France and the U.S., reported
that Guinea had made some debt payments during 2009. The
Secretariat reminded creditors to hold such payments in reserve, in
accordance with the Club's policy on providing interim HIPC debt
relief, until a decision is made at a later date about whether to
retain or refund the payments. Guinea had remained current on debt
payments to the Fund through September, but had been late making
debt payments to the multilateral development banks, including to
the African Development Bank (AfDB). (The World Bank added that
Guinea had earlier been late on some payments to its International
Development Association, but was now current, and that the AfDB had
been paid the previous week.) Guinea had also made some progress in
efforts to obtain comparable debt relief from non-Paris Club

28. (SBU) The Fund was assessing relations with the country.
President Moussa Camara's statement that he planned to run in the
January 2010 elections, despite earlier commitments not to, make
international recognition more difficult. The Fund was polling
members in order to determine whether to seat a Guinean delegation

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at Annual Meetings. (This poll later determined that there is no
Guinean government that the IMF should recognize or engage with.)


29. (SBU) In July, the Fund had reported on discussions with Jamaica
regarding an IMF lending program. Since then, imbalances had
intensified, with GDP expected to fall 3.8% in the current fiscal
year, impacted by declines in tourism, remittances and bauxite
prices. Further fiscal consolidation, a significant reduction in
the interest bill, and a major improvement in medium-term fiscal
policy were needed. The IMF and Jamaica continue to discuss a
lending program; however, timing was uncertain. The IMF believed
that the debt load had become unsustainable and that a restructuring
is needed. Whether to approach the Club as part of the program
remained an open question, but in the Fund's view, it would be
"strange" not to include Paris Club creditors in a comprehensive
debt restructuring. The World Bank reported having approved a $100
million loan in January 2009 and ongoing discussions about
additional loans. (Note: while it is not yet clear what form of
debt treatment would be sought, the USG does not have funding or
authorization in place to provide debt reduction to Jamaica.)

30. (SBU) The U.S. delegation reported on Treasury DAS for Western

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Hemisphere Affairs Nancy Lee's conversation with the Jamaican
Ambassador to the U.S., prompting the IMF representative to observe
that the authorities did not yet seem reconciled to the need for
debt restructuring or deep reforms. The Secretariat reported that
the debt stock was about $6 billion, of which about $500 million was
owed to the Club. Canada reported that the Jamaican prime minister
had called his Canadian counterpart to discuss IMF reforms, and had
said (erroneously) that the Fund was conditioning an IMF program on
Jamaica's willingness to seek a Paris Club debt restructuring.


31. (SBU) The IMF did not have any updates to the briefing provided
in July. The World Bank described a "complicated" bank
restructuring underway, noting that an estimated 20% of the total
loan portfolio was non-performing and that President Nazarbaev was
"strongly reluctant" to use oil resources to recapitalize these
banks. Just days before the September 16 meeting, the Club had
received a response in Russian, dated September 3, to its letter
from the Kazakh finance minister. The letter essentially reiterated
the steps in the banking and financial sector restructuring taken to
that point. The Secretariat reported the results of the recent data
call, which was unusual in that it included data on loans to private
banks. Paris Club creditors reported $3.5 billion of exposure to

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Kazakhstan, of which Kazakh banks and financial institutions
accounted for $1.5 billion, including $779 million owed by BTA Bank,
$95 million by Astana Finance, and $60 million by Alliance. Fifteen
Club members had reported exposure, as had non-member Korea.

32. (SBU) There was general agreement that the fact that the
minister had replied, and at length, was a positive sign. Following
the same lines as before, Italy argued strongly for a Club response,
asserting that the debt to private banks was "close to" being Club
debt. Italy pushed for another Club letter to endorse the export
credit agencies' (ECA) position, including support for the
Government of Kazakhstan to extend a sovereign guarantee, and for
giving the ECAs more time to reach agreement (the deadline on BTA's
offer was just two days later). Noting similarities between the
situations in Ukraine and Kazakhstan, Italy also argued that the
Club should at some point have a general discussion of debts owed by
private banks that are directly or indirectly under sovereign

33. (SBU) Germany was at the other extreme, arguing first that it
needed time to review the Kazakh letter and to consult with its ECA,
then that the Club should not "interfere." Italy's position
regarding a GOK guarantee received little support. There was
widespread support for another letter, however, and given the
deadline two days hence, a sense of urgency. It was eventually
agreed that a letter should be sent, and the final text -- signed on

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the same day -- reiterated that the Club was following negotiations
carefully, emphasized the need for a fair process, and "insisted"
that creditors be given enough time to consider options.


34. (SBU) The Secretariat reported that the Seychelles had made
progress in obtaining Paris Club-comparable debt relief: Seychelles
had reached agreement with Malaysia on the same terms as the Club's
April 2009 agreement (Malaysia had shown interest in participating
in the negotiations but had not been ready to do so), and
discussions with Kuwait had begun, though Libya would be "harder."
The government's offer to bondholders, comprising three options, was
moving forward, although there was not much likelihood of addressing
the $40-60 million in debt that was tied up in the Lehman Brothers

35. (SBU) The Fund reported that the macroeconomic situation had
stabilized and that reforms were proceeding. Negotiations with
private creditors were transparent and credible, and the formal
offer was expected to be made in late September or early October.
The government was awaiting agreement on a partial guarantee from
the African Development Bank, which Seychelles' advisors had
indicated was essential for the exchange to succeed. The Fitch

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credit rating agency had been hired to rate the new bonds.


36. (SBU) The IMF reported that GDP had grown 6% in 2008, but was
expected to rise only 1.5% in 2009, reflecting weak bauxite and
alumina prices on the one hand and strength in gold and construction
on the other. Gross reserves were expected to rise to $670 million
(equivalent to six months of imports), from just $160 million at
end-2005. Suriname had made progress in settling arrears with
official creditors, and public debt had fallen from 37% of GDP at
end-2005 to 19% at end-2008, with external debt down from 21% of GDP
to just 11% over the same period.

37. (SBU) The U.S. had asked that Suriname be placed on the agenda
to discuss arrears and a reported debt agreement with Brazil.
Prior to the plenary discussion, the Brazilian representative had
mentioned the deal with Suriname to the U.S. delegation,
inexplicably adding that the Surinamese had said that they needed
contacts in the USG. (Discussions between USDA and Suriname's
financial advisor are ongoing.) During the plenary, the U.S. noted
reports of the deal, pointed out that it seemed to violate Paris
Club principles, and asked Brazil for details. (Note: Creditors
are supposed to keep the Club informed and attempt to coordinate

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efforts to obtain payment from countries even when the country is
not pursuing an IMF lending program and/or Paris Club debt relief.
End note)

38. (SBU) Brazil acknowledged that a deal had been reached involving
$118 million in non-concessional debt. In June, Brazil had offered
Suriname two options:

-- Option 1: a rescheduling creating eleven semi-annual payments,
the first after six months, with forgiveness of $35 million of late
interest after all payments were received; or

-- Option 2: full payment upfront, with forgiveness of $45 million
(a 38% nominal discount).

39. (SBU) The Surinamese had selected the second option the previous
week and paid the $72.8 million into escrow (since the deal needed
approval from the Brazilian parliament). The Secretariat recalled
the Club's discussions of Suriname over the past three years, during
which several creditors, including Germany and Italy, had confessed
to having settled arrears outside the Club. The Club Co-Chairperson
was bluntly critical of Brazil, stating flatly that creditor
"solidarity has been breached here." Norway attempted to defend
Brazil, noting that solidarity did not prevent individual creditors
from being more generous than the Club, but the Secretariat pointed
out that this did not apply when a payment was received. The

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Secretariat offered to send a letter to Suriname, which the U.S.


40. (SBU) Italy had asked that Ukraine be placed on the agenda,
noting similarities to the situation in Kazakhstan. The IMF
reported that the recession seemed to be bottoming out, with GDP
expected to contract 14% in 2009, followed by a 2.75% increase in
2010. Bank restructuring was progressing, with issues at three of
the five systemically-important problem banks having been resolved.
There was an agreement on the fourth, leaving only Nadra Bank.
About $1 billion in liabilities needed to be restructured, though
there was agreement on $120 million owed to export credit agencies
(ECAs). An IMF mission planned to travel to Ukraine in October to
prepare the third review of the IMF stand-by arrangement.


41. (SBU) The Paris Club discussed Vietnam because of arrears.
Denmark reported that Vietnam had missed a July 15 payment but had
paid during the week of the meeting. Norway reported "on and off"

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payment trouble on a loan guaranteed by Norway's export credit
agency. The IMF reported that the country was weathering the global
crisis well, despite pressures on the country's balance of payments
position. The IMF expected GDP to rise 4.5% in 2009 and the outlook
for 2010 to improve. The World Bank reported that there were
shortages of foreign currency, and that there appeared to be foreign
exchange hoarding in expectation of a currency devaluation.


42. (SBU) The Secretariat had placed Zimbabwe on the agenda because
a number of creditors had received requests from authorities to
reconcile debts. (The U.S. has not.) The IMF indicated that a
recovery had begun, with 4% growth expected in 2009. The government
had implemented dollarization, was broadly adhering to cash
budgeting, and had liberalized prices and exchange markets. Many
issues needed to be addressed, however, including aid and capital
inflows, the business climate, public sector wages, and central bank
governance. Cooperation with missions and advisors had been good,
and the government had agreed to make token payments of
$100,000/quarter against its Fund arrears; the first such payment
had been made. However, the IMF Executive Board had decided to
leave its relations with Zimbabwe unchanged, which means that
Zimbabwe would remain ineligible for new IMF lending under a PRGF

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program until arrears were cleared. End-2008 public- and
publicly-guaranteed external debt was estimated at $5.7 billion,
313% of goods and services exports, and 182% of GDP. Most was in

43. (SBU) The Fund also summarized its contacts with the Government
of Zimbabwe concerning use of the special SDR allocation. While
there was no conditionality associated with the use of the
allocation, Fund staff had advised the authorities to retain the
SDRs in reserves so they could remain available for an eventual
arrears clearance, rather than being spent to finance investment.
The IMF also had no new information on a reported $950 million
Chinese loan mentioned by Germany. The Bank reported that its staff
was setting up the multi-donor trust fund as well as a country
office. A joint UN Development Program and African Development Bank
needs assessment had been put on hold, though small grants were
being made through NGOs.

44. (SBU) Creditors that reported requests to reconcile debt data
mostly said that Zimbabwe's figures were well below theirs. There
was a general feeling that the reconciliation exercise should be
coordinated, though the U.S. warned that it was important not to
raise unrealistic expectations in Harare about Paris Club debt
treatment. It was agreed that the Secretariat would contact the
Zimbabwean authorities informally, reminding them of the full list
of Club creditors, and that the Club would launch a data call for

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its own use.

Methodological Issue:
Draft UK Vulture Fund Legislation

45. (SBU) The UK discussed its public consultation concerning draft
legislation on legal efforts by so-called "vulture funds" to secure
full repayment from poor debtors on loans the funds had bought at
steep discount on secondary markets. The presentation mostly
followed that of the public document, which can be accessed at the
following links:

46. (SBU) Based on public comments received thus far, British NGOs
believed that the proposal did not go far enough in restricting
vulture funds' recovery rights, arguing that it should cover more
countries and future lending. In contrast, financial firms asserted
that the draft law would interfere with property rights, pervert
incentives, threaten London's role as a financial center, and that
it was disproportionate to the extent of the problem. The UK added
that it was unclear whether the government would proceed with the

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legislation, which would require a ministerial decision.

47. (SBU) France, in particular, seemed interested in the prospects
of legislation, and asked whether there was anything the U.S., as
one of the main jurisdictions for litigation by vulture funds, could
or would do. The U.S. reported on H.R. 2932, the bill that
Representative Maxine Waters (D-CA) had reintroduced in June 2009,
noting that the Administration was not supporting it and that the
bill raised significant policy and legal issues. Privately, the UK
delegation indicated that further technical work had uncovered
significant legal obstacles, including how the legislation would
treat requests to enforce in the UK awards made by foreign courts,
and how foreign courts would be expected to consider the legislation
when adjudicating debts covered by UK law.

Methodological Issue:
Data Call on Paris Club Claims

48. (U) The Secretariat proposed making the global data call, first
conducted in September 2008, an annual exercise. The Secretariat
suggested using year-end data, and that the request for (2009) data
will therefore take place early in 2010.


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Methodological Issue:
Review of Debt Sustainability Framework
and Debt Limits in IMF Programs
Paris Club Implications

49. (U) The IMF provided a detailed briefing on recent reforms of
Fund lending programs. The Secretariat also circulated a working
paper analyzing which of the new IMF program types could provide a
basis for Paris Club debt relief. In the Secretariat's view, the
key requirements justifying Paris Club treatment remained: 1) a
demonstrated financing gap, and 2) an appropriate IMF economic
reform program. The new Extended Credit Facility (ECF) and Standby
Credit Facility (SCF) could provide adequate bases for debt relief.
The Rapid Credit Facility (RCF), however, would not. Countries
using the new Flexible Credit Line (FCL) program seemed unlikely
candidates for Paris Club debt relief, and the FCL's structure did
not fit well with standard Paris Club debt relief agreements.

50. (U) The Fund also presented its new Debt Sustainability
Framework (DSF) methodology. Creditors discussed how the Club would
consider debts owed by state-owned enterprises (SOEs) that the Fund
had decided to exclude from the debt sustainability analysis (DSA).
The Secretariat reiterated its view that the Paris Club reserves the
right to analyze independently the autonomy of the SOE and the risk
of default during the period of the debt relief. A more general

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discussion of this methodology topic was deferred to a later

Methodological Issue:
Debt Service Reduction (DSR) Methodology

51. (U) The Secretariat presented a working paper, which revealed
that the current methodology for calculating repayment schedules
contains an error. As a result, some creditor countries provide
less reduction than others do in the case of successive debt
treatments for the same debtor country. The U.S. is not directly
affected by this correction, since U.S. bilateral debt reduction
agreements provide relief through actual reduction of principal (the
so-called "debt reduction option"), rather than payment deferral
only. However, the U.S. still has an interest in the relief
provided by others.

Methodological Issue:
Working Group Regarding
Treatment of Guarantees

52. (SBU) At the July meeting, the Club had discussed inconclusively

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how it should address guarantees of loans that were not in default,
both in data calls and debt treatments. A survey had shown that
creditor practices varied widely, and that the issue raised a number
of policy and legal questions (the latter for some creditors,
including the U.S.). The Secretariat had decided to set up a
working group, including ECA representatives, to consider the issue
and establish a clearer Club policy. A brief organizational meeting
was held after the Tour.

53. (SBU) The Secretariat invited creditor input ahead of the
working group's first full meeting, probably in October and expected
to focus on the scope of the issue and the economic and financial
implications of including or excluding contingent liabilities. A
second meeting would focus on legal problems, and a third would
examine technical aspects of the issue using a concrete country
example, such as Pakistan. Germany, one of countries that said it
included all public and publicly-guaranteed loans -- whether in
default or not -- in Paris Club data calls and treatments, asked for
a clear explanation of the legal problems that other creditors
claimed to face.

54. (U) For additional information on any of the countries or issues
mentioned above, please contact EEB/IFD/OMA David Freudenwald at or Nicholle Manz at


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