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UNCLAS PARIS 006323 
 
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 
BELGRADE PLEASE PASS TO PODGORICA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - SEPTEMBER 2006 TOUR D'HORIZON 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION 
 
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SUMMARY 
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¶1.  (SBU)  At the September 13 meeting of the Paris Club, Xavier 
Musca, the Chairman of the Paris Club, reported that Angolan Finance 
Minister de Morais had told him the previous week that Angola is 
still considering a precautionary Stand-By Arrangement with the IMF, 
with the understanding that this would unlock debt relief from the 
Paris Club.  The Minister said Angola would resume discussions with 
the IMF on the margins of the September 17-20 annual meetings of the 
IMF and World Bank in Singapore.  He also said that Angola is 
prepared to start servicing its Paris Club debt and make a 
good-faith payment toward its arrears of over 4 billion dollars. 
Some creditors were skeptical about Angola's intentions and pressed 
for more aggressive action to try to recover arrears.  Haiti may 
reach Decision Point under the Highly Indebted Poor Countries (HIPC) 
Initiative in October and come to the Paris Club for interim debt 
relief in November.   Malawi reached HIPC Completion Point in August 
and is tentatively scheduled to come to the Paris Club for 
negotiations in October.  The USDEL said helping Lebanon is a high 
priority, and that, although Paris Club debt represented only a 
small part of its total debt, it is open to creative ideas of how 
the Paris Club might contribute to the reconstruction effort.  Other 
countries on the agenda were Algeria, Argentina, Belize, Brazil, 
Cambodia, Iraq, Kenya, Nicaragua, Pakistan, Russia, Sao Tome, 
Serbia, Montenegro, and Seychelles.  END SUMMARY. 
 
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ALGERIA 
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¶2.  (SBU) The secretariat will distribute an updated table 
summarizing the results of Algeria's prepayment operation.  The 
USDEL chose not to announce that, in response to a letter from 
President Bouteflika to President Bush, the USG is taking a second 
look at whether it can accept prepayment of approximately 600 
million dollars in debt owed to USDA. 
 
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ANGOLA 
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¶3.  (SBU) Angola appears to be moving closer to obtaining an IMF 
program and normalizing relations with the Paris Club, but some 
creditors are losing patience.  Finance Minister de Morais told 
Paris Club Chairman Musca last week that he had received a green 
light from President dos Santos to resume negotiations with the IMF 
on the margins of the annual meetings in Singapore.  In addition, de 
Morais said Angola was prepared to start servicing its Paris Club 
debt and make a symbolic good-faith payment toward arrears (in an 
amount unspecified).  De Morais promised to send a letter to the 
Paris Club confirming these intentions.  The IMF reported that a 
mission had visited Luanda in July to explain the modalities of a 
possible precautionary SBA, but that progress had not been as rapid 
as originally envisioned. 
 
¶4.  (SBU) Several creditors, led by Spain, pointed out that the 
Paris Club has been down this road before, only to be disappointed. 
They argued that if Angola is no closer to concluding an IMF program 
come October, the club should revert to a previously agreed strategy 
of pressing Angola to clear arrears in as short a timeframe as 
possible.  Other creditors (US, UK, Germany, Belgium) cautioned 
against setting artificial deadlines and urged creditors to use 
discretion.  In the end, creditors agreed to await the outcome of 
the Singapore meetings before deciding on a course of action.  Musca 
will meet with the Angolan authorities in Singapore and underscore 
creditors' growing impatience.  The secretariat will initiate a data 
call to get a better picture of payments falling due and draft a 
working paper on how to divide up any arrears payments received from 
Angola. 
 
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ARGENTINA 
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¶5.  (SBU) Economy Minister Miceli and Finance Secretary MacLaughlin 
told the UK's ambassador in Buenos Aires that Argentina plans to 
make a proposal to the Paris Club by the end of the year.  Other 
creditors had no further news to report since the last meeting. 
Several creditors have scheduled bilateral meetings with Argentina 
on the margins of the IMF-World Bank meetings in Singapore and 
intend to raise the debt issue. 
 
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BELIZE 
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¶6.  (U) The US reported, and the IMF confirmed, that, although 
Belize announced in August that it intends to rearrange its debt 
with the private sector, it does not intend to restructure its 
official bilateral debt.  The UK said it was already forgiving 
Belize's debt service payments as they came due under the 
Commonwealth Debt Initiative.  The only other Paris Club creditors 
are the United States (12 million dollars in claims) and Japan (5 
million dollars).  Of Belize's 1 billion dollars in public debt, 
over half is owed to commercial creditors. 
 
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BRAZIL 
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¶7.  (U) The secretariat took stock of Brazil's prepayment operation. 
 Germany and Italy said arrears still had not been cleared. The 
secretariat will meet with the Brazilian authorities in Singapore 
 
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and encourage them to settle these disputes. All other participating 
creditors have received their prepayment. 
 
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CAMBODIA 
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¶8.  (U) Russia and Cambodia still have not resolved their bilateral 
debt dispute, which continues to hold up approval of Cambodia's new 
Poverty Reduction and Growth Facility (PRGF) with the IMF.  (The US 
resolved its own bilateral dispute with Cambodia earlier this year 
and has signaled its support for the PRGF.)  A Cambodian delegation 
visited Russia in August to try to resolve the dispute, but no 
agreement was reached.  Russia proposed several options for treating 
post-cutoff debt (the main point of contention), but the Cambodian 
delegation said it would need to discuss these options back in Phnom 
Penh.  The US said it was in the process of concluding its bilateral 
agreement implementing the 1995 Paris Club agreed minute and 
reaffirmed its willingness to provide financing assurances for 
Cambodia's new PRGF.  Italy reported small arrears (1.3 million 
euros). 
 
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HAITI 
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¶9.  (U) The IMF said Haiti's request for a PRGF will come before the 
executive board in late October, together with decision point.  The 
US said supporting economic development in Haiti is a high priority 
for the international community and that, if Haiti achieves Decision 
Point in October, the US would look forward to meeting with it in 
the Paris Club as early as November to negotiate a Cologne 
Treatment.   (This would provide cancellation of 90 percent or more 
of the debt service coming due during the PRGF period.)  The 
secretariat acknowledged that proceeding directly to a Cologne 
 
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treatment, as opposed to starting with a Naples treatment, (which 
provides less debt relief) was atypical, though not unprecedented. 
The IMF will ask for financing assurances for the PRGF from the 
Paris Club at the October meeting. 
 
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IRAQ 
---- 
¶10.  (U) Russia said the text of its bilateral agreement with Iraq 
has been completed, but the agreement itself has not yet been 
signed.  A signing session was originally planned for late August 
but was subsequently postponed pending high-level formal approval. 
Russia remains the only Paris Club creditor that has yet to conclude 
a bilateral agreement with Iraq implementing the 2004 Paris Club 
agreed minute. 
 
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KENYA 
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¶11.  (U) The IMF said there was considerable uncertainty as to 
whether the second review of Kenya's PRGF will be completed before 
the program expires in November, due to limited progress on 
governance reforms.  If, in fact, the program expires without 
completion of the second review, the third phase of Kenya's current 
Paris Club agreement (which provides for the rescheduling of 2006 
maturities) will not enter into force.  The IMF noted that no 
financing gaps are anticipated in 2006 and 2007, even in the absence 
of a Paris Club rescheduling.  The secretariat will draft a letter 
to the Kenyan authorities alerting them to the current state of 
events. 
 
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LEBANON 
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¶12.  (SBU) The IMF said the ratio of government debt to GDP stood at 
175 percent, but only a small fraction of the debt was owed to 
official creditors.  Italy said the reconstruction of Lebanon could 
not be done on grants alone and suggested that new lending (both ODA 
and non-ODA) needed to be considered, notwithstanding the precarious 
debt dynamics.  The USDEL said helping Lebanon is a high priority, 
but cautioned against adding to Lebanon's debt burden. 
------ 
MALAWI 
------ 
¶13.  (U) The IMF reported that Malawi reached its completion point 
on August 3 and qualified for HIPC and Multilateral Debt Relief 
Initiative (MDRI) relief, which will likely exceed 3 billion 
dollars.  Malawi is tentatively scheduled to come to the Paris Club 
for negotiations next month.  (The US does not have any claims.) 
 
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NICARAGUA 
--------- 
¶14.  (U) The secretariat met with officials from the Libyan embassy 
in Paris to explain the HIPC process and the Paris Club's principle 
of comparable treatment.  (Nicaragua is seeking 91 percent 
cancellation, consistent with its January 2004 HIPC completion point 
treatment in the Paris Club, whereas Libya is offering to cancel 67 
percent of its claims and is threatening litigation to recover the 
balance.)  The Libyan officials said they would report back to their 
authorities in Tripoli.  The secretariat will reinforce its message 
by sending a letter directly to the authorities.  Separately, 
several creditors (Austria, Denmark, France, Japan, Netherlands, 
Norway, Sweden, US) reported that they had been asked by Nicaragua 
to help the World Bank's International Development Association (IDA) 
finance a buyback of Nicaragua's commercial debt on HIPC-comparable 
terms. 
 
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PAKISTAN 
-------- 
¶15.  (U) Norway announced that it will do a 20 million dollar 
debt-for-development swap with Pakistan, in close cooperation with 
the Asian Development Bank.  Under the terms of the swap, commercial 
debt will be converted into grants and channeled to the Pakistan 
Earthquake Fund to support reconstruction. 
 
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RUSSIA 
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¶16.  (U) All creditors have received their prepayment from Russia. 
 
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SAO TOME 
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¶17.  (U) The IMF said HIPC completion point could be reached by 
early 2007.  Germany, France, Russia, and Spain reported technical 
arrears but agreed to allow the second phase of the current Paris 
Club agreement to enter into force.  The secretariat will send a 
letter to the authorities urging them to clear all arrears and 
conclude outstanding bilateral agreements with Spain, France, and 
Russia.  (The US does not have any claims.) 
 
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SERBIA AND MONTENEGRO 
--------------------- 
¶18.  (U) The secretariat proposed sending a letter to the finance 
ministers of Serbia and Montenegro acknowledging the partition of 
Serbia's external debt and calling on each country to conclude new 
bilateral agreements with its Paris Club creditors.  Creditors 
agreed with the thrust of this approach, but asked the secretariat 
to hold off on sending the letter until they have had a chance to 
review the partition agreement and verify the figures.  Several 
creditors, including the US, reported discrepancies between their 
own debt figures and data provided by the Serbian central bank in 
August.  Separately, the secretariat suggested that no response was 
necessary to Serbia's recent letter inviting Paris Club creditors to 
engage in debt swaps. 
 
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SEYCHELLES 
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¶19.  (U) The secretariat will send a letter to the newly elected 
Seychellois authorities calling on them to normalize relations with 
the Paris Club.  (The US is not a creditor.) 
 
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Methodology 
----------- 
¶20.  (U) Creditors agreed to a new approach proposed by the 
secretariat to address discrepancies between IMF-WB data and data 
 
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submitted by Paris Club creditors in the context of HIPC.  In the 
past, these discrepancies have led to significant revisions in the 
HIPC common reduction factor.  Under the new approach, the 
secretariat will ask creditors to reconcile their data with the 
 
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debtor country two months prior to decision point and two months 
prior to completion point.  On each occasion, the data will be 
passed to the IMF for inclusion in the DSA.  The secretariat 
confirmed that the HIPC sunset clause will not affect the Paris 
Club's methodology for providing debt relief to HIPC countries.  In 
response to a question from Russia, the IMF said Afghanistan could 
be declared HIPC eligible in early 2007, pending completion of a 
Debt Sustainability Analysis. 
 
STAPLETON#