VZCZCXRO1729
RR RUEHBZ RUEHGI RUEHTRO
DE RUEHFR #2004/01 3051741
ZNR UUUUU ZZH
R 311741Z OCT 08 ZDK CIT NUMEROUS SVCS
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 4712
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHRL/AMEMBASSY BERLIN 6872
RUEHSW/AMEMBASSY BERN 2156
RUEHBS/AMEMBASSY BRUSSELS 6834
RUEHCP/AMEMBASSY COPENHAGEN 1616
RUEHLO/AMEMBASSY LONDON 7013
RUEHMD/AMEMBASSY MADRID 2884
RUEHMO/AMEMBASSY MOSCOW 6210
RUEHNY/AMEMBASSY OSLO 1665
RUEHRO/AMEMBASSY ROME 8953
RUEHSM/AMEMBASSY STOCKHOLM 1682
RUEHTC/AMEMBASSY THE HAGUE 3039
RUEHKO/AMEMBASSY TOKYO 2855
RUEHBS/USEU BRUSSELS 2423
RUEHLU/AMEMBASSY LUANDA 1003
RUEHGI/AMEMBASSY BANGUI 0298
RUEHRY/AMEMBASSY CONAKRY 0121
RUEHBZ/AMEMBASSY BRAZZAVILLE 0205
RUEHGB/AMEMBASSY BAGHDAD 0159
RUEHAM/AMEMBASSY AMMAN 1234
RUEHMV/AMEMBASSY MONROVIA 7412
RUEHTH/AMEMBASSY ATHENS 0804
RUEHKI/AMEMBASSY KINSHASA 1707
RUEHAB/AMEMBASSY ABIDJAN 1301
RUEHLC/AMEMBASSY LIBREVILLE 1443
RUEHPC/AMEMBASSY LOME 1170
RUEHBU/AMEMBASSY BUENOS AIRES 1593
RUEHKH/AMEMBASSY KHARTOUM 0363
RUEHWR/AMEMBASSY WARSAW 0885
RUEHBR/AMEMBASSY BRASILIA 2086
RUEHCH/AMEMBASSY CHISINAU 0441
RUEHJB/AMEMBASSY BUJUMBURA 0149
RUEHTRO/AMEMBASSY TRIPOLI 0192
RUEHBJ/AMEMBASSY BEIJING 1815
RUEHUL/AMEMBASSY SEOUL 1584
RUEHAK/AMEMBASSY ANKARA 0989
RUEHTV/AMEMBASSY TEL AVIV 0034
RUEHSA/AMEMBASSY PRETORIA 1618
RUEHKU/AMEMBASSY KUWAIT 0265
RUEHAD/AMEMBASSY ABU DHABI 0297
RUEHPL/AMEMBASSY PORT LOUIS 1023
RUEHPS/AMEMBASSY PRISTINA
RUEHIL/AMEMBASSY ISLAMABAD 0811
RUEHDJ/AMEMBASSY DJIBOUTI 0937
RUEHBH/AMEMBASSY NASSAU 0103
RUEHUB/USINT HAVANA 0107

UNCLAS SECTION 01 OF 17 PARIS 002004 
 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA 
TREASURY FOR DO/IDD AND OUSED/IMF 
SECDEF FOR USDP/DSCA 
PASS EXIM FOR CLAIMS - MPAREDES 
PASS USDA FOR CCC -- ALEUNG/WWILLER/JDOSTER PASS USAID FOR CLAIMS -- 
WFULLER 
PASS DOD FOR DSCS -- PBERG 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT:  PARIS CLUB - OCTOBER 2008 TOUR D'HORIZON AND DISCUSSIONS 
ON METHODOLOGICAL ISSUES 
 
PARIS 00002004  001.2 OF 017 
 
 
¶1. (SBU) Summary: The October 2008 Paris Club Tour d'Horizon 
included Argentina, Congo-B, Cote d'Ivoire, Cuba, DRC, Iraq, 
Liberia, the Seychelles, and Togo.  Paris Club Co-Chairman Coeure 
reported that, in an earlier conversation with the Paris Club 
Secretariat, Argentine Minister Fernandez had reaffirmed the GOA's 
intention to proceed with the Paris Club payment, including early 
repayment.  The Paris Club Secretariat reiterated Club members' 
expectation to be paid in full, including all late interest. 
Fernandez replied that discussions with President Fernandez de 
Kirchner had been progressing slowly regarding the politically 
sensitive late interest issue.  The IMF did not request financing 
assurances for Congo-B as had been expected, since the Fund had not 
concluded its discussions with the authorities.  Creditors expressed 
strong concerns about (1) a proposed $1.2 billion loan from China, 
and (2) a goodwill payment to litigating creditors.  The Fund may 
request assurances in early November via a conference call in place 
of a Tour d'Horizon meeting.  Given these concerns we and the other 
major creditors will need to make decisions on whether we are 
willing to move forward. 
 
¶2. (U) The Club also discussed various methodological issues 
(seniority, phases) and reached an Evian Terms rescheduling with 
Djibouti after an unexpectedly contentious negotiation.  (The U.S. 
was not a creditor.)  End Summary. 
 
--------- 
ARGENTINA 
--------- 
 
¶3. (SBU) Club Co-Chairman Benoit Coeure reported on the previous 
 
PARIS 00002004  002.2 OF 017 
 
 
weekend's discussions with Argentina.  As agreed with the Club, the 
Secretariat had told the Argentines that the Club expected to be 
paid in full.  Minister Fernandez affirmed that Argentina did intend 
to proceed with the Paris Club payment - including early repayment - 
and that news stories to the contrary had been in error.  He had 
stated that President Fernandez de Kirchner's commitment remained, 
so it was "out of the question" for Argentina to change its position 
and that the financial crisis had not affected the GOA's desire to 
repay.  The financial crisis would not have much of an impact on 
Argentina, he said, and the GOA wanted to complete the transaction 
quickly.  The Secretariat had replied that the way to do so was to 
pay in full, including all late interest.  Fernandez replied that he 
had taken note and would need to discuss the issue with President 
Fernandez de Kirchner.  Lorenzino noted it had not been possible to 
make any progress on the political front regarding the late interest 
issue but discussions were still ongoing with President Fernandez de 
Kirchner's staff. 
 
¶4. (SBU) The Secretariat reported that over 97 percent of principal 
and interest had been reconciled, and that outstanding items were 
all special cases.  The Argentines had indicated that they did not 
yet have a mandate to reconcile late interest, however. 
 
¶5. (SBU) The IMF representative then reported on Argentina's 
situation.  He indicated that stock and bond prices had fallen 
sharply, that credit growth was rapidly declining and that default 
indicators were rising rapidly.  The EMBI had shot up by 1,200 b.p. 
and international lines of credit to Argentine companies were under 
threat.  The Central Bank had been intervening heavily in both 
directions, but reserves remained stable at about $47 billion. 
 
PARIS 00002004  003.2 OF 017 
 
 
Short-term financing needs were covered, there had been no large 
outflows, and domestic markets were calm - all indications that 
Argentina was still in a position to pay.  The World Bank 
representative agreed that Argentina was reasonably well placed, 
with well-capitalized banks enjoying strong cash flow.  Argentina's 
premia were still the highest in the LAC region however, and it 
would be difficult for the country to maintain its twin surpluses in 
the medium term. 
 
¶6. (SBU) Austria, echoed by Germany, asked whether the Secretariat 
had signaled flexibility on the part of the Club.  Coeure replied 
that the Secretariat had no mandate to discuss concessions on late 
interest, and that any mention of such would be a sign of weakness 
on the part of the Club.  The U.S. agreed that the PCS had no 
mandate to discuss concessions, a position that was quickly affirmed 
by Canada, Italy, Japan, the Netherlands, Switzerland and the U.K. 
The discussion concluded with the Secretariat expressing the view 
that the ball was back in Argentina's court. 
 
----------------- 
CONGO-BRAZZAVILLE 
----------------- 
 
¶7. (SBU) At the September meeting, the Fund had indicated that it 
would request financing assurances in October, but it did not do so. 
 While the Fund representative reported again that broad agreement 
had been reached on a Poverty Reduction and Growth Facility (PRGF), 
discussions had continued during annual meetings, and assurances 
would likely be requested in November. 
 
 
PARIS 00002004  004.2 OF 017 
 
 
¶8. (SBU) Two major issues were of concern to creditors -- China and 
litigating creditors.  Chinese loans were the subject of G-7 Debt 
Experts' exchanges before the meeting.  The Fund representative 
reported that there had been three loans in 2005 and 2006, two of 
which met the PRGF's concessionality requirements, and the third, 
used to purchase an aircraft, had been granted a waiver.  In June 
2006 the Congo-B and China signed a framework agreement covering oil 
exploration, infrastructure, and social development.  IMF officials 
claimed the agreement was for $1.2 billion, although the financial 
agreements had not yet been signed.  GOC officials told Fund staff 
it had initiated these projects using domestic financing - up to 15 
percent of the total financing cost.  The authorities had declined 
to provide details of the loans to the IMF mission, though they had 
assured Fund staff that the grant element would be greater than 50 
percent, as required by the PRGF. 
 
¶9. (SBU) The Fund reported that Congo-B had reached a standstill 
agreement with its litigating creditors, under which the creditors 
had agreed not to attempt to seize assets, and the country had made 
a CFA12 billion (about $27 million) goodwill payment in return.  A 
comprehensive settlement was apparently close at hand, but the 
authorities had refused to discuss the possible terms with the Fund 
mission.  Creditors were obviously concerned about comparability, 
but the Fund representative could only say that he assumed that the 
mission had informed the authorities of their obligations. 
 
¶10. (U) The Bank indicated that a full Poverty Reduction Strategy 
Paper was being discussed and that Executive Directors had recently 
welcomed progress on triggers.  Finalization of a new Debt 
Sustainability Analysis was underway; it would show an improved 
 
PARIS 00002004  005.2 OF 017 
 
 
outlook due to debt relief delivered (principally London Club 
relief) and rising oil revenues.  Germany asked whether another 
letter should be sent to the authorities or the IMF; the Secretariat 
suggested waiting until the IMF had made more progress on its 
attempts to clarify issues. 
 
------------- 
COTE D'IVOIRE 
------------- 
 
¶11. (SBU) IMF reported that a mission had just returned from Cote 
d'Ivoire.  They had concluded that the growth rate would likely 
double, as programmed in the $66 million April Emergency 
Post-Conflict Assistance package (EPCA), and that exports, investor 
confidence, and private investment were all rising, as was 
inflation.  The global crisis had not had much impact, though it 
could if commodity prices were to fall.  Cote d'Ivoire had made 
progress in many areas, but there had been significant fiscal 
slippages, due to higher than expected spending on food and fuel 
subsidies and payments (in oil) to reconstruct the new capital at 
Yamoussoukro.  On the latter, authorities indicated they were bound 
to provide 2.7 million barrels a year under a 2004 contract.  The 
authorities had agreed with the mission that they would take steps 
to meet the fiscal targets, and build in additional safeguards. 
 
¶12. (SBU) With World Bank arrears cleared, and AfDB arrears about to 
be, the PRGF was the essential next step.  The AfDB clearance had 
been delayed due to financing problems in the West African Economic 
and Monetary Union (WAEMU).  The country had paid CFA 30 billion, 
financed through syndicated short-term loans from local branches of 
 
PARIS 00002004  006.3 OF 017 
 
 
two international banks.  On arrears clearance, AfDB would provide 
CFA 30 billion in budget support. 
 
¶13. (U) The PRGF would focus on creating fiscal space, enhanced 
public financial management, civil service reform, and debt 
sustainability.  Fund staff would be ready to support a PRGF once 
there was final agreement on addressing the fiscal slippages.  The 
Bank representative reported that there was agreement on triggers, 
but that the preliminary Heavily Indebted Poor Country (HIPC) 
document had been delayed due to the IMF issues.  The Bank expected 
a Board discussion in December.  Most Bank HIPC relief would come 
through arrears clearance; the rest would be IDA resources to cover 
IBRD payments. 
 
---- 
CUBA 
---- 
 
¶14. (SBU) The discussion on Cuba centered on the question of whether 
discussions should be pursued outside the Club.  The previous month, 
creditors had requested information about previous attempts to treat 
the debt, under the rubric of the "Group of Creditors of Cuba."  The 
Secretariat reported that there had been a total of four 
restructurings, but that Cuba continued to accumulate arrears.  The 
most recent discussions had taken place in 2001, but had not reached 
agreement since ideas differed regarding conditionality and the 
method of evaluation of payment capacity.  The Cubans had wanted 
debt reduction, but creditors were unwilling, so there had been only 
a Chairman's Summary, which had endorsed separate discussions of 
bilateral short-term debts only.  The Secretariat distributed a 
 
PARIS 00002004  007.2 OF 017 
 
 
paper on the 2001 discussions. 
 
¶15. (SBU) Adding impetus to the discussions, Spanish Foreign 
Minister Moratinos had publicly said in Havana the day before that 
Spain would restructure part of its claims on Cuba and open a new 
line of credit.  Spain reported that the Minister's statement 
referred only to short-term debt, which included the assistance 
cooperation following this summer's natural disasters, as authorized 
in the Chairman's summary. 
 
¶16. (SBU) Japan volunteered that Cuba had offered the previous month 
to pay short-term debts and arrears.  The Japanese said they 
considered Cuba's proposal acceptable, and noted that discussions 
were ongoing. 
 
¶17. (SBU) Germany said Cuban banking officials confided that the 
country's main problem was $1.7 billion in oil costs coupled with 
another $800 million in food and other public expenses.  They 
admitted the country was basically bankrupt but that Cuban officials 
didn't want to claim bankruptcy.  The Cuban delegation that visited 
Berlin had not appeared to be aware of the Cuban central bank's 
interest in discussions on debt. 
 
¶18. (SBU) France asked whether the Group of Creditors should send a 
letter to Cuba in response to the Cuban central bank's earlier 
approach to the Secretariat.  Most creditors thought that the onus 
should be on Cuba to write first. 
 
¶19. (SBU) The U.S. noted that Cuba was not a member of the IMF and 
did not have an IMF program, and that any movement to restructure 
 
PARIS 00002004  008.2 OF 017 
 
 
should await a Fund program and a clear commitment to economic 
reform.  It noted that poorer countries than Cuba met these 
requirements, and that providing treatment to a Cuba that did not 
undermines the requirements imposed on other debtors.  Coeure 
responded that the U.S. position was very clear. 
 
--- 
DRC 
--- 
 
¶20. (SBU) A recent Fund mission had concluded that performance on 
the Staff Monitored Program (SMP) had been broadly satisfactory, and 
that the program had been extended through year-end.  GDP growth was 
expected to be about 10 percent, driven by robust construction and 
mining activity.  Inflation, however, had reached 24 percent by the 
end of September, driven mostly by world food and fuel prices.  To 
address this, the authorities were considering lowering tariffs on 
foodstuffs.  The mission had also concluded that there had been 
progress on public financial management. 
 
¶21. (SBU) Authorities had agreed that the proposed borrowing from 
China did carry sovereign guarantees, was non-concessional, and that 
earmarked revenues for repayments meant that the debt was 
government-contracted.  The authorities justified the proposal on 
the grounds that it would keep growth in the double digits.  (The 
Fund believed that double-digit growth was possible for a few years, 
but that it would fall back to 5-6 percent in the longer term and 
was concerned the country would remain highly vulnerable to oil 
shocks.  Bank officials noted the DRC relied on exports that are 
highly susceptible to international shocks as well.)  The 
 
PARIS 00002004  009 OF 017 
 
 
authorities had agreed that the final terms would not be determined 
until after the feasibility study was released, in the first quarter 
of 2009.  Staff agreed to wait for the study and noted there would 
be no PRGF request until a debt sustainability analysis was 
completed. 
 
¶22. (SBU) Creditors expressed strong concern about the loans, with 
the Netherlands calling it a major test case of free riding, "a 
really huge one."  There was considerable support for a Paris Club 
letter, either to the DRC or to China.  The IMF warned not to expect 
any high-level meetings with the Chinese on this issue as it was not 
a part of the IMF's mandate. 
 
¶23. (SBU) The Secretariat and some creditors were concerned that a 
letter to China could derail the Club's attempts to improve 
relations with that country, and it was eventually agreed that there 
would be no action until after the feasibility study had been 
released. 
 
¶24. (SBU) Germany asked if the IMF would intervene to interpret the 
results of the feasibility study, noting the original contract was 
500 pages long, written in Chinese, and there was concern GDRC 
officials didn't understand what they were signing at the time. 
Fund staff said if there were issues with the study, they would 
share those concerns with officials in its capacity as an advisor to 
DRC authorities. 
 
¶25. (SBU) The Secretariat noted that club members, as a symbolic 
gesture, could restart billing the DRC since it had been off-track 
for a long time, as a way to send the message that creditors' 
 
PARIS 00002004  010 OF 017 
 
 
patience was waning. 
 
 
---- 
IRAQ 
---- 
 
¶26. (SBU) The Iraq discussion was an update from the IFIs, in 
advance of the final tranche of debt relief being delivered at the 
end of the year.  The Fund reported that oil production and exports 
were running ahead of projections, and that macro performance was in 
general acceptable.  Iraq had passed the first review of its program 
on Sept. 3, and a mission had just left, for Baghdad to ensure that 
the final review would be completed before year's end, as required 
by the Agreed Minute.  The Bank reported that Iraq continued to have 
difficulty spending its resources, so the Bank was providing 
tactical and sectoral assistance as well as economic advice.  An 
interim strategy note focusing on improving the GoI's capacity to 
utilize its own resources in a transparent manner would be released 
soon and would contemplate some IBRD support. 
 
------- 
LIBERIA 
------- 
 
¶27. (U) Liberia had not been on the agenda, but the Secretariat 
reported that it had been contacted by authorities, who had 
requested an extension of the bilateral signing deadline.  Extension 
to March 31, 2009 was agreed. 
 
 
PARIS 00002004  011 OF 017 
 
 
---------- 
SEYCHELLES 
---------- 
 
¶28. (SBU) The IMF reported rapid progress towards agreement on a 
program, with a request for financing assurances and a Board date 
possible in November.  (The U.S. is not a creditor.)  The program 
envisaged far-reaching reforms, including monetary and fiscal 
tightening (to a primary surplus of 6 percent of GDP), and changes 
in the exchange rate regime.  The program would also include 
elimination of tax exemptions, reductions in public employment, and 
the replacement of subsidies with a targeted safety net. 
 
¶29. (SBU) Fund staff noted near exhaustion of the country's reserves 
and Seychelles had continued to default, having missed an October 3 
Eurobond payment.  They had been meeting with creditors, and had 
hired Houlihan as advisors.  Following the defaults, S&P had 
downgraded the country to D ('default') with a recovery rating of 4 
(average recovery expected to be 30-50 percent.) 
 
¶30. (SBU) The Bank added that it was providing technical support in 
a number of sectors, including a project in response to a GoS 
request to improve efficiency of pricing.  An interim strategy note 
in the works should be ready for presentation in early 2009.  The 
Bank representative noted that Seychelles had one of the highest 
public debt/GDP ratios on earth.  A credible and comprehensive debt 
workout plan and a clear GOS commitment would be prerequisites for 
any new lending.  Bank staff noted IDB lending would likely be 
limited to IMF levels and to budgetary support only. 
 
 
PARIS 00002004  012 OF 017 
 
 
¶31. (SBU) The Secretariat reported that it had received a request 
from Houlihan for a meeting, but that no details of a proposed 
workout had been provided so far.  Comparability would be a 
difficult issue, given the $230 million private debt recently 
announced to be restructured.  A data call would be forthcoming. 
 
---- 
TOGO 
---- 
 
¶32. (SBU) The Fund reported that Togo had been heavily affected by 
the global situation, exacerbated by recent flooding.  As a result 
growth would be less than 1 percent, inflation had risen to 10 
percent, and the current account deficit had soared from 6.5 percent 
of GDP to 11 percent.  Fund staff was working with the GOT to 
mitigate social impacts and avoid agricultural price controls.  A 
modest recovery was expected in 2009, however, and the program was 
on track, with good fiscal discipline and appropriate responses to 
policy shocks.  Arrears to the World Bank and African Development 
Bank had been cleared, and donors had pledged rapid assistance.  The 
preliminary HIPC document had been issued the previous month, 
showing debt of $2.2 billion at end-2007, equivalent to $1.4 billion 
in NPV terms after traditional relief.  The preliminary Debt 
Sustainability Analysis (DSA) indicated that Togo met the fiscal 
window requirement for HIPC, so decision point could be reached in 
November.  The Common Reduction Factor would be 19 percent, with 
HIPC relief of $270 million in NPV terms, and MDRI relief of $404 
million. 
 
¶33. (SBU) The Secretariat suggested that Togo could be provided its 
 
PARIS 00002004  013 OF 017 
 
 
Cologne Terms treatment by written communication (rather than a 
face-to-face negotiation), since Naples terms had already been 
agreed.  (The U.S. is a de minimis creditor, owed less than $6,500.) 
 The Secretariat also polled creditors as to whether they intended 
to sign two bilaterals, or to collapse the Naples and Cologne 
treatments into one.  Germany, Italy, the Netherlands, Sweden, 
Switzerland, and the U.K. all indicated that they planned one 
agreement; Austria, Belgium, France (which had already signed its 
bilateral), and Spain intended to sign two.  Japan reported that its 
debt was all post-cutoff date, so no bilateral would be necessary. 
 
--------------------------------------- 
Methodological Discussion: 
Outreach to Official Bilateral Creditors 
---------------------------------------- 
 
¶34. (SBU) The Secretariat had released a brief paper on the Club's 
outreach efforts to non-member bilateral creditors.  The paper 
essentially divided these into three groups: (1) countries that were 
close to the Club, particularly Brazil, Israel and South Korea; (2) 
the larger group of creditors, including non-Club OECD and EU 
members; and (3) the "new frontier," including countries like China, 
India and the Gulf countries. 
 
¶35. (SBU) There was general agreement that countries in the first 
group should be drawn closer to the Club, and offered increased 
participation in Tours de Horizon and other activities.  With regard 
to the second group, there was a general wariness, particularly 
given the number of countries potentially involved.  It was agreed 
that the Secretariat should attempt to gather more information on 
 
PARIS 00002004  014 OF 017 
 
 
the various countries' role as creditors before moving forward. 
South Africa and Turkey stood out from within this group, however, 
as several members agreed there could be a strong political 
advantage to including those two in particular.  With regard to the 
third group, it was agreed to continue technical-level contacts with 
the hope of establishing more regular dialogue. 
 
¶36. (U) In this context, the working paper had mentioned an outreach 
meeting scheduled for October 27.  The U.S. asked about this; the 
Secretariat responded that it had been mentioned during the July 
meeting, and was intended to allow other creditors to explore paths 
of cooperation and to ask questions, as well as to discuss the 
format of the 2009 private sector meeting.  The Secretariat had 
invited eight non-Club members that had participated in the June 
meeting with the private sector (Abu Dhabi, Brazil, China, Israel, 
Korea, Kuwait, South Africa and Turkey), as well as Malaysia, 
Romania and Bulgaria.   The Secretariat promised a full readout. 
 
--------------------------------------- 
Methodological discussion: Update on 
the Ongoing Work with Private Creditors 
--------------------------------------- 
 
¶37. (SBU) The Secretariat reported that it had had some further 
contacts with the Institute of International Finance (IIF) on the 
subject of litigating creditors, in particular with the goal of 
having IIF members echo Club members' commitment not to sell claims 
on HIPCs to entities that might not provide comparable treatment. 
The IIF was generally not amenable to the idea, but had agreed to 
undertake some diagnostic work with the Fund and Bank.  However, to 
 
PARIS 00002004  015 OF 017 
 
 
date, IIF's response had been very disappointing.  The Secretariat 
noted there were two options: wait for the IIF to complete its 
diagnosis and return to the Club with a proposal, or encourage IIF 
to be more active but allow the Fund and the Bank to complete the 
diagnosis.  The Secretariat was concerned about IIF's apparent 
reticence and requested that Fund and Bank representatives reach out 
to IIF colleagues to stress the importance of this subject.  (Note: 
As with outreach to bilateral creditors (above), the Secretariat 
took from the June 2008 discussions a Paris Club "decision" to 
pursue these two efforts, whereas the discussions had pointed more 
to the possibility of establishing these two working groups.) 
 
¶38. (U) Somewhat separately, Germany noted that the annual World 
Bank survey of litigating creditors had missed much of Congo-B's 
exposure; the IMF noted that the survey revealed more litigation 
than in previous years because of the inclusion of Liberia. 
 
-------------------------- 
Methodological discussion: 
Seniority Rules 
-------------------------- 
 
¶39. (U) The Secretariat had circulated a paper designed to create a 
doctrine of seniority, based on long-standing criteria - deferred 
maturities are senior to all others, post cut-off and short term 
debts are senior to pre cut-off, arrears are senior to maturities 
coming due, Overseas Development Assistance(ODA) debt is senior to 
non-ODA.  The paper then consolidated the various combinations into 
a hierarchy of 32 categories, starting with non-Previously 
Rescheduled Debt (NPRD) NODA maturities, and ending with moratorium 
 
PARIS 00002004  016 OF 017 
 
 
interest on post cut off short term debt.  There were many questions 
about the methodology; the U.S. in particular asked whether practice 
had always followed hierarchy (in particular, making the ODA/non-ODA 
distinction subsidiary to the others).  The Secretariat indicated 
that practice had actually been mixed, and that the paper was 
intended to be advisory, demonstrating the ambiguity of what had 
been done in the past and indicating the flexibility possible for 
future arrangements.  That need for flexibility became evident the 
next day, in negotiations with Djibouti. 
 
------------------------------------------- 
Methodological Discussion: Entry into Force 
of Phases of Paris Club Agreements 
------------------------------------------- 
 
¶40. (U) The Club's paper on entry into force of phases, which had 
been revised after the previous meeting, was discussed again.  The 
paper had been significantly clarified, although some issues 
remained unclear.  There was relatively little discussion, although 
the U.S. sought a clarification on whether "middle" phases could be 
skipped (answer: yes; and if it derailed a Fund program they would 
have to renegotiate) and raised concerns about a provision in the 
accompanying Chairman's Summary about "giving up billing" on 
moratorium interest.  The Secretariat replied that this formulation 
had been in a March 2000 version of the Summary. 
 
-------------------------- 
Negotiations with Djibouti 
-------------------------- 
 
 
PARIS 00002004  017 OF 017 
 
 
¶41. (SBU) The second day of the Paris Club meeting consisted of 
negotiations of Evian Terms treatment to support Djibouti's new 
PRGF.  Unfortunately, the letter the Djiboutians sent to the Club 
requesting treatment had not indicated what treatment they sought, 
and the delegation seemed not to know what was expected of them. 
Agreement on terms was reached fairly easily, but the major sticking 
point was one of inter-creditor equity over port authority loans. 
When it came time to sign the agreement, the Djibouti delegation 
surprisingly announced it wanted to exclude some debts to Spain and 
Germany, claiming the loans were illegitimate, even though Djibouti 
had previously accepted those loans, in writing, during the 
reconciliation process.  In his concluding remarks, the Djiboutian 
Secretary-General indicated that the Agreed Minute was an important 
first step but the real negotiations would occur during completion 
of the bilateral implementing agreements.  Additional details of the 
Djibouti negotiations will be provided septel. 
 
¶42. (U) The regularly scheduled November meeting was cancelled and 
will instead be conducted via teleconference.  The next Paris Club 
meeting is scheduled for December 10-12. 
 
¶43. (U) For more detailed information on any of the above-mentioned 
countries, please contact EEB/IFD/OMA David Freudenwald or Nicholle 
Manz. 
 
¶44. (U) Minimize for Tripoli considered. 
STAPLETON