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UNCLAS SECTION 01 OF 23 PARIS 002344 
 
 
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 - DECEMBER 2008 TOUR D'HORIZON AND DISCUSSIONS 
ON METHODOLOGICAL ISSUES 
 
¶1. (SBU) Summary:  The December 2008 Paris Club Tour d'Horizon 
included Argentina, Burundi, Comoros, Congo, Cote d'Ivoire, Ecuador, 
Grenada, Guinea, Guinea-Bissau, Iraq, Pakistan, the Seychelles, Sri 
Lanka, and Togo.  Argentine Economy Minister Fernandez had told the 
Secretariat that repayment was still "politically relevant," but 
that "technical conditions" for repayment no longer applied in the 
short term.  Both sides had agreed to continue technical contacts, 
including efforts to reconcile late interest.  The IMF conceded that 
Cote d'Ivoire's performance under its Emergency Post-Conflict 
Assistance (EPCA) program had been weak, and indicated that 
financing gaps for 2008 and 2009 still needed to be filled before a 
new Poverty Reduction and Growth Facility (PRGF) program could be 
approved.  Creditors expressed divergent views about the 
implications of the timing of the IMF's assessment of Cote 
d'Ivoire's qualification for debt relief under the Heavily Indebted 
Poor Countries (HIPC) Initiative; the IMF asserted that a delay 
beyond March 2009 might prevent Cote d'Ivoire from qualifying, given 
more recent debt data.  The Club agreed to enter into force on 
December 17 the final tranche of Iraq's 2004 debt relief.  The IMF 
reported Sri Lanka's financial situation had become "very 
precarious," and that the country could be forced to seek an IMF 
program and Paris Club debt relief.  The Secretariat strongly 
supported the Seychelles' request that the Paris Club commit to a 
two-stage debt treatment a "flow" rescheduling followed by a 
"stock-of-debt" reduction in the upcoming negotiation - in order to 
 
PARIS 00002344  002 OF 023 
 
 
maximize the chances that private sector creditors will provide 
comparable treatment. 
 
¶2. (U) The Club also discussed four methodological issues (outreach 
to non-Paris Club creditors, so-called "illegitimate" debt, the 
global financial crisis, and updates to the Paris Club website) and 
provided preliminary approval of additional debt relief for Togo. 
On December 11, creditors negotiated a new "Agreed Minutes" with 
Congo (Brazzaville) that resumes interim HIPC debt relief.  Because 
of Congo's high capacity to pay, creditors provided only the 
standard debt relief terms, which will include cancellation of $643 
million and rescheduling of $119 million over the 2008-2010 time 
period.  End Summary. 
 
--------- 
Argentina 
--------- 
 
¶3.  (SBU) The Secretariat reported on a meeting with Economy 
Minister Fernandez on the margins of the G-20.  Fernandez had said 
that repayment was still "politically relevant," but that "technical 
conditions" for repayment no longer applied in the short term.  Both 
sides agreed that technical contacts should continue, including 
efforts to reconcile late interest.  The IMF reported a significant 
deterioration in Argentina's situation, including asset price 
 
PARIS 00002344  003 OF 023 
 
 
declines, capital flight ($4.5 billion in October),  and falling 
growth.  In response to a question from the U.S. delegation, the IMF 
noted that reserves were still at $46 billion as of end-November 
¶2008.  There is no date set yet for an IMF Article IV review, 
although the Secretariat reported that the Argentines had agreed to 
a Financial Sector Assessment Plan (FSAP) review during the November 
15 G-20 meeting.  The World Bank expects to receive net financial 
flows of $600 million and an estimated $300 million in 2008 and 
2009, respectively. 
 
------- 
Burundi 
------- 
 
¶4.  (U) Burundi formally entered the enhanced Heavily Indebted Poor 
Countries (HIPC) Initiative process (decision point) in 2005 and 
could qualify for full debt cancellation (completion point) as early 
as January 2009, along with the first review of its IMF program. 
The IMF reported that Burundi's performance had been broadly 
satisfactory, with quantitative criteria already met and progress on 
structural criteria.  The World Bank reported good progress on 
Burundi's reform commitments.  The Bank representative warned, 
however, that Burundi would remain at high risk of debt distress 
even after completion point, due to its very low export base. 
 
 
PARIS 00002344  004 OF 023 
 
 
------- 
Comoros 
------- 
 
¶5.  (U) The IMF reported that Comoros' track record of implementing 
economic reforms had weakened significantly since 2006 because of 
the political situation, global food and fuel prices, and economic 
stagnation.  The country was unable to meet its commitments; arrears 
were accumulating.  The ratio of debt to GDP (net present value 
basis) had reached 236 percent.  Because of the political situation, 
Comoros had been unable to obtain an IMF program under the Poverty 
Reduction and Growth Facility (PRGF).  Comoros had requested about 
$5.1 million in IMF financing under a six-month Emergency 
Post-Conflict Assistance (EPCA) program and the rapid access 
component of the Exogenous Shocks Facility.  The country's 
performance under the current EPCA could eventually pave the way for 
a PRGF program and HIPC debt relief.  Subsequent to the Paris Club 
discussion, the IMF Executive Board approved both facilities on 
December 15.    The IMF also reported that an upcoming donors' 
conference would seek additional support and that Comoros would 
likely continue to accumulate arrears, including to Paris Club 
creditors. 
 
------------------------------- 
Republic of Congo (Brazzaville) 
 
PARIS 00002344  005 OF 023 
 
 
------------------------------- 
 
¶6.  (SBU) On December 11, Paris Club creditors and Congolese Finance 
Minister Pacifique Issoibeka agreed on a debt restructuring accord 
that resumes Congo's HIPC debt relief, 
(suspended in September 2006).  Brazil, a non-Paris Club creditor, 
also signed the "Agreed Minutes," which set the terms for each 
creditor to implement the deal bilaterally.  Under the new 
three-year Agreed Minutes, $643 million will be cancelled and $119 
million will be rescheduled, provided Congo's track record of 
performance on its PRGF program is satisfactory.  The Secretariat's 
analysis showed a very strong payment capacity because of oil 
revenues, unusual for a HIPC country.  As a result, creditors denied 
several of Congo's requests for exceptional terms, such as further 
restructuring debts already treated in the 2004 Agreed Minutes. 
 
¶7.  (SBU) There was some discussion of so-called "vulture funds" 
(litigating creditors) after the U.S. delegation asked Finance 
Minister Issoibeka to clarify an apparent contradiction in different 
GROC documents about whether the cases had been "extinguished." 
Based on the minister's ambiguous responses, our understanding is 
that the legal claims are on hold for now because of a $180 million 
GROC "goodwill" payment and the standstill agreement; the financial 
claims against the GROC still exist.  Finance Minister Issoibeka 
described how aggressive litigating creditors had seized oil and 
 
PARIS 00002344  006 OF 023 
 
 
export income, as well as official development assistance from 
Belgium that was intended to support construction of a power plant. 
According to the minister, neither IMF and World Bank calls against 
such litigation, nor the GROC's own pleas for help from its 
international partners, had had any effect. 
 
¶8.  (SBU) Given many creditors' concerns about litigating creditors' 
claims against Congo, the U.S. delegation suggested during the 
December 10 tour d'horizon that the Club strengthen the conditions 
for the entry-into-force clauses of phases 2 and 3 for Congo and all 
future HIPCs.  (Note:  A key principle of Paris Club debt treatments 
is the requirement that a debtor country must seek the same or 
"comparable" debt relief from its non-Paris Club creditors.)  In the 
December 11 negotiation, the GROC delegation accepted both the 
requirement to submit reports prior to the IMF's Board discussions 
and the financial terms the Club offered. 
 
¶9.  (SBU) There was relatively little discussion of creditors' 
concern that Congo's $1.6 billion framework agreement with China 
threatened debt sustainability.  Following up on GROC written 
clarifications provided in November at the Paris Club's request, 
Minister Issoibeka assured the Club that Congo would respect the 
concessionality requirements (minimum 50 percent grant element) of 
its new PRGF program.  Issoibeka asserted that the 2006 framework 
agreement with the PRC would allow for investments in priority 
 
PARIS 00002344  007 OF 023 
 
 
sectors, generate exports, and improve Congo's payment capacity. 
Given the IMF's confirmation that its debt sustainability analysis 
had taken Congo's expected new borrowing from China into account, 
creditors did not ask Issoibeka for further information.  The IMF 
representative reported that Congo could complete the HIPC 
initiative ("completion point") as early as May 2009, which would 
trigger cancellation of Congo's remaining eligible debts to 
bilateral and multilateral lenders. 
 
------------- 
Cote d'Ivoire 
------------- 
 
¶10.  (U) The IMF reported ongoing negotiations on a PRGF program. 
Despite prior fiscal slippages, the government had indicated that it 
was committed to remedial measures, safeguards, and transparency. 
The IMF hoped that the Executive Board could approve a PRGF program 
in February or March; however, 2008 and 2009 financing gaps still 
needed to be filled.  The significant donor support Cote d'Ivoire 
needs through 2011 had been delayed due to weak policy.  Market 
tightening had prevented Cote d'Ivoire from raising financing on the 
West African Economic and Monetary Union (WAEMU) market.  As a 
result, clearance of arrears at the African Development Bank (AfDB) 
has been delayed.  Paris Club Co-Chairman Benoit Coeure reported 
that his recent meeting with the Ivoirian Finance Minister 
 
PARIS 00002344  008 OF 023 
 
 
corroborated the IMF's assessment.  The poor cocoa crop, lower cocoa 
prices, and liquidity problems in the WAEMU bond market had 
contributed to a very tense cash flow situation.  However, the 
country was setting up a special account for oil revenues, which 
would be transparent and audited. 
 
¶11.  (SBU) The IMF also explained that the December 12 Executive 
Board meeting would address Cote d'Ivoire's performance track 
record, noting that the Board had sufficient discretion to allow 
performance under an EPCA program to be acceptable to qualify for 
the HIPC Initiative.  (Note:  The December 12 Board meeting was 
inconclusive.  IMF staff awaits final performance on the current 
EPCA program before recommending whether Cote d'Ivoire should enter 
the HIPC process as it begins its PRGF program or, as the USG 
advocates, wait until the first PRGF review.  End Note.)  The IMF 
underscored that postponing a decision on Cote d'Ivoire's 
qualification for HIPC until after March 2009 could mean that the 
country might not be eligible.  Under IMF rules, more recent figures 
would have to be used in taking a HIPC-related decision after March 
2009, and end-2008 data would likely show lower indebtedness ratios. 
 Failure to qualify for HIPC would also prevent Cote d'Ivoire from 
benefiting from the Multilateral Debt Relief Initiative (MDRI), a 
more valuable prize than HIPC debt relief.  The IMF also conceded, 
however, that Cote d'Ivoire could conceivably still receive HIPC and 
MDRI later on the basis of end-2009 data. 
 
PARIS 00002344  009 OF 023 
 
 
 
¶12.  (SBU) There was some discussion about the implications were 
Cote d'Ivoire not to qualify for the HIPC Initiative, and what 
restructuring the Club would offer in such a situation.  The 
Secretariat opined that the country did want to benefit from HIPC, 
and Germany urged that a way be found to allow Cote d'Ivoire to 
qualify for HIPC.  The discussion ended inconclusively as all agreed 
that this was an issue for the boards of the International Financial 
Institutions (IFI). 
 
------- 
Ecuador 
------- 
 
¶13.  (U) Discussion of Ecuador focused on the External Debt Audit 
Commission's recent report, which characterized up to 40 percent of 
Ecuador's commercial external debt as either illegitimate or 
illegally contracted.  The IMF reported that Ecuador's financial 
position had worsened, although the banking system was strong, with 
little exposure to the international system, and Ecuador would be 
able to cover its needs from its liquidity cushion and borrowing 
from the Andean Development Corporation (CAF) and the Inter-American 
Development Bank (IDB).  The World Bank noted the Bank had been 
cited in the commission's report, and that the Bank expected net 
flows of about $80 million from Ecuador in 2008.  Following guidance 
 
PARIS 00002344  010 OF 023 
 
 
from President Zoellick, the Bank would "find a way" to stop new 
disbursements at the first sign of GOE failure to repay debts to the 
Bank. 
 
¶14.  (SBU) The Secretariat noted that the commission had also 
criticized the Paris Club. The Secretariat suggested possible 
responses, including a Paris Club Chairman's letter warning Ecuador 
not to default, hardening of export credit terms (noting that some 
export credit agencies had halted new lending already), and 
coordinating a position at the Inter-American Development Bank 
(IDB), where a $1.5 billion loan was under discussion.  The 
Co-Chairman rejected these ideas for now, urging that the Club wait 
to see GOE action on December 15 and status of payments to Club 
creditors, saying they could provoke the Ecuadorians further. 
 
¶15.  (SBU) The Spanish delegate complained that the report cited 
three loans owed to Spain, and called for a Chairman's letter if 
payments were not received.  Stressing reputational damage to Spain, 
the Spanish delegate criticized the Norwegian delegation for 
circulating an NGO document on illegitimate debt (see paras 31-32 
below) that included a sentence welcoming Ecuador's decision to 
conduct the audit.  The Norwegian delegate responded, indicating 
that the GON welcomed discussion of the issue but did not approve of 
Ecuador's process, which had lacked transparency and balance. 
 
 
PARIS 00002344  011 OF 023 
 
 
¶16.  (SBU) Italy said the report had labeled one of its concessional 
loans as illegitimate, but that Ecuador had nevertheless just made a 
payment on it.  Brazil had been heavily criticized in the report, 
and its representative noted there were no arrears.  The Club agreed 
to wait to see whether the GOE defaulted on official debt before 
taking action.  As of December 22, Ecuador appears to be servicing 
its debts to Paris Club creditors. 
 
------- 
Grenada 
------- 
 
¶17.  (SBU) At issue was Grenada's November 17, 2008 request to 
extend its 2006 rescheduling through end-2009.  In July 2008, the 
IMF Board had completed a long-delayed review of Grenada's PRGF 
program, including PRGF extension through April 2010 and boosting 
lending by $2.2 million.  A second PRGF review took place on 
December 12.  The IMF reported deterioration since July, including 
forecast declines in 2009 for remittances, tourism, and 
tourism-related foreign direct investment.  The IMF felt that the 
new government was committed to the PRGF program and was 
implementing reforms.  The IMF noted concerns about a proposed loan 
from China, but said that the GOG had committed to delay the loan 
until late 2009 at the earliest and planned to seek concessional 
terms and a smaller amount than originally planned. 
 
PARIS 00002344  012 OF 023 
 
 
 
¶18.  (SBU) The Secretariat highlighted that extension of the Fund 
program had not assumed extension of the Paris Club's 2006 
restructuring.  Under questioning, the Fund conceded that the Paris 
Club accounted for a small part of Grenada's external debt and that 
the program would not unravel if the Club rejected the extension 
request.  Nevertheless, the IMF argued that Grenada's external 
situation had since deteriorated, and that Grenada had reportedly 
reached agreement on a "significant" discount below face value with 
private creditors.  Taiwan's threatened litigation over a credit it 
refused to restructure presented an additional obstacle.  Similar to 
its intervention with respect to the Republic of Congo (Brazzaville) 
(see para 8), the U.S. suggested that Grenada provide a report on 
comparable treatment before a Club decision on extending its debt 
relief.  Co-Chairman Coeure and the Club endorsed the idea, 
suggesting that creditors could assess Grenada's record of seeking 
comparable debt relief from other creditors and Grenada's request in 
January 2009. 
 
------ 
Guinea 
------ 
 
¶19.  (SBU) The IMF reported that the Executive Board's July 2008 
favorable review of Guinea's PRGF program included a $34.9 million 
 
PARIS 00002344  013 OF 023 
 
 
augmentation to help Guinea cope with external shocks from rising 
food and fuel prices.  The IMF called the macroeconomic situation 
"broadly satisfactory," noting that the GOG had met its fiscal 
targets despite social unrest and tension.  In early 2009, the IMF 
intends to discuss Guinea's exit from the HIPC Initiative 
("completion point") and hold the second review of Guinea's PRGF 
program.  The World Bank reported that Guinea had already met seven 
out of the ten performance criteria for completing the HIPC 
Initiative.  Two criteria were partially met (on auditing of large 
government contracts and prenatal consultations); however, there was 
slow progress on increasing access to social services.  The 
Secretariat intends to have negotiations with Guinea in March 2009 
to cancel the remaining stock of eligible debt. 
 
------------- 
Guinea-Bissau 
------------- 
 
¶20.  (SBU) The IMF noted that end-2006 debt (including arrears) 
totaled $1 billion (322 percent of GDP).  Guinea-Bissau had 
benefited from $5.7 million in loan disbursements under the 
Emergency Post-Conflict Assistance (EPCA) program approved in 
January 2008.  Performance had been broadly satisfactory in the 
first half of 2008, but had weakened since then.  Discussions on a 
new PRGF program stalled, however, since Guinea had missed the 
 
PARIS 00002344  014 OF 023 
 
 
EPCA's June 2008 reform targets and was expected to miss September 
ones as well.  Guinea was requesting about $5 million under the 
Rapid Access Component of the IMF's Exogenous Shocks Facility and 
might request additional post-conflict support. 
 
---- 
Iraq 
---- 
 
¶21. (SBU) The IMF reported that Iraq had nearly met the requirement 
under the November 2004 Agreed Minutes to complete three years of 
continuous performance on an appropriate IMF program.  (Note:  On 
December 17, the IMF Executive Board approved the final review of 
Iraq's Stand-By Arrangement (SBA) End note.)  The Fund described 
Iraq's economic situation - both oil and non-oil - as encouraging. 
The World Bank indicated preparation of a new interim strategy; 
limited IBRD lending was possible. 
 
¶22.  (SBU) Brazil repeated previous statements that there had been 
no progress in implementing the November 2004 Paris Club treatment 
since its letter to Paris Club in June 2008, though it was hoping to 
schedule a technical meeting in early 2009.  The Brazilian 
representative claimed that the GOB had been unable to obtain copies 
of terms granted to other non-Club creditors and argued that while 
Iraq had done well in terms of number of creditors, the GOI had done 
 
PARIS 00002344  015 OF 023 
 
 
poorly in terms of share of debt treated - particularly since it had 
not signed with Saudi Arabia.  The Secretariat noted Iraq's recent 
report on comparable treatment, declaring that Iraq had met the 
Club's terms on comparability, which only required best efforts on 
the part of the debtor country and that the country not provide more 
favorable terms to any creditor.  After a contentious discussion, 
creditors decided to use December 17 (the date of the IMF Board 
discussion) to enter into force the final phase of debt reduction 
and to begin accrual of ordinary interest.  The Club also decided to 
issue a press release reporting that the last tranche had entered 
into force and calling on other creditors to provide comparable 
treatment. 
 
-------- 
Pakistan 
-------- 
 
¶23.  (SBU) The IMF reported on the impact that food and fuel prices, 
followed by the global economic turmoil, had had on Pakistan and 
described the reform goals of Pakistan's Stand-By Arrangement. 
Pakistan still had large financing requirements, particularly for 
the first year, which it hoped to cover through privatization 
revenues and additional bilateral support to be discussed at a 
donors conference in the new year.  When Canada asked whether 
Pakistan would come to the Paris Club, the Fund noted that the SBA 
 
PARIS 00002344  016 OF 023 
 
 
did not envisage a rescheduling; Pakistan's external debt was mostly 
commercial, and restructuring it could be difficult and have adverse 
effects.  In response to a question from the Netherlands, Germany 
indicated that it had entered into a euros 40 million swap for 
health programs, under which the GOP would have to pay the 
equivalent of euros 20 million.  Russia complained that Pakistan had 
blocked $163 million of Vneshekonombank accounts. 
 
---------- 
Seychelles 
---------- 
 
¶24.  (U) The Paris Club had granted financing assurances for 
Seychelles in a November conference call, clearing the way for IMF 
Board approval of its two-year SBA lending program on November 14. 
The Secretariat noted that the GOS had agreed to major reforms, most 
notably movement to a floating exchange rate.  While Seychelles 
wanted to complete its debt restructuring rapidly, ensuring a 
comparable treatment of its comparatively large share of external 
debt owed to private creditors would be a challenge.  The IMF echoed 
the far-reaching nature of the SBA's reform goals.  The Seychelles 
faced major challenges from the global financial crisis (and impact 
on tourism).  The country was moving forward on the restructuring of 
its Eurobond, according to the IMF, and additional outreach to 
private creditors was planned for February 2009.  The World Bank 
 
PARIS 00002344  017 OF 023 
 
 
reported that it was near approval of a two-year interim strategy 
together with the African Development Bank that envisaged $9 million 
of budget support in each year. 
 
¶25.  (U) The Secretariat distributed a December 9, 2008 letter from 
the Finance Minister, and observed that treatment would be 
difficult, since private creditors would want assurance of the 
Club's terms for the overall restructuring before moving forward. 
In the Secretariat's view, this would require the Club to commit at 
the outset to a "stock-of-debt" reduction to be delivered in a 
second stage, even if the first stage was only a rescheduling. 
Co-chairman Coeure urged the Club to do its utmost to support a 
country that is making best efforts to seek comparable debt relief 
from all creditors.  The Paris Club will discuss additional options 
at its January 2009 meeting; negotiations with the Seychelles could 
take place in March. 
 
--------- 
Sri Lanka 
--------- 
 
¶26. (U) The IMF reported that Sri Lanka's financial situation was 
deteriorating rapidly.  The country had been financing its current 
account through remittances, but these had fallen, so it had 
resorted to foreign currency borrowing.  Since July, financing had 
 
PARIS 00002344  018 OF 023 
 
 
dried up, reserves had fallen sharply, and the situation had become 
"very precarious."  Sri Lanka would be hard-pressed to continue its 
strong record of servicing debt, according to the IMF.  The World 
Bank echoed the bleak assessment, noting that tea exports and prices 
had fallen, and that garment exports were slowing due to the U.S. 
and European recessions.  Under a strategy approved this year, the 
Bank had a lending envelope of $900 million over three years.  The 
IMF said that although the authorities had not yet discussed seeking 
Paris Club debt relief, such a request could come quickly, since 
large amounts were due and external financing options were no longer 
available. 
 
---- 
Togo 
---- 
 
¶27.  (SBU) Following the IMF and World Bank's November 25, 2008 
decision allowing Togo to enter the HIPC Initiative ("decision 
point"), Paris Club creditors provided preliminary approval for 
additional debt relief.  The Fund reported Togo's performance had 
been mostly commendable, especially given external shocks and 
flooding.  Despite a September donors conference and the IMF Board's 
approval of a $29 million program augmentation, financial conditions 
remained "challenging," according to the IMF, due to the global 
situation and difficulties related to privatization and attracting 
 
PARIS 00002344  019 OF 023 
 
 
foreign investment.  The Secretariat agreed to correct several 
errors and recirculate for final approval the draft Agreed Minutes 
providing Togo with stepped-up debt relief on so-called "Cologne 
terms." 
 
------------------------------------ 
Methodological Discussion: 
Outreach to non-Paris Club Creditors 
------------------------------------ 
 
¶28.  (SBU) The Secretariat reported that it had held "informal, 
technical" talks on October 27, 2008 with eleven major non-Club 
creditors (Brazil, Bulgaria, China, India, Israel, Kuwait, Romania, 
South Africa, South Korea, Turkey and the United Arab Emirates). 
Turkey, Kuwait, Romania and Brazil had indicated that they wanted to 
be more closely associated with Club discussions, though Turkey had 
again suggested that the amount of relief granted should depend in 
part on the creditor's level of development, a departure from the 
most fundamental Club principle.  The Secretariat suggested that it 
hold further discussions with these creditors in 2009, and Club 
members agreed to defer discussion of the Turkish idea until a later 
meeting. 
 
¶29.  (SBU) Co-Chairman Coeure reported that he had attended the 
Financing for Development conference in Doha, where Brazil and South 
 
PARIS 00002344  020 OF 023 
 
 
Africa had played major roles.  (Note:  As G77 members, Brazil and 
South Africa's positions in Doha often were at odds with those of 
Paris Club members.  End note.)  The Doha final outcome document 
referred to "equitable" not "comparable" treatment.  The Dutch 
delegate asserted strongly that the Club's purpose should remain 
twofold:  (1) to maximize collections, and (2) to ensure that as 
much debt as possible is treated on comparable terms.  The Club 
should not try to attract more members in order to justify its 
continued existence, although there is some value in having major 
non-Paris Club creditors at the table as had always been the 
practice. 
 
¶30.  (SBU) The Club agreed that attracting new members would be 
difficult, but that further outreach was desirable.  All members 
agreed that the Secretariat should send a tentative list of upcoming 
negotiations, accompanied by a request for data about claims on 
debtor countries, to the 11 countries consulted in October 2008.  As 
in the case of South Africa and Seychelles, any requests to 
participate in future negotiations would be handled on a 
case-by-case basis.  If a guest creditor blocked consensus, the 
Paris Club could ask that creditor to leave a negotiation.  Some 
creditors had reservations about the Secretariat's proposals; 
discussion will continue in January. 
 
-------------------------- 
 
PARIS 00002344  021 OF 023 
 
 
Methodological Discussion: 
"Illegitimate" Debt 
-------------------------- 
 
¶31.  (SBU) Following Norway's request to make a presentation on 
so-called "illegitimate" debt, the Norwegian delegate told the Club 
that his country approaches debt issues both as a creditor and, more 
importantly, as a donor.  In Norway, the issue of "illegitimate 
debt" had attracted significant attention from the highest political 
levels, the NGO community and Norway's state church.  Norway wanted 
to approach the debate with an open mind, and was providing 
financial and other support for studies, such as a Harvard 
conference in January 2009 and UNCTAD's work. 
 
¶32.  (SBU) The Secretariat lambasted the concept of illegitimate 
debt, noting that many NGOs had outdated views of this issue and did 
not recognize that the HIPC and MDRI initiatives had already brought 
about significant debt cancellation.  Basing debt relief on 
"political" considerations, rather than financial need, risked 
undermining the basis for demanding comparable treatment from 
non-Paris Club creditors.  The Secretariat also noted that the 
concept of illegitimate debt carried potentially high costs for 
debtor countries, as shown by the dramatic rise in Ecuador's bond 
spreads.  Other creditors attacked the Norwegian position, with the 
Netherlands, UK, Australia, and Spain all questioning the Club's 
 
PARIS 00002344  022 OF 023 
 
 
ability to add value on the topic.  Germany, however, welcomed the 
discussion and suggested that the Club discuss the topic at a future 
meeting.  Following strong UK and Dutch opposition, the Secretariat 
confirmed there was no consensus to prepare a paper or talking 
points for creditors to use in answering questions from civil 
society. 
 
-------------------------- 
Methodological Discussion: 
Global Financial Crisis 
-------------------------- 
 
¶33.  (SBU) At Sweden's request, creditors discussed the financial 
crisis and its possible effects on the Club.  The IMF reported that 
the Board had approved six programs in November following the 
current market turmoil and that a "similar number" were under 
discussion, although the Fund declined to name countries.  The IMF's 
ongoing discussions affected mostly middle-income or upper-middle 
income countries that owed relatively little debt to Paris Club 
creditors, although a number of countries would have to restructure 
their private debts.  The IMF agreed to alert the Club to countries 
likely to request Paris Club debt relief, as it had done with Sri 
Lanka. 
 
¶34. (U) The next Paris Club meeting is scheduled for January 22, 
 
PARIS 00002344  023 OF 023 
 
 
¶2009. 
 
¶35. (U) For more detailed information on any of the above-mentioned 
countries, please contact EEB/IFD/OMA David Freudenwald or Nicholle 
Manz.