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DE RUEHFR #0499/01 0931608
ZNR UUUUU ZZH
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UNCLAS SECTION 01 OF 20 PARIS 000499 
 
 
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 - MARCH 2009 TOUR D'HORIZON AND DISCUSSIONS ON 
METHODOLOGICAL ISSUES 
 
¶1. (SBU) Summary:  The March 10, 2009 Paris Club Tour d'Horizon 
covered Afghanistan, Burundi, Central African Republic (CAR), 
Democratic Republic of Congo (DRC), Cote d'Ivoire, Cuba, Djibouti, 
Grenada, Haiti, Iraq, Jamaica, the Seychelles, and Sri Lanka. 
Creditors provided "financing assurances" for Cote d'Ivoire's 
upcoming IMF program and Paris Club debt treatment.  Delegations 
continued to weigh whether Grenada's handling of debts owed to 
non-Paris Club creditors justifies granting Grenada's request to 
extend its 2006 rescheduling.  The IMF reported that Haiti could 
complete the Heavily Indebted Poor Countries (HIPC) initiative, and 
receive further debt relief, by mid-2009.  Creditors await the IMF's 
debt sustainability analysis for Seychelles and plan to hold a 
conference call to prepare for April negotiation of the debt 
restructuring agreement.  The Secretariat shared feedback from 
recent outreach to non-Paris Club creditors, and creditors discussed 
the IMF and the Secretariat's assessments of the global financial 
crisis and its implications for the Paris Club.  On March 11, 
creditors negotiated multilateral "Agreed Minutes" with Burundi 
after it achieved "completion point" under the HIPC initiative. 
Creditors agreed to cancel 100 percent of Burundi's nearly $135 
million debt owed to the Club.  End Summary. 
 
----------- 
Afghanistan 
----------- 
 
PARIS 00000499  002 OF 020 
 
 
 
¶2.  (SBU) The U.S. had put Afghanistan on the agenda.  The IMF 
reported that the economic, political and security situations 
remained challenging.  Fiscal policy remained weak.  The security 
situation, weak customs collections and the pricing of fuel imports 
had depressed revenues at a time of high spending.  The IMF noted 
plans to complete the delayed fifth review of Afghanistan's Poverty 
Reduction and Growth Facility (PRGF) program by the end of April, 
assuming a sustained improvement in revenue collections and 
fulfillment of prior actions.  Afghan authorities asked the IMF to 
extend the PRGF program through March 2010, to reschedule the sixth 
review to September 2009, and to add an additional (seventh) review 
in March 2010.  Afghanistan could reach HIPC completion point no 
earlier than fall 2009. 
 
------- 
Burundi 
------- 
 
¶3.  (SBU) Recognizing the IMF and World Bank's March 10 decision 
that Burundi had completed the HIPC initiative, the Club agreed to 
provide Burundi the customary debt stock reduction.  Following 
remarkably smooth negotiations, creditors signed the Agreed Minutes, 
providing for cancellation of $129.5 million (96 percent of 
Burundi's debt); following normal practice, France and Japan also 
 
PARIS 00000499  003 OF 020 
 
 
committed to cancel the remaining $4.8 million Burundi owed them. 
The IMF's debt relief to date totaled $28 million (in net present 
value terms); Burundi will benefit from additional debt cancellation 
worth $105 million under the Multilateral Debt Relief Initiative 
(MDRI).  Full HIPC debt cancellation, including $357 million (net 
present value) from the World Bank, is expected to total $425 
million. 
 
------------------------------ 
Central African Republic (CAR) 
------------------------------ 
 
¶4.  (SBU) The IMF reported December approval of the third PRGF 
program review along with an increase in the lending program.  The 
CAR met the fiscal targets with a better-than-programmed surplus. 
Reserves, however, were sufficient to cover just two months of 
imports.  The World Bank and France were accelerating disbursements, 
especially for budgetary assistance.  The CAR has met most HIPC 
performance criteria (so-called completion point "triggers") and is 
making progress on remaining ones.  One major obstacle is that 
reaching completion point requires creditors holding at least 80 
percent of outstanding eligible debt to participate.  The Bank 
reported reaching 79 percent, meaning one more creditor was needed - 
Taiwan, China, or Argentina.  Taiwan has never delivered HIPC relief 
and China consistently refuses to provide relief in a multilateral 
 
PARIS 00000499  004 OF 020 
 
 
context.  This leaves only Argentina, which holds 2-3 percent of the 
CAR's debt.  The IMF expects to approve the fourth review in early 
April and HIPC completion point in mid-2009. 
 
---------------------------------- 
Democratic Republic of Congo (DRC) 
---------------------------------- 
 
¶5.  (SBU) The U.S. had requested that DRC be on the agenda.  The IMF 
reported that the economic situation was deteriorating.  The 
following day, on March 12, the IMF Executive Board approved a rapid 
access exogenous shocks facility (RAC-ESF) program, along with 
remedial measures to address the government's recent misreporting. 
A March IMF staff mission to conduct the periodic "Article IV" 
review would also explore a new PRGF program. 
 
¶6.  (SBU) Regarding the Sino-Congolese mining deal, the IMF reported 
that the government had assured the Fund that it was focused on 
engaging the PRC on the sovereign guarantees and increased 
concessionality.  The DRC's letter of intent seeking emergency 
financing under the RAC-ESF committed the authorities to refrain 
from contracting new debts that could jeopardize debt 
sustainability.  The IMF said it was aware of the PRC Ambassador to 
the DRC's statements that the deal would not be renegotiated and 
that pressure to do so was "blackmail." The U.S. delegation pressed 
 
PARIS 00000499  005 OF 020 
 
 
the Fund on why the RAC-ESF letter of intent fell short of the 
Fund's January report to the Club, which had indicated the DRC would 
commit to eliminate the second infrastructure tranche and 
renegotiate guarantees and concessionality.  The Fund representative 
had no specific answer. 
 
¶7.  (SBU) The U.S. also questioned an assertion in the RAC-ESF 
document that the Paris Club had "acquiesced" to continued 
accumulation of arrears.  The IMF representative replied that this 
assertion had referred to the Club's lack of response when he 
informed the Club in January that arrears would continue to 
accumulate.  He agreed that using the word "acquiesce" was 
unfortunate; the document should have stated that the Club "did not 
object."  Noting the G-7 letter last year, Japan reiterated the need 
to address the Chinese loans, to review the feasibility study (the 
IMF and WB reps had no update), and, given concern about assistance 
to DRC, to consider the matter carefully. 
 
------------- 
Cote d'Ivoire 
------------- 
 
¶8.  (SBU) After contentious discussions, creditors provided 
financing assurances for Cote d'Ivoire's new PRGF program.  The IMF 
recalled that it had found Cote d'Ivoire eligible for HIPC in 
 
PARIS 00000499  006 OF 020 
 
 
December 2008, based on end-2007 data on the ratio of debt to 
government revenues.  The IMF Executive Board signaled the 
possibility of approving a new PRGF program and decision point at 
the same time, provided Cote d'Ivoire met several prior actions. 
 
¶9.  (SBU) A February IMF mission concluded that the authorities had 
met these criteria.  The Fund believed that performance under the 
two Emergency Post-Conflict Assistance (EPCA) programs had been 
"broadly satisfactory," despite unprogrammed fiscal expenditures, 
particularly to construct the new capital.  End-2008 fiscal 
performance had actually been "close to targets," although the 
primary surplus target had been missed by 0.4 percent of GDP, 
financed through accumulation of domestic arrears.  Cote d'Ivoire 
met other end-2008 targets, including eliminating tax exemptions on 
food staples, oil, and cocoa, and had put in place safeguards on 
large public works.  Finally clearing its arrears to the African 
Development Bank, the authorities expected to clear arrears to other 
multilaterals by end-March.  The IMF and Cote d'Ivoire had reached 
ad referendum agreement on the PRGF program, paving the way for the 
IMF Executive Board's March 27 PRGF program and HIPC decision point 
approval.  The authorities had also committed to complete a 2009 
budget, to implement an automatic petroleum price mechanism, to 
issue a decree to limit Treasury advances, and to publish the 2008 
budget execution documents. 
 
 
PARIS 00000499  007 OF 020 
 
 
¶10.  (SBU) The IMF also asserted that Cote d'Ivoire faced 
significant financing gaps, estimated at 30 percent of GDP, during 
2009-2011.  The IMF reported that the Club would need to provide 
exceptional debt relief, in particular on so-called "post-cut off 
debts"(debts originally extended prior to 1983), given the country's 
very limited capacity to pay.  The Secretariat believed that 
capacity to pay all non-multilateral creditors - public and private 
- would be on the order of $100-120 million annually.  Cote d'Ivoire 
owed $4 billion to the Club in 2009 alone, including arrears, late 
interest and installments coming due.  The Secretariat concurred 
with the IMF that an exceptional treatment covering short-term debt 
and post-cut off debt (much of which is owed to France) was needed. 
 
¶11.  (SBU) Creditors debated what type of treatment would be 
appropriate and how to handle different categories of debt, 
including private sector debt.  The Secretariat emphasized that the 
private debt (including $1 billion in arrears) should be considered 
pre-cutoff and therefore subject to deeper debt relief.  At the same 
time, the Secretariat believed that the Club [in effect, France] 
should receive a "major part" of the repayment capacity, to which 
the Ivorian Finance Minister has reportedly agreed.  While the Fund 
pointed out that the 2002 London Club deal had already treated 
private sector debt on HIPC-comparable terms, Club members 
understood that private sector creditors would also need to make 
extra efforts.  In previous reports to the Club, the IMF had 
 
PARIS 00000499  008 OF 020 
 
 
expressed concern that Cote d'Ivoire might no longer qualify for 
HIPC after March 2009.  The Fund revealed that the country would 
still likely have qualified using end-2008 data; detailed analysis 
was pending.  The IMF expected the HIPC "common reduction factor" 
would be just over 23 percent, since the ratio of Cote d'Ivoire's 
debt (net present value) to government revenues, after traditional 
debt relief, was still equivalent to 327 percent. 
 
---- 
Cuba 
---- 
 
¶12.  (SBU) Paris Club creditors last discussed Cuba at the October 
2008 meeting after the authorities signaled interest in discussions 
with the Club.  The authorities had not, however, contacted the 
Secretariat again.  The Secretariat reminded creditors that 
extending new short-term credits was acceptable, but that medium- or 
long-term credits would require discussion in the Club, based on the 
current understanding among creditors. 
 
¶13.  (SBU) Spain reported that Cuba had asked to renegotiate 
short-term debt and open a medium-term line of credit.  At a meeting 
in Madrid, Cuba asked to eliminate short-term debt.  Spain was 
"generous, but not too generous."  Cuba also requested cancellation 
of medium-term debt; Spain refused.  Australia reported receiving an 
 
PARIS 00000499  009 OF 020 
 
 
informal request, through Mexico, for medium-term export financing, 
to which it had not responded.  The Netherlands reported there had 
been bilateral talks in 2008, and there could be a meeting in April. 
 France said there had been political contacts but no economic 
discussions during former Foreign Minister Lang's recent visit. 
Russia indicated that bilateral contacts had progressed 
significantly in recent months, notably with an exchange of 
high-level visits.  An intergovernmental commission had met; Cuba 
had made many requests, including for an ambitious loan program to 
buy agricultural machinery.  The discussions seemed to ignore the 
huge Soviet-era debt problem, where there was "no hint" of a 
solution.  Russia had provided some grants ($7 million for food); 
both sides are discussing $30 million in new grants. 
 
¶14.  (SBU) Paris Club Co-Chairman Coeure stressed solidarity in the 
context of these growing Cuban requests; creditors are free to 
provide grants but should refuse medium- and long-term loans until 
Cuba makes serious efforts to engage on debt. 
 
-------- 
Djibouti 
-------- 
 
¶15.  (SBU) At Italy's request, creditors discussed lack of progress 
in concluding bilateral agreements to implement the October 2008 
 
PARIS 00000499  010 OF 020 
 
 
Agreed Minutes.  In those negotiations, Djibouti attempted to 
exclude certain debts that it alleged were illegitimate, even though 
Djibouti had acknowledged them in the debt data reconciliation 
process.  No creditor reported having signed a bilateral agreement 
ahead of the March 31 deadline.  Italy reported that Djibouti was 
trying to exclude certain interest installments (though not late 
interest) from the agreement, indicating it did not recognize 
interest as part of the agreement.  Spain reported that, while 
Djibouti had not responded regarding commercial debt, the 
authorities had indicated that they expected "better treatment" than 
the signed Paris Club Agreed Minutes.  France reported that Djibouti 
had asked for separate agreements - official development assistance 
(ODA) debt first, followed by an agreement treating commercial debt. 
 France was unwilling to comply.  The German delegate reported that 
she was unaware of problems, that agreement had been reached on 
numbers, and that both sides were looking at the draft text.  The 
Chair said Djibouti deserved a firm letter reminding it of its 
obligations, urging rapid completion of the bilateral agreements, 
but providing an extension.  The Fund reported that the global 
financial crisis had limited impact on Djibouti in 2008, due to the 
country's low level of integration in the world economy; it was 
likely to be felt more acutely in 2009. 
 
------- 
Grenada 
 
PARIS 00000499  011 OF 020 
 
 
------- 
 
¶16.  (SBU) The discussion focused on Grenada's request to extend the 
May 2006 rescheduling by 12 months to match extension of its Fund 
program.  The Club remained concerned about whether the authorities' 
refusal to seek comparable treatment from Kuwait and Trinidad and 
Tobago violated the 2006 Agreed Minutes.  According to the 
Secretariat, the authorities had indicated during the 2006 
negotiations that they did not wish to seek comparable treatment 
from Kuwait, which was providing new assistance in the wake of 
Hurricane Ivan.  At the time, the Paris Club president had also 
stated verbally that comparability of treatment should not be sought 
at all costs. 
 
¶17.  (SBU) The Club must now consider whether it had agreed to this 
exception, since the May 2006 Agreed Minutes only contained explicit 
exclusion of a port debt owed to the Netherlands.  The Dutch 
representative recalled that Grenada's debts to the Netherlands, 
Kuwait, and Trinidad and Tobago were owed by public enterprises. 
The Dutch exclusion, therefore, implied that comparable treatment 
need not include similar loans owed to non-Paris Club creditors. 
The Secretariat agreed to research and confirm its understanding 
that Kuwait's loan was indeed extended to Grenada's central 
government.  No payments were due to Trinidad and Tobago between 
2006 and 2009, according to Grenada, so the May 2006 rescheduling 
 
PARIS 00000499  012 OF 020 
 
 
would not have affected these claims. 
 
¶18.  (SBU) Grenada had argued in a March 4 letter to the Club that 
new concessional lending from Kuwait contained a grant element that 
made it equivalent to comparable treatment; the Club was generally 
dismissive of this argument.  Some creditors called for maintaining 
strict comparability of treatment; one, in particular, cautioned 
against a more flexible definition of comparability, noting 
creditors like China.  Citing the recent failures of Trinidad and 
Tobago's CL Financial Group and the Stanford Group, the IMF argued 
that global developments were impacting Grenada although the banking 
sector seemed resilient.  Given that 2009 would require significant 
fiscal consolidation, with a primary deficit of 2.1 percent of GDP, 
the IMF said that extending the 2006 Paris Club treatment would be 
welcomed. 
 
----- 
Haiti 
----- 
 
¶19.  (SBU) The IMF said its Executive Board had approved on February 
11 the fourth PRGF program review as well as $36 million in 
additional lending capacity for Haiti because of hurricane damage 
and drops in remittance flows and exports.  Reconstruction efforts 
were supporting growth.  Demands for electricity and reconstruction 
 
PARIS 00000499  013 OF 020 
 
 
were driving up the current account deficit.  IMF staff plan to 
visit Haiti shortly to update 2009 projections and examine 
performance on the PRGF program and on HIPC completion point 
triggers.  The Fund's interim view, however, was that macro 
performance through December was fairly good. 
 
¶20.  (SBU) A subsequent early May IMF mission would prepare for the 
fifth PRGF program review, with the hope that completion point could 
come at the same time, around the middle of 2009.  The World Bank 
representative said that it would be completing a country assistance 
strategy by mid-year and noted the letter from members of Congress 
to President Zoellick urging a suspension of all payments.  Bank 
staff promised to follow up in response to the UK's question whether 
Haiti is paying the World Bank.  Haiti is seeking $125 million in 
support at the April 13-14 donors conference in Washington. 
 
---- 
Iraq 
---- 
 
¶21.  (SBU) Creditors reported that Iraq had corrected problems with 
its January 1 payments -- the first due under Iraq's 2004 Paris Club 
treatment -- and was now current.  There was no further information 
on an agreement with the United Arab Emirates allegedly cancelling 
100 percent of Iraq's debt.  In response to a U.S. inquiry, Brazil 
 
PARIS 00000499  014 OF 020 
 
 
indicated that it had "no news" on its bilateral agreement.  When 
Co-Chairman Coeure asked about the GOB's approach, the Brazilian 
delegate replied that the bilateral was not concluded, and she "did 
not know how long it would take."  Coeure commented this was "a 
pity." France stated that press reports from President Sarkozy's 
recent trip, which had suggested that France was planning to swap or 
otherwise treat the remaining 20 percent of its claims, were 
incorrect.  France had no plans to move beyond the treatment already 
provided. 
 
------- 
Jamaica 
------- 
 
¶22.  (SBU) The IMF reported on the deteriorating situation; Jamaica 
could soon need a Fund program and debt treatment.  The IMF recalled 
that Jamaica had long struggled with slow growth (averaging 1 
percent annually since 1991) and debt distress since the 1990s 
banking crisis.  Debt today totals 114 percent of GDP, despite a 
program designed to bring it to 100 percent.  With a narrow export 
base and reliance on energy imports, remittances and foreign 
financing, the interest rates on Jamaica's sovereign bonds had 
soared to 1,000 basis points above the equivalent risk-free rate. 
Moody's had downgraded the country from B1 to B2, but Jamaica had 
managed to make a $200 million Eurobond payment on February 11. 
 
PARIS 00000499  015 OF 020 
 
 
There was little room for countercyclical fiscal policy.  The GOJ 
had not requested an IMF program when Fund staff visited the week of 
March 2.  The Bank noted that Jamaica had received $100 million for 
fiscal and debt service in January, and was expected to receive $300 
million from the Inter American Development Bank for onlending. 
 
---------- 
Seychelles 
---------- 
 
¶23.  (SBU) The Fund reported that a February mission had found 
strong program ownership, with most December 2008 targets met 
despite the external environment's significant deterioration.  The 
IMF was revising its debt sustainability analysis (DSA) based on the 
four scenarios the Club had requested.  The DSA would show debt 
levels to be highly unsustainable and on an explosive path.  The 
Secretariat plans to prepare a working paper and host an early-April 
conference call to discuss the scenarios and ask questions, but not 
take a final decision on the treatment's structure.  There were 
significant misgivings about this procedure; Germany requested a 
summary after the conference call.  South Africa remains interested 
in participating in the negotiation; however, Malaysia will not. 
 
--------- 
Sri Lanka 
 
PARIS 00000499  016 OF 020 
 
 
--------- 
 
¶24.  (SBU) The IMF's briefing indicated that 2009 exports were 
expected to drop about 15 percent, thus increasing further the 
current account deficit.  The government had indicated that it 
intended to seek IMF assistance, and discussions took place during 
the following weeks.  A creditor asked about military spending.  The 
IMF did not expect Sri Lanka to seek debt relief from Paris Club. 
Since the Club had not provided any debt treatment beyond the 
special tsunami relief in 2005, the Club agreed to launch a data 
call in spite of German and Austrian concerns about sending signals 
to markets. 
 
---------------------------- 
Methodological Issue: 
Outreach to Non-PC Creditors 
---------------------------- 
 
¶25.  (SBU) The Secretariat reported on responses to its outreach 
efforts, specifically the January 2009 letter sent to eleven 
non-Paris Club creditors (Abu Dhabi/UAE, Bulgaria, China, India, 
Kuwait, Malaysia, Portugal, Romania, Saudi Arabia, South Africa and 
Turkey).  While no country had yet responded formally, Abu Dhabi/UAE 
and Malaysia had both indicated willingness to share debt data. 
South Africa would like to participate in the upcoming negotiation 
 
PARIS 00000499  017 OF 020 
 
 
with Seychelles and had provided debt data.  A Chinese trade 
ministry official (DAS-level Gao) had told Co-Chairman Coeure during 
the week of March 2, in Beijing, that while unwilling to share data, 
China was willing to continue a dialogue with the Club.  Gao 
indicated the ministry will reply to the Secretariat's letter.  The 
French Embassy in New Delhi had received an informal GOI response, 
but no official statement about sharing information.  Following 
comments by Germany and Italy, the Secretariat promised to review 
the Working Paper, based on the action plan and comments received, 
in time for discussion in April. 
 
¶26.  (SBU) The Secretariat also confirmed that it had discussed with 
the Institute for International Finance (IIF) the next private 
sector outreach meeting, scheduled for mid-2009.  The Secretariat 
intends to invite the non-Paris Club "outreach" countries and would 
like to continue to discuss the difficult topic of so-called 
"vulture funds," with the IIF. 
 
------------------------------- 
Methodological Issue: 
The Financial Crisis and its 
Consequences for the Paris Club 
------------------------------- 
 
¶27.  (SBU) Norway had requested discussion of the crisis to learn 
 
PARIS 00000499  018 OF 020 
 
 
more about G-20 discussions.  The IMF and the Secretariat provided 
their assessment of potentially vulnerable countries that might be 
seen as candidates for Paris Club treatment.  The Fund provided a 
detailed presentation, based on its recent public report "The 
Implications of the Global Financial Crisis for Low-Income 
Countries"(LICs).  While the crisis had initially impacted 
industrial and emerging countries, the Fund believed that LICs would 
increasingly feel the effects through reductions in trade, FDI, aid 
and remittance flows.  Along with the food and fuel shocks of 
2007-8, this "third wave" of the global financial crisis was 
reversing LICs' hard-won poverty reduction gains.  Most remarkably, 
the presentation revealed a sharp downturn in the IMF's outlook for 
LICs since the Fund's Spring 2008 forecast.  GDP growth estimates 
fell by about two percentage points and current account deficits 
rose by about the same amount.  Donors, the Fund argued, needed to 
provide scope for countercyclical fiscal policy in LICs. 
 
¶28.  (SBU) Although the IMF declined to name specific countries when 
the Paris Club discussed the same topic in December 2008, the IMF 
said in March that 22 LICs faced acute financial constraints.  In 
2009, these countries needed $25 billion in additional financing -- 
an amount that could rise considerably higher if downside risks 
materialize: 
 
-- Countries having started but not yet completed the HIPC 
 
PARIS 00000499  019 OF 020 
 
 
initiative:  Chad, Cote d'Ivoire, Guinea, Sudan 
 
-- Countries having started but not yet completed the HIPC 
initiative:  Ghana, Honduras, Madagascar, Malawi, Mauritania, Sao 
Tome, Senegal, Zambia 
 
-- Non-HIPCs:  Angola, Armenia, Cape Verde, Dominica, Moldova, 
Mongolia, Pakistan, Saint Lucia, Sri Lanka, Tajikistan 
 
¶29.  (SBU) The Secretariat's presentation covered both low- and 
middle-income countries that were potential candidates for debt 
treatment.  These included LICs that have started but not yet 
completed the HIPC initiative process, LICs that have completed the 
HIPC process, and middle-income countries that could seek Paris Club 
treatment in the near term.  Some have IMF programs or will have 
Fund programs soon.  Others are being monitored closely because they 
are experiencing foreign reserves stress. 
 
¶30. (U) The next Paris Club meeting is scheduled for April 14-15, 
¶2009. 
 
¶31. (U) For more detailed information on any of the above-mentioned 
countries, please contact EEB/IFD/OMA David Freudenwald or Nicholle 
Manz. 
 
 
PARIS 00000499  020 OF 020 
 
 
¶32.  (U) TRIPOLI MINIMIZE CONSIDERED 
 
PEKALA