This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 13 PARIS 001052 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD 
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 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - JANUARY 2005 TOUR D'HORIZON 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION 
 
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SUMMARY 
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¶1. (U) Following are summaries of country discussions during 
the January 12-13, 2005 Paris Club session.  The Paris Club's 
President, Jean-Pierre Jouyet, chaired the session.  Secretary 
General (SecGen) Emmanuel Moulin represented the Secretariat. 
Representatives of non-Paris Club members Brazil, Israel and 
Korea attended discussions on those countries to which they 
are creditors.  The next session of the Paris Club is 
scheduled for the week of March 7, 2005. 
 
¶2. (U) NOTE: INDIVIDUAL CREDITOR POSITIONS REPORTED IN THIS 
MESSAGE SHOULD BE TREATED AS "PARIS CLUB CONFIDENTIAL" AND 
NOT/NOT DISCUSSED WITH DEBTOR COUNTRY REPRESENTATIVES, NOR 
WITH NON-PARIS CLUB PARTICIPANTS. 
 
¶3. (SBU) Discussed in this session: 
 
Algeria -- Implementation of bilateral agreements 
Angola -- IMF Update (Brazil) 
Argentina -- Perspectives for upcoming negotiation 
       (Israel) 
Chad - IMF update, extension of the current agreement 
Dominican Republic -- IMF Update, comparability of 
     treatment issues, financing assurances 
Haiti -- IMF update 
Honduras -- IMF update 
Iraq -- EDR tables 
Kyrgyz Republic - IMF update, financing assurances 
(Turkey) 
Nigeria -- 2005 debt repayment schedule (Brazil) 
Peru -- buyback, Secretariat report (Brazil) 
Poland -- prepayments (Brazil) 
Russia -- buyback proposal 
Rwanda -- IMF update 
Serbia and Montenegro - - IMF update 
Vietnam -- update 
Zambia -- IMF update 
 
¶4. (U) ACTION/FOLLOW-UP/UPCOMING ITEMS 
Methodology -- Possible publication of rules concerning 
buybacks and prepayments 
 
March negotiation -- Kyrgyz Republic, pending Russian 
financing assurances; Peru buyback 
 
 
April negotiation --potential Honduras, Zambia and Rwanda HIPC 
treatments, potential DR debt rescheduling 
 
TBD negotiation -- Russia buyback 
 
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ALGERIA 
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¶5. (SBU) The IMF rep said the Board was considering that same 
day the results from the 2004 Article IV consultations.  On 
December 21 staff presented its report, with a debt 
sustainability analysis in it. 
 
¶6. (SBU) Russia said its debt is still unsettled after two 
years of talks.  The Algerians do not want to accept the 1995 
Agreed Minute nor the terms of Russia's agreement on joining 
the Paris Club.  Russia still hopes to settle the debt 
pursuant to Paris Club rules, and plans another round of talks 
in the first quarter of 2005.  The Paris Club should not 
accept any buybacks because Russia has not gotten a single 
payment from Algeria in seven years, and should remind Algeria 
to pay up per Paris Club rules.  The UK said it has 1.9 
million in arrears on short-term debt, Algeria is not 
responding, and so it would like to be mentioned in any letter 
too.  Italy said it also has a dispute about old claims, but 
would prefer to be mentioned separately from the Russians. 
Spain said it also has arrears, and will confirm later the 
amount.  Responding to an inquiry from the Netherlands, the 
Secretariat explained that the 1997 Memorandum of 
 
SIPDIS 
Understanding admitting Russia to the Paris Club, provided it 
would grant an upfront discount of 35 percent to its eligible 
debtors, up to 65 percent for those countries to which Russia 
was the biggest military supplier.  Algeria contends Russia 
was its biggest military supplier, but never provided any 
proof.  The Secretariat proposed that Algeria send its data to 
the Secretariat for verification. 
 
¶7. (SBU) The President noted the consensus to have the 
Secretariat draft separate letters reminding Algeria to clear 
 
SIPDIS 
its arrears and proposing settlement of the Russian claims 
with verification through the Secretariat. 
 
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ANGOLA 
------- 
¶8. (SBU) The IMF reported that staff plan to visit on January 
19; this trip is pending IMF receipt of GOA financial 
documents on SONANGOL and details about external debt 
negotiations with bilateral creditors.  Economic performance 
has improved; on the debt side, Portuguese banks opened a 
credit line for USD 100 million on November 19, and the GoA is 
talking to Bulgaria about its USD 68.8 million debt and with 
Hungary on its USD 5.7 million debt (as of June 2004).  The 
World Bank rep said the Bank hopes to present a strategy on 
February 17, conditioned on an IMF agreement and conclusion of 
a Poverty Reduction Strategy Paper (PRSP). 
 
¶9. (SBU) The Secretariat said it had contacted the GoA Finance 
Minister late last year, and had said the Secretariat would be 
available to explain Paris Club rules and expectations.  The 
Finance Minister had welcomed the call, and arranged for a 
delegation to visit Paris on January 17. 
 
¶10.  (SBU) Spain expressed its thanks for the Secretariat's 
actions. 
 
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ARGENTINA 
--------- 
¶11. (SBU) The IMF indicated it had seen press reports that the 
GoA is considering not continuing with an IMF program after 
its private bond exchange is completed, but has had no 
official word.  The President of the Paris Club proposed 
delaying action on a letter to the GoA until the close of the 
GOA's bond exchange. 
 
¶12. (SBU) Germany said since it had been the one to originally 
propose sending a letter, it wants to make the point that 
Argentina has made no payments for three years thus turning it 
into a de facto deferral.  It is necessary to demand payment. 
It is not very happy to delay a letter for another 6 to 8 
weeks.  Argentina does not want another IMF program.  It wants 
to pay the remaining balance of its obligations to the Fund 
and then end its relationship with the IMF.  Without a 
program, the Paris Club does not reschedule debt, and so it 
would not be possible to invite the GoA for a negotiation. 
 
¶13.  (SBU) Noting the acquiescence among creditors, the 
President said he would have the Secretariat circulate a draft 
letter in a few weeks.  The IMF added that the Argentine debt 
offering is expected to close on February 25; absent any 
official notification to the contrary, the Fund does expect 
the GOA to request a resumption of IMF support due to the 
large amount coming due to the IMF in 2005. 
 
---- 
CHAD 
---- 
¶14. (SBU) The Chair reminded creditors that Chad reached its 
HIPC decision point in May 2001 but went off track of its 
PRGF; Cologne terms are possible if it gets back on track. 
The IMF reported that talks began in August for a PRGF.  The 
GoC has taken a range of measures.  In November 2004, 
agreement was reached for a 3-year program at 45 percent of 
quota.  Executive Board discussion is scheduled February 7. 
Staff indicated the GoC has completed all prior actions 
including clearance of arrears on non-rescheduable debt.  The 
GoC also made progress on HIPC triggers, and has said it will 
do everything possible to get to HIPC completion point in 
¶2005.  Its economic performance is much better thanks to high 
oil income.  It will be stabilizing by 2023 at a debt to 
export ratio around 85 percent.  The Secretariat closed the 
discussion with the observation that good economic performance 
does not alter HIPC triggers. 
 
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DOMINICAN REPUBLIC 
------------------ 
¶15. (SBU) The IMF reported that late last month, Fund 
management approved a memorandum of economic policy.  The GoDR 
requested a 28-month Standby Arrangement at 85 percent of 
quota, canceling the current standby.  Assuming the Paris Club 
agrees to financing assurances, staff will prepare a memo for 
Board consideration on January 31.  The GODR reports it 
completed all 16 required prior actions listed in the staff 
report.  A rescheduling is required due to deficits on the 
fiscal side with debt servicing obligations, not problems with 
the balance of payments.  It needs a USD 800 million package, 
sourced from bond restructuring, private sector debt 
restructuring, IDB funds, a concessional deal from Venezuela, 
banks, and the Paris Club.  The GoDR claimed to have made 
payments to eliminate its stock of arrears.  It is 
implementing its bond restructuring.  It did a road show to 
meet with commercial banks, which reacted amenably.  It is 
preparing a prospectus for bondholders for an exchange offer 
to be presented over the next few weeks.  The World Bank rep 
stated that the Bank had approved an adjustment loan in 2004, 
and it is engaged in talks now on a new country assistance 
strategy that would go to the Board in May or June 2005. 
 
¶16. (SBU) The Secretariat reviewed the timetable, and urged 
the Paris Club to avoid last year's scenario, where 
comparability of treatment (CoT) proved elusive.  The 
Secretariat urged financing assurances be conditioned on CoT, 
 
SIPDIS 
and/or it could envision financing assurances granted only for 
the first year to see what might be the results. 
 
¶17.  (SBU) The USDEL noted that the GoDR still had a very 
small amount of arrears that had not been cleared; endorsed 
conditioning financing assurances on CoT and putting them on a 
one-year leash; and inquired whether the financing gap may be 
somewhat smaller due to likely additional private financing 
that the GODR had secured. 
 
¶18. (SBU) Spain reported the GoDR had arrears last year of USD 
16 million, now the amount is only one million.  It is wise to 
link financing assurances to CoT plus clearance of arrears 
plus a one-year limit. 
 
¶19. (SBU) The UK reported all arrears cleared, and all its 
claims are post-ccod so it would be participating in the 
upcoming negotiation only as an observer. 
 
¶20. (SBU) Canada reported USD 200,000 arrears, and agrees with 
Spain on the proposals regarding financing assurances. 
 
¶21. (SBU) Norway has a problem with the DR, since it has a 
loan in technical default for a dam project.  Negotiations 
continue, with hopes for conclusion in February, but if the 
dispute is not settled Norway will have considerable claims in 
default: USD 35 million.  It agrees with Spain on financing 
assurances, and does not want to invite the GoDR to 
negotiations if arrears exist. 
 
¶22. (SBU) Japan has USD 6 million in arrears; supports the 
three conditions on financing assurances. 
 
¶23. (SBU) Italy has 2.3 million arrears about to be paid, 
[which the GODR says it will paid shortly].   Its claims are 
only post-ccod, so it would be participating in the upcoming 
negotiation only as an observer. 
 
¶24. (SBU) Sweden has only post-ccod debt, and agrees with 
Norway.  The GOS is also a partner in the dam project with 
Norway, which has not been settled yet. 
 
¶25. (SBU) Germany has two small accounts in arrears, and 
supports the three conditions on financing assurances. 
 
¶26. (SBU) France agrees to the three conditions, and has 12 
million euros in technical arrears. 
 
¶27. (SBU) Responding to the inquiry about the size of the 
financing gap, the IMF confirmed that due to better fiscal 
performance, the gap will be about USD 327 million, since the 
non-financial sector public balance was 80 million stronger 
than anticipated.  IDB funds are 50 million higher in 2005, 
somewhat offsetting a 20 million decrease resulting from a 
shift in benefits to 2006 of certain benefits from the 
Venezuelan deal. The commercial bank deal has not 
materialized.  The IMF raised practical questions, namely, 
does the exchange offer need to close for CoT, and given that 
the IMF does not tolerate arrears to official creditors, if 
financing assurances are for 2005 only, would the Paris Club 
have two negotiations? 
 
¶28. (SBU) The Secretariat aligned itself with the USDEL 
remarks, saying creditors need a better idea of the 2006 
financing gap.  A March invitation would be premature; April 
might be better to give creditors a chance to learn the 
evolution of the exchange offer. 
----- 
HAITI 
----- 
¶29. (SBU) The IMF said an EPCA was prepared on January 10, in 
part based on Paris Club forbearance.  If security permits, a 
mission will return the week of January 17 to assist with 
institution building and lay the groundwork for a program. 
 
¶30.  (SBU) In the absence of the World Bank rep, the 
Secretariat reported for the World Bank that all arrears were 
 
SIPDIS 
cleared on January 6, thanks to a Citibank loan.  Immediately 
thereafter the World Bank approved assistance of USD 61 
million for reconstruction and USD 12 million for natural 
resource management, 51 percent in grant form. The Secretariat 
will await the EPCA.  It indicated some creditors (e.g., 
France) have indicated they will not apply penalties in 
recognition of the political turmoil. 
 
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HONDURAS 
-------- 
¶31. (SBU) The IMF reported a mission will visit in late 
January to discuss a second PRGF review, HIPC triggers, and 
Article IV consultations.  March may be too early for a Paris 
Club negotiation since the Board is not likely to discuss 
Honduras until just after the Paris Club session. 
 
¶32. (SBU) The Secretariat suggested it would try to schedule 
Honduras for a negotiation in April. 
 
---- 
IRAQ 
---- 
¶33. (SBU) The Chair invited creditors to attend the 
information session scheduled the following day for non-Paris 
Club creditors. 
 
¶34. (SBU) The USDEL reported it had signed its bilateral 
agreement with the IIG, and had cancelled 100 percent of Iraq 
debt upfront, with no further obligations.  On the EDR tables, 
the USDEL still has concerns about the methodology, and hopes 
to circulate a paper by the next session. 
¶35. (SBU) The Chair noted the methodology is the same as that 
used for the HIPC countries, and proposed that the tables be 
initialed, de-linking them from later methodological 
discussions.  Creditors agreed.  In a parting observation, the 
Chair noted that canceling all debts is on the margin of 
acceptable Paris Club behavior, since normally conditionality 
is observed, and creditors wait until other creditors 
implement their accords. 
--------------- 
KYRGYZ REPUBLIC 
--------------- 
¶36. (SBU) Russia blocked financing assurances for the Kyrgyz's 
follow-on PRGF and request for an extension Kyrgyz's 
consolidation period (to correspond with the extension of the 
current PRGF).  Russia would not agree to extend the 
consolidation period or financing assurances, demanding that 
Kyrgyz first clear $220,000 in arrears to Russia.  The 
Secretariat pointed out the inconsistency of Russia's 
 
SIPDIS 
position: by agreeing to extend the consolidation period, 
Russia was effectively folding the arrears into the previous 
rescheduling.  The Russian delegate said he would check with 
Moscow and get back to the Secretariat to confirm Russia's 
position.  In the meantime, the IMF plans to issue the staff 
paper for the follow-on PRGF in late January or early February 
(the paper will indicate that financing assurances are still 
pending).  Assuming financing assurances are in place, Kyrgyz 
will be invited to the March Paris Club meeting, at which time 
creditors will negotiate the terms of a stock treatment.  Most 
creditors seemed amenable to a significant concessional stock 
treatment, but wanted the IMF to provide further analysis on 
alternative debt reduction scenarios (for example, under 
London and Toronto terms). 
 
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NIGERIA 
------- 
¶37. (SBU) The IMF reported it will hold Article IV 
consultations on March 4, and will do a new debt 
sustainability analysis.  After the 2005 budget is approved, 
staff will visit Abuja to help the GoN design a new 
macroeconomic policy framework. 
¶38. (SBU) The Secretariat reported on its preliminary meeting 
on allocating 2005 payments, and noting it wished to avoid 
airing the arguments again, said it would work on a proposal 
to see how increased payments under the 2004 formula might 
satisfy all creditors (although the GON has not agreed to 
increase payments above the $1B threshold). 
 
¶39. (SBU) Determined to air its objection, Germany said it is 
unwilling to return to the 2004 compromise.  It is not at all 
optimistic that increased payments are likely, given the vague 
answer from the Nigerian Finance Minister the day before.  It 
can, however, go along with the Secretariat proposal.  The 
Netherlands and Italy took the same position as Germany. 
Germany added that it would like to hear more at the next 
session about how Nigeria's NEEDS program would compare to an 
upper credit tranche Fund programsince conditionality is a big 
deal for the Paris Club.  The IMF rep commented that its rules 
on enhanced surveillance have been made much more specific 
since the Finance Minister departed her employment at the WB. 
Further, the IMF rep stated for the record that the Fund's 
agreement on enhanced surveillance for Nigeria was not an 
"endorsement" of the GON's program as equivalent to the usual 
upper credit tranche program, which is required for a Paris 
Club treatment. 
 
¶40. (SBU) The Chair noted the consensus on procedure, and 
directed the Secretariat to crunch the numbers and have a 
working paper ready for the next session. 
 
---- 
PERU 
---- 
¶41. (SBU) The IMF reported a mission would visit in mid 
February for a second review under the current precautionary 
standby arrangement.  The World Bank reported that the economy 
is doing well; the main risk is political. 
 
¶42.  (SBU) The Chair reported on the Peruvian request for a 
buyback.  It has offered USD 1.5 billion for previously 
rescheduled debt, to reduce its debt profile, by the second 
half of 2005.  It proposes a March negotiation. The key is 
methodology.  Peru argues the right price is net present 
value, but the rate includes three components: political risk, 
country spread, and a liquidity premium for cash.  Peru wants 
to cap the buyback price at par.  For the Paris Club, a 
liquidity premium is debatable, and not consistent with the 
appropriate market rate.  Essentially, Peru wants a 
rescheduling of its debt without rescheduling.  The Chair 
circulated a draft reply. 
 
¶43. (SBU) Spain agreed there is no case for a liquidity 
premium.  It is not sure about a cap at face value, since 
giving a choice between a buyback and prepayment leads to the 
same thing as a cap.  The Secretariat argued that the problem 
is that a cap allows Peru to select among creditors.  If a cap 
is put on the price, than those creditors with higher rates 
are penalized.  That is why a market rate is needed, so that 
the terms are the same for all, with creditors free to accept 
or refuse. 
 
¶44. (SBU) The Chair noted the consensus to send the letter to 
Peru. 
 
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POLAND 
------ 
¶45. (SBU) The IMF had nothing to add.  The Secretariat noted 
that the Poles made an offer, and that it had communicated to 
them the methodology agreed upon in the December session.  The 
Poles now need to know who is participating so they can 
prepare financials.  So far, the Secretariat has not told them 
who is participating per the Belgian request. 
 
¶46. (SBU) France still has no position about participation. 
Italy will not participate.  Canada has two agencies that will 
participate, but its Wheat Board will not.  Finland will 
participate.  The UK intends to participate but does not yet 
have authorization; it hopes to get it within a week.  Sweden 
will participate.  The USDEL said it might participate. 
Norway said it still knows nothing, requested a deadline, and 
asked what to do with debt for ecology swaps.  Spain does not 
know yet.  Denmark will have an answer in a week. 
 
¶47. (SBU) Jouyet set a deadline of January 21 for creditors to 
advise the Secretariat whether they are in or out of the 
prepayment arrangement. 
 
------ 
RUSSIA 
------ 
¶48. (SBU) An anticipated negotiation to effect Russia's 
proposal to buy back as much as USD 12 billion of debt owed to 
Paris Club creditor countries did not take place as Russia 
abruptly called for a postponement.  The Russian head of 
delegation explained that there were still big differences 
between Russia and its creditors regarding the general 
parameters for negotiating the buyback operation, but hoped to 
be able to narrow them over the next several weeks to make a 
negotiation possible. 
 
------ 
RWANDA 
------ 
¶49. (SBU) The IMF reported that a mission is working on a 
fourth PRGF review (not complete), and got agreement on a 
medium-term framework.  Its program is on track but there are 
issues about 2005 spending.  There is too much non-essential 
spending, e.g., a hotel project, loans to civil servants, new 
aircraft purchases.  If the fourth review is successfully 
concluded, staff could bring Rwanda to the Board in late March 
for a decision on completion point.  Much of the technical 
work on a debt sustainability analysis has already been 
completed.  Preliminary analysis indicates a significant need 
for topping up. 
 
--------------------- 
SERBIA AND MONTENEGRO 
--------------------- 
¶50. (SBU) While the IMF has some concerns about the current 
account deficit and inflation, the GoS&M have adopted a policy 
package to address the concerns, which has led to substantial 
fiscal tightening.  Presentation of the fifth review and 
Article IV consultations is scheduled for the Board in April. 
 
¶51. (SBU) Russia reported Serbia has USD 1.68 million in 
arrears, and asked if the Secretariat would prepare a letter 
reminding Serbia to clear arrears. 
 
¶52. (SBU) The Chair, noting the consensus, directed the 
Secretariat to prepare a letter. 
 
SIPDIS 
 
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VIETNAM 
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¶53. (SBU) The IMF reported that the 3rd PRGF expired April 
¶2004.  No follow-up program was contemplated.  The Board 
discussed Article IV consultations on November 22, 2004. 
Vietnam is not a HIPC-eligible country so there is no follow- 
up on the debt side.  Its NPV debt to export ratio is 39 
percent according to 2003 data. 
 
¶54. (SBU) Norway reported that on November 2, 2004, it signed 
a declaration of intent to do a debt for development swap, 
probably including debt forgiveness.  They have invited the 
International Fund for Agricultural Development to 
participate.  The beneficiary is a decentralized agricultural 
board.  The deal covers all claims, which total USD 5.7 
million.  All are non-ODA commercial export credits, all 
development-oriented.  All will be forgiven if Vietnam spends 
all on development.  This will be one single transaction to 
fund two years of the program.  Norway hopes to conclude the 
transaction in February or March. 
 
¶55. (SBU) Under the existing standard debt swap provision, 
creditors are limited to the amount of non-concessional debt 
they can be included in a debt swap operation.  The 
Secretariat noted that Norway had exceeded that threshold, 
 
SIPDIS 
however no creditors objected.  The Chair thanked Norway for 
the information. 
 
------ 
ZAMBIA 
------ 
¶56.  (SBU) The IMF reported that there is a fairly high 
probability of reaching HIPC completion point in March. A 
mission to conduct the 2nd review under its PRGF is scheduled 
at the end of January.  The program is on track so there 
should be no hold up at the Board meeting.  Nevertheless, 
there is one complication regarding data.  Zambia has a 
serious debt management problem.  During an October conversion 
of debt management software, large amounts of data were wiped 
out and totally lost.  Reconciliation is ongoing, and the IMF 
hopes to have an accounting basis upon which to complete its 
debt sustainability analysis.  The IMF hopes the Club can help 
with the reconciliation process, particularly regarding US 
PL480 loans and Japan. 
 
¶57. (SBU) Russia said it has considerable arrears, totaling 
USD 30.7 million in post-ccod from October 2004 maturities. 
In June 2004, the Club agreed to extend the 2002 Agreed Minute 
to June 2005, if all arrears are paid; therefore the debtor 
should be informed to clear its arrears. It also asked if 
topping up would be needed; the IMF replied probably not. 
 
¶58.  (U) Baghdad minimize considered. 
LEACH