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

UNCLAS SECTION 01 OF 05 PARIS 000456 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD/OMA 
TREASURY FOR DO/IDD AND OUSED/IMF 
SECDEF FOR USDP/DSAA 
PASS EXIM FOR CLAIMS -- EDELARIVA 
PASS USDA FOR CCC -- ALEUNG/DERICKSON/KCHADWICK 
PASS USAID FOR CLAIMS 
PASS DOD FOR DSCS -- PBERG 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT: PARIS CLUB - JANUARY 2006 TOUR D'HORIZON 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION 
 
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SUMMARY 
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¶1. (SBU) At the January 18 Paris Club meeting, creditors 
agreed to raise Jordan's debt swap ceiling from 30% to 40%. 
The US and UK were the most vocal advocates, arguing that 
Jordan was an important ally facing serious economic 
vulnerabilities despite progress implementing key economic 
reforms.  Creditors welcomed Brazil's offer to prepay its 
1992 previously rescheduled debt.  Russia announced that it 
could not provide financing assurances for Cambodia's new 
PRGF due to an ongoing bilateral debt dispute.  The US 
expressed optimism that its own bilateral debt dispute with 
Cambodia would be resolved soon.  At a separate meeting, G-7 
debt experts agreed that Russia's proposal to link a further 
prepayment of its debt to increased contributions to the 
World Bank's International Development Association (IDA) was 
unworkable in its current form.  However, the G-7 is willing 
to explore creative solutions for providing Russia the 
political cover it needs to make a substantial contribution 
to IDA.  Other countries on the agenda included Angola, 
Argentina, China, Iraq, Nigeria, Sao Tome and Principe, 
Serbia Montenegro, and Sierra Leone.   END SUMMARY. 
 
ANGOLA 
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¶2.  (U) Creditors discussed the Secretariat's working paper 
on preconditions and modalities of a possible future debt 
treatment for Angola.  Several creditors commented that it 
was premature to discuss modalities at this time, and that 
it was more important to focus on restoring intercreditor 
equity and convincing Angola to cooperate with the IMF.  The 
Secretariat agreed to contact the authorities informally to 
 
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try to gauge their interest in normalizing relations with 
the Paris Club, and to convey creditors' willingness to 
treat Angola's debt in the context of an upper credit 
tranche IMF program (without getting into the specifics of a 
such a treatment).  Creditors decided to hold off on sending 
a formal letter to the authorities until more information is 
known about their intentions. An IMF Article IV mission is 
scheduled to go to Luanda in February or March. 
 
ARGENTINA 
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¶3.  (U) The Secretariat will reach out informally to the 
authorities to try to determine their intentions vis--vis 
the Paris Club.  To date, the Secretariat has not been 
contacted by the new economic team, notwithstanding rumors 
in the press that Argentina may be considering a Paris Club 
repayment.  The US commented that a full prepayment seemed 
unlikely given the current level of reserves.  At the 
suggestion of the US, the Secretariat agreed to launch a 
data call to determine the amount Argentina owes to Paris 
Club creditors. 
 
BRAZIL 
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¶4.  (U) Creditors welcomed Brazil's offer to prepay its 1992 
previously rescheduled debt, provided Brazil first clears 
arrears reported by Canada, the Netherlands, and France. 
Japan is the largest creditor (390 million dollars 
outstanding), followed by France (326 million euros), 
Germany (318 million euros), and the United States (154 
million dollars).  Germany said its participation was 
uncertain; Japan and Sweden said it would be difficult to 
meet Brazil's compressed timetable.  The Secretariat has 
prepared a response to the authorities. 
 
CAMBODIA 
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¶5.  (SBU) The IMF said it was close to finalizing a new 
Poverty Reduction and Growth Facility (PRGF) for Cambodia, 
for which financing assurances would be needed from the 
Paris Club - preferably by email, rather than waiting for 
the March meeting.  Russia announced (to the surprise of 
others) that it was not in a position to provide financing 
assurances at this time due to an ongoing dispute with 
Cambodia that continues to delay conclusion of a bilateral 
agreement implementing the 1995 Paris Club agreed minute. 
(The dispute relates to what interest rate Russia should 
charge on rescheduled post-cutoff debt.)  The US said it was 
prepared to provide financing assurances as soon as Cambodia 
agrees on the amount of debt owed to the US.  The 
Secretariat concluded that creditors would revisit this 
 
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issue once both disputes had been settled. 
 
CHINA 
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¶6.  (U) Responding to creditors' desire to learn more about 
China's external creditor status, the IMF reported that it 
had designed a questionnaire and passed it to the 
authorities during a recent staff mission.  The authorities' 
reaction, however, was guarded, and the Fund believes it 
would be helpful if the Paris Club followed up.  The 
Secretariat said Paris Club Chairman Musca would try to 
 
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contact his Chinese counterpart. 
 
IRAQ 
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¶7.  (U) Seven creditors - Australia, Finland, Korea, the 
Netherlands, Russia, Sweden, and the UK - have yet to sign 
their bilateral agreement with Iraq implementing the 2004 
agreed minute.  Korea and Russia appear to be the farthest 
from completion; the other five creditors expect to finalize 
their bilateral agreements in the near future.  The 
Secretariat provided an update on Iraq's progress in 
 
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obtaining comparable treatment from non-Paris Club sovereign 
creditors and commercial creditors. 
 
JORDAN 
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¶8.  (SBU) Creditors agreed to raise Jordan's debt swap 
ceiling from 30% to 40%.  Several creditors (Belgium, 
Canada, Denmark, Japan, Netherlands, Norway, Sweden, 
Switzerland) expressed skepticism about the efficacy and 
fairness of debt-for-equity swaps, and raised concerns about 
setting an unwanted precedent.  The US and UK countered that 
Jordan was an important ally facing serious economic 
vulnerabilities despite progress implementing key economic 
reforms.  Germany offered a compromise solution by proposing 
an increase in the debt swap ceiling to 40%, rather than 50% 
as requested by Jordan.  The Secretariat noted that the UK 
and France are the only two creditors to have reached the 
existing 30% ceiling.  The Netherlands mentioned its 
surprise that the Jordanians were so well informed about 
creditor positions, when Paris Club talks are supposed to be 
confidential among creditors.  Separately, creditors agreed 
 
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to extend the consolidation period of Jordan's current Paris 
Club arrangement. 
 
NIGERIA 
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¶9.  (U) Belgium, Brazil, Finland, France, Germany, Italy, 
the Netherlands, Switzerland, the US, and the UK confirmed 
that they have signed their bilateral agreements with 
Nigeria implementing the 2005 agreed minute.  Japan said it 
expects to sign soon.  Belgium, France, Germany, Italy, the 
Netherlands, Switzerland, and the UK have already drawn the 
first and second tranche payments deposited by Nigeria at 
the BIS.  The US reported that its bilateral agreement with 
Nigeria would enter into force on January 20, at which time, 
it would request the transfer of amounts held for the US in 
escrow at the BIS.  Separately, creditors reacted 
unfavorably to a letter from Nigeria's Debt Management 
Office requesting creditors to consider debt-for-equity 
swaps instead of cash payments.  The Secretariat will draft 
a negative response. 
 
RUSSIA 
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¶10.  (SBU) G-7 debt experts exchanged similar views on 
Russia's prepayment/IDA proposal.  Participants welcomed 
another Russian prepayment in the Paris Club (though Germany 
and France expressed uncertainty about their participation) 
and were encouraged by Russia's offer to contribute up to 
500 million dollars to IDA.  At the same time, participants 
said their budget laws precluded any direct link between 
Paris Club prepayments and contributions to IDA, and no 
country was willing to reopen the level or nature of its IDA 
commitment.  The US clarified that it was not fully on board 
with the Russian proposal (as some had been led to believe), 
but was open to adapting the proposal.  Other participants 
agreed that it was worth thinking creatively to find 
language that would give Russia the political cover it is 
seeking, though France was skeptical that vague statements 
would suffice.  In addition, France was concerned about the 
prospect of the G-7 presenting another Russian prepayment as 
a fait accompli to the non-G-7 members of the Paris Club. 
 
SAO TOME AND PRINCIPE 
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¶11.  (U) STP has yet to rectify payment problems with its 
Paris Club creditors.  Russia reported that it had 
reimbursed STP for amounts overpaid, but Spain and France 
remain underpaid.  The Secretariat will prepare a letter to 
the authorities.  (The US is not a creditor.) 
 
SERBIA MONTENEGRO 
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¶12.  (U) The final review of Serbia's IMF Extended Fund 
Facility (EFF) is scheduled to come to the IMF Executive 
Board on February 1, provided the authorities complete one 
remaining prior action (related to fiscal measures to be 
taken if the 2005 fiscal outcome falls short of the program 
target).  The final tranche of debt reduction (15%) 
associated with the November 2001 agreed minute is 
contingent on completion of the review. 
 
SIERRA LEONE 
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¶13.  (U) Creditors agreed to provide financing assurances 
for Sierra Leone's new PRGF, expected to come to the IMF 
Executive Board in February.  Once the program is approved, 
creditors will resume interim Heavily Indebted Poor 
Countries (HIPC) relief retroactive to June 2005, when the 
previous PRGF expired.  The IMF said HIPC completion point 
could be reached in the second half of this year. 
 
PARIS CLUB HANDBOOK AND DEBT SWAPS REPORT 
----------------------------------------- 
¶14.  (U) The Secretariat distributed a preliminary glossary 
of Paris Club terms for creditors' comment.  The US is the 
only country to have provided comments thus far.  The 
Secretariat will distribute a revised debt swap report to 
 
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creditors by email. 
 
STAPLETON#