VZCZCXYZ0005
PP RUEHWEB

DE RUEHNC #1692 2721314
ZNR UUUUU ZZH
P 291314Z SEP 06
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6974
INFO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0031
RUEHTH/AMEMBASSY ATHENS PRIORITY 3679
RUEHLO/AMEMBASSY LONDON PRIORITY 1241
RUEHHE/AMEMBASSY HELSINKI PRIORITY 0382
RUEHBS/USEU BRUSSELS PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS NICOSIA 001692 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EAID PREL IZ CY
SUBJECT: CYPRUS EXTENDS FULL DEBT RELIEF TO IRAQ 
 
REFS: (A) 05 NICOSIA 958, (B) 05 NICOSIA 433, (C) 05 NICOSIA 88, (D) 
05 STATE 8646 
 
(U) This cable is sensitive but unclassified -- please protect 
accordingly. 
 
¶1.  (U) Summary. The Government of Cyprus (GOC) and the Government 
of Iraq agreed on a full, mutual debt cancellation at the recent 
meeting of the General Assemblies of the IMF and World Bank in 
Singapore.  As part of the agreement, Cyprus forgave Iraqi debts to 
the GoC and Cypriot firms of an estimated CYP 40 million (USD 88 
million).  In exchange, Iraq forgave the debts of 3 Cypriot-based 
companies (USD 7.1. million plus interest) for unpaid oil shipments 
dating from 1990. (Reftels).  End Summary. 
 
¶2.  (SBU) On September 27, the local press reported that Cyprus had 
officially cancelled all Iraqi debts as part of the island's 
continual support to the war-torn country's reconstruction.  Working 
level Ministry of Finance and MFA officials appeared to be caught by 
surprise and knew few of the details although they were able to 
confirm to us that Cypriot Foreign Minister Lilikas, Cypriot Finance 
Minister Sarris, Iraqi Foreign Minister Zebari and Iraqi Finance 
Minister Jabbr has signed the agreement during last week's meeting 
of the General Assemblies of the World Bank and IMF. 
 
¶3.  (SBU) Cyprus is reportedly the fourth country to cancel 100 
percent of Iraqi debt following the U.S., Malta, and Slovenia.  The 
debt cancellation agreement exceeds the 80 percent debt reduction 
urged by the Paris Club.  According to Finance Ministry sources, the 
total Iraqi debt to Cyprus (both private and public) was estimated 
at CYP 40 million, a significant portion of which was made up of 
Iraqi debts to Cypriot manufacturers covered by GOC state guarantees 
incurred in the 1980s.  The agreement also covers the debt of 
Cyprus-based oil companies to the Iraqi State Oil Marketing 
Organization (SOMO) for unpaid oil exports to Cyprus in 1990, valued 
at USD 7.1 million plus interest.  According to the MFA, the exact 
extent of the debt forgiven will be calculated and released over the 
next few weeks. 
 
¶4. (SBU) Finance Minister Sarris confirmed the existence of the 
agreement to the Ambassador on September 29.  Sarris noted that the 
agreement had come around partly because he was seated next to the 
Iraqi Finance Minister Jabbr on the Dubai-Singapore leg of his 
flight to the conference.  Jabbr had been reluctant to approve 
off-setting the Cypriot debt to Iraq against the Iraqi debt to 
Cyprus out of fear of setting a precedent, but had agreed in the 
end.  The agreement comes after several years of regular Embassy 
demarches urging the GOC to cancel the Iraqi debt and ensure 
repayment of all monies owed to Iraq. 
 
SCHLICHER