VZCZCXRO8942
RR RUEHGI RUEHPOD
DE RUEHFR #7835/01 3531347
ZNR UUUUU ZZH
R 191347Z DEC 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 3845
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6470
RUEHSW/AMEMBASSY BERN 1870
RUEHBR/AMEMBASSY BRASILIA 1733
RUEHBS/AMEMBASSY BRUSSELS 5972
RUEHBY/AMEMBASSY CANBERRA 1659
RUEHCP/AMEMBASSY COPENHAGEN 1408
RUEHHE/AMEMBASSY HELSINKI 1252
RUEHLO/AMEMBASSY LONDON 6358
RUEHMD/AMEMBASSY MADRID 2493
RUEHMO/AMEMBASSY MOSCOW 5698
RUEHNY/AMEMBASSY OSLO 1435
RUEHOT/AMEMBASSY OTTAWA 2011
RUEHRO/AMEMBASSY ROME 8134
RUEHUL/AMEMBASSY SEOUL 1376
RUEHSM/AMEMBASSY STOCKHOLM 1457
RUEHTC/AMEMBASSY THE HAGUE 2634
RUEHKO/AMEMBASSY TOKYO 2413
RUEHVI/AMEMBASSY VIENNA 1647
RUEHBS/USEU BRUSSELS 1863
RUEHLU/AMEMBASSY LUANDA 0802
RUEHBU/AMEMBASSY BUENOS AIRES 1333
RUEHGI/AMEMBASSY BANGUI 0031
RUEHPU/AMEMBASSY PORT AU PRINCE 0700
RUEHGB/AMEMBASSY BAGHDAD 0543
RUEHVN/AMEMBASSY VIENTIANE 0032
RUEHPOD/AMEMBASSY PODGORICA 0001
RUEHBW/AMEMBASSY BELGRADE 0724
RUEHPL/AMEMBASSY PORT LOUIS 0829
RUEHFN/AMEMBASSY FREETOWN 0430
RUEHKH/AMEMBASSY KHARTOUM 0131
RUEHPO/AMEMBASSY PARAMARIBO 0033

UNCLAS SECTION 01 OF 06 PARIS 007835 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
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 - DECEMBER 2006 TOUR D'HORIZON 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION 
 
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SUMMARY 
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¶1.  (SBU) At the December 12-13 meeting of the Paris Club, creditors 
provided Haiti a debt restructuring based on its achievement of 
decision point under the Heavily Indebted Poor Countries (HIPC) 
initiative.   This agreement consolidates around USD 69 million in 
debt, and will lead to the immediate cancellation of USD 7.2 
million.  The US will forgive 100% of debt service falling due 
between HIPC decision point and completion point, as long as Haiti 
performs satisfactorily on its IMF Poverty Reduction and Growth 
Facility (PRGF).  In a surprising development, Angola has begun 
making significant arrears payments to its Paris Club creditors. 
Moreover, the country appears to be moving closer to reaching an 
agreement with the IMF on a Stand-By Arrangement (SBA).  If an SBA 
is approved, Angola may ask the Paris Club to forgive USD 1.8 
billion in late interest.  (Angola has no arrears and owes no late 
interest to the US.)  Creditors agreed on a written response to a 
letter from Argentina expressing its desire to normalize relations. 
The response was rendered devoid of any substance by Italy, which 
continues to cite domestic sensitivities related to holdout 
bondholders.  Based on preliminary indications from the authorities, 
and considering the positions of Paris Club creditors, it appears 
unlikely that Argentina's situation will be resolved in the near 
term.  Other countries on the agenda included the Central African 
Republic, Iraq, Laos, Serbia Montenegro, Seychelles, Sierra Leone, 
Sudan, and Suriname.  END SUMMARY. 
 
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ANGOLA 
------ 
¶2.  (U) In a surprising development, Angola has gone well beyond its 
commitment to make a USD 100 million goodwill payment toward its 
Paris Club arrears and has begun making significant additional 
payments.  Japan and Norway reported that all arrears have been 
cleared (excluding late interest), while several other countries 
said a large portion of their arrears have been cleared.  Denmark, 
France, Spain, and Switzerland, on the other hand, have not received 
any payments beyond their share of the goodwill payment.  Angola has 
also fulfilled its commitment to resume debt service on maturities 
falling due following a delay due to technical problems.  The IMF 
said that, following a recent staff mission, an SBA is being 
considered at the presidential level and could be brought to the IMF 
executive board as early as February.  Staff reports that the 
government has included in its 2007 budget USD 2.3 billion in 
payments to the Paris Club, an amount equal to total Paris Club 
 
PARIS 00007835  002 OF 006 
 
 
arrears excluding late interest. 
 
¶3.  Although some creditors complained about unequal treatment, 
Paris Club Chairman Musca stressed the positive:  Angola has gone 
well beyond its previous commitment to make a $100 million payment 
and resume debt service; it appears to be on track to get an IMF 
program; and its unequal treatment of creditors is most likely due 
to technical shortcomings rather than a deliberate attempt to 
discriminate among creditors.  The secretariat said it would follow 
up with the authorities on the latter point.  In the meantime, the 
secretariat urged creditors not to apply payments received toward 
 
SIPDIS 
late interest, as requested by Angola and as previously agreed among 
creditors in the context of the 100 million dollar goodwill payment. 
 Musca speculated that if an IMF program is approved and Angola 
comes to the Paris Club next year, the authorities will request 
forgiveness of USD 1.8 billion in late interest.  (Angola has no 
arrears and owes no late interest to the US.) 
 
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ARGENTINA 
--------- 
¶4.  (SBU) Chairman Musca summarized his meeting with then Finance 
Secretary Mac Laughlin at last month's G-20 meeting in Melbourne. 
 
SIPDIS 
Musca told Mac Laughlin that any rescheduling in the Paris Club 
would require an IMF program, and that Argentina should consider 
clearing its arrears (USD 3.5 billion) in view of its USD 30 billion 
in reserves.  Mac Laughlin responded that an IMF program is not 
possible, and that Argentina faced large external debt service 
payments in the next few years as a result of the commercial debt 
exchange.  Musca inferred from the discussion that Argentina has in 
mind a rescheduling of its Paris Club obligations (which would be 
consistent with reports in the press), and that the government will 
not address the holdouts until after the October 2007 elections 
(though Mac Laughlin did not state this explicitly). 
 
¶5.  (SBU) Reaction to Musca's report was mixed.  Germany, apparently 
eager to extend new export credit financing to Argentina, said the 
Paris Club needed to remain open to creative solutions.  The UK 
commented that a Paris Club solution would be difficult, and that it 
would be important for creditors to remain united in withholding new 
financing.  Japan said its stance had not changed:  Argentina should 
clear arrears immediately, and the Paris Club should not contemplate 
any rescheduling without an IMF program.  Spain said it continues to 
seek a bilateral settlement with respect to its USD 835 million 
crisis loan.  Italy stressed that a resolution of the holdout 
problem must remain part of the Paris Club discussion, even if the 
Paris Club is not directly concerned. 
At Germany's request, the secretariat drafted a formal response to 
 
PARIS 00007835  003 OF 006 
 
 
Mac Laughlin's letter of November 9.  Italy gutted the letter of any 
substance and insisted on an oblique reference to the holdouts. 
 
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CENTRAL AFRICAN REPUBLIC 
------------------------ 
¶6.  (U) Next week, the IMF executive board will consider a new 
three-year PRGF for CAR, for which the Paris Club provided financing 
assurances last month.  A preliminary HIPC document will be 
circulated in January.  The secretariat will invite CAR to come to 
the Paris Club in March for negotiations.  (The Paris Club does not 
meet in February.)  The IMF said CAR could reach HIPC decision point 
in the third quarter of 2007, at the time of the first review of the 
PRGF, assuming satisfactory performance and agreement on completion 
point conditions. 
 
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HAITI 
----- 
¶7.  (U) Creditors provided a HIPC decision point treatment. 
Commercial debt service falling due during the period of the PRGF 
will be canceled at a level of 90% (taking into consideration 
previous cancellation granted by the Paris Club), with the balance 
rescheduled over 23 years, with a 6-year grace period.  Official 
development assistance (ODA) debt service will be rescheduled over 
40 years, with a 16-year grace period.  Arrears on commercial debt 
that had not been rescheduled previously will be canceled at a level 
of 67%; all other arrears will be rescheduled.  Creditors also 
agreed to capitalize interest payments falling due during the PRGF, 
and urged Haiti to seek comparable treatment from Taiwan, its 
principal non-Paris Club creditor.  As a result of the agreement, 
Haiti's debt service during the period of the PRGF will fall from 
approximately USD 8 million per year to essentially zero.  Per its 
HIPC policy, the US will go beyond the requirements of the Paris 
Club agreement and forgive 100% of the debt service falling due 
during this period, provided Haiti performs satisfactorily on its 
PRGF. 
 
---- 
IRAQ 
---- 
¶8.  (U)  The US asked Germany to provide more information about its 
attempt to collect 100% of post-1990 pre-cutoff date claims on Iraq. 
 Germany said it did not have any information on hand and would look 
into the matter.  Russia, meanwhile, said it had nothing new to 
report on the status of its bilateral agreement.  Negotiations have 
been completed, but final signature of the agreement continues to 
await "legal authority." (Russia remains the only Paris Club 
 
PARIS 00007835  004 OF 006 
 
 
creditor that has yet to conclude its bilateral agreement 
implementing the December 2004 agreed minute.) 
 
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LAOS 
---- 
¶9.  (U) In response to an inquiry from Norway, the IMF clarified 
that, for the time being, HIPC was an open-ended option for Laos. 
The IMF added that, at the request of executive directors, members 
of its staff are working on an exit strategy for countries such as 
Laos that are HIPC eligible but not interested in availing 
themselves of HIPC debt relief. 
 
--------------------- 
SERBIA AND MONTENEGRO 
--------------------- 
¶10.  (SBU) Some creditors (Netherlands, Norway, Japan) continue to 
raise concerns about the implications of the decision by Serbia and 
Montenegro to allocate debt between themselves according to the 
final beneficiary principle.  In a recent letter to the Paris Club, 
the Serbian authorities stated that the two sides had reached an 
amicable agreement on the partition of the debt and were eager to 
conclude new bilateral agreements with Paris Club creditors.  The 
Netherlands, Norway, and Japan insisted that the secretariat contact 
the authorities by telephone to reiterate the Paris Club's position, 
as articulated in a November 13 letter, that bilateral agreements 
between Paris Club creditors and the two countries must follow the 
debtor/guarantor principle rather than the final beneficiary 
principle, unless otherwise specified by the creditor.  The US and 
France are prepared to negotiate bilateral agreements with Serbia 
and Montenegro according to the final beneficiary principle. 
 
---------- 
SEYCHELLES 
---------- 
¶11.  (U) The IMF said the authorities are keen to normalize 
relations with Paris Club creditors and have expressed interest in a 
possible IMF program.  The authorities will come to Washington in 
January for further discussions with IMF staff.  The secretariat 
said the Seychelles' anticipated 4 million euro arrears payment 
should take place in coming days.  (The US is not a creditor.) 
 
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SIERRA LEONE 
------------ 
¶12.  (U) Sierra Leone is expected to reach completion point this 
month.  Negotiations in the Paris Club are tentatively scheduled for 
January. 
 
PARIS 00007835  005 OF 006 
 
 
 
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SUDAN 
----- 
¶13.  (U) The secretariat summarized the results of a recent data 
call.  As of October 2006, Sudan owed the Paris Club USD 10.2 
billion, of which USD 9.9 billion is in arrears (including USD 5.9 
billion in late interest).  France and the US are the two largest 
creditors with USD 2.0 billion each in claims, followed by the UK 
(USD 1.1 billion) and Austria (USD 1.0 billion).  The IMF said Sudan 
had contracted USD 670 million in non-concessional loans in the 
first ten months of 2006 (58% from India, 24% from China), compared 
to a limit of USD 700 million under its IMF Staff Monitored Program 
(SMP). 
 
-------- 
SURINAME 
-------- 
¶14.  (SBU) The US reported that Suriname had not made any payments 
in almost four years and asked if other creditors were in a similar 
situation.  France and the Netherlands said Suriname was current on 
its debt.  Brazil and Denmark, on the other hand, reported 
longstanding arrears.  Japan said arrears on short-term debt were 
cleared earlier this year.  Italy and Germany revealed that they had 
recently concluded bilateral debt agreements with Suriname (without 
informing the club).  When asked by the US whether this unequal 
treatment of creditors constituted a breach of solidarity, the 
secretariat said the answer depended on the outlook for an eventual 
 
SIPDIS 
treatment of Suriname's debt in the Paris Club.  If there is no 
prospect for a Paris Club treatment, then creditors have more 
flexibility to pursue their claims bilaterally.  If, on the other 
hand, a Paris Club treatment remains a possibility, then creditors 
should respect solidarity and seek a multilateral solution.  (Note: 
In Suriname's case, an eventual Paris Club treatment cannot be ruled 
out, although the country does not have an IMF program at the 
present time.)  The secretariat will draft a letter to the 
authorities urging them to clear arrears and to treat Paris Club 
creditors equally. 
 
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METHODOLOGY 
----------- 
¶15.  The secretariat noted that out of 18 countries having reached 
completion point, 12 have failed to fulfill the requirement, as 
specified in the agreed minutes, to report to the Paris Club on 
progress obtaining comparable treatment from non-Paris Club 
creditors.  Creditors agreed on a letter, to be sent to all 12 
countries, reminding them of this requirement and offering the 
 
PARIS 00007835  006 OF 006 
 
 
assistance of the secretariat.  In a continuing effort to promote 
awareness of the Debt Sustainability Framework (DSF), the IMF and 
World Bank summarized a recent joint staff paper on ways to improve 
the rigor, quality, and effectiveness of debt sustainability 
analyses. 
The secretariat called on volunteers to participate in a working 
group that will meet on the margins of future Paris Club sessions to 
draft a glossary of Paris Club terms, which may be posted to the 
Paris Club website. 
 
HOFMANN