VZCZCXRO3445
RR RUEHBZ
DE RUEHFR #2899/01 1860859
ZNR UUUUU ZZH
R 050859Z JUL 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 8745
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHBUL/AMEMBASSY KABUL 0509
RUEHLU/AMEMBASSY LUANDA 0868
RUEHBU/AMEMBASSY BUENOS AIRES 1428
RUEHBZ/AMEMBASSY BRAZZAVILLE 0038
RUEHAB/AMEMBASSY ABIDJAN 1101
RUEHLC/AMEMBASSY LIBREVILLE 1227
RUEHEK/AMEMBASSY BISHKEK 0344
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RUEHGB/AMEMBASSY BAGHDAD 0634
RUEHSB/AMEMBASSY HARARE 0430
RUEHRL/AMEMBASSY BERLIN 6617
RUEHSW/AMEMBASSY BERN 2009
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RUEHCP/AMEMBASSY COPENHAGEN 1468
RUEHHE/AMEMBASSY HELSINKI 1300
RUEHLO/AMEMBASSY LONDON 6604
RUEHMD/AMEMBASSY MADRID 2652
RUEHMO/AMEMBASSY MOSCOW 5902
RUEHNY/AMEMBASSY OSLO 1504
RUEHOT/AMEMBASSY OTTAWA 2130
RUEHRO/AMEMBASSY ROME 8453
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RUEHSM/AMEMBASSY STOCKHOLM 1535
RUEHTC/AMEMBASSY THE HAGUE 2817
RUEHKO/AMEMBASSY TOKYO 2526
RUEHVI/AMEMBASSY VIENNA 1746
RUEHBS/USEU BRUSSELS 2032

UNCLAS SECTION 01 OF 05 PARIS 002899 
 
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 - JUNE 2007 TOUR D'HORIZON 
 
 
------- 
SUMMARY 
------- 
 
SUBJECT: PARIS CLUB - JUNE 2007 TOUR D'HORIZON 
 
¶1.  (SBU) Summary:  At the June 19 meeting of the Paris Club, 
creditors agreed in principle to accept Gabon's offer to buy back 
its previously rescheduled debt at a discount.  Terms will be 
negotiated at the July meeting.  This would be the first time the 
Paris Club has conducted a standalone market-based buyback at below 
face value.  The U.S. can only participate in a prepayment at face 
value.  The IMF reported that Afghanistan was on track with its 
reform program and should be eligible in July for additional debt 
relief.  After deciding that Angola had demonstrated good faith on 
clearing its arrears, creditors authorized the Secretariat to pursue 
talks on resolving late interest charges.  The IMF and World Bank 
reviewed efforts to get economic reform and poverty reduction 
programs back on track for the Comoros, Congo-Brazzaville, Cote 
d'Ivoire, and Guinea-Bissau; more progress is needed for further 
debt relief.  The Secretariat reported on technical talks with 
Argentina, which have yet to produce a solution for clearing 
arrears.  Russia informed the Club that it was still not prepared to 
respond to Iraq's claim that it was demanding oil deals before 
granting debt relief.  Creditors also discussed debt issues 
concerning the Kyrgyz Republic, Serbia, and Zimbabwe.  End Summary. 
 
----------- 
Afghanistan 
----------- 
 
¶2.  (U) The IMF reported that both the second review of 
Afghanistan's current Poverty Reduction and Growth Facility (PRGF) 
program and the Heavily Indebted Poor Countries (HIPC) program 
Decision Point were scheduled for Executive Board approval on July 
¶9. The second review will trigger entry into force of the second 
phase debt relief under Afghanistan's 2006 Paris Club agreement. 
Decision Point (DP) will result in additional debt relief, as well 
as trigger interim HIPC relief from the international financial 
institutions (IFIs).  Because of the routine nature of this next 
step of HIPC debt relief and the small number of creditors involved 
(Russia, Germany, and the U.S.), the Secretariat plans to coordinate 
the agreement electronically, rather than in a face-to-face 
negotiation in Paris with the Afghans.  We reminded the Secretariat 
of our desire to complete the DP treatment in July. 
 
¶3.  (U) Russia announced that it intends to finalize its bilateral 
agreement to implement the July 2006 PC Agreed Minute by end-June or 
early July. The UK asked the IMF for a progress report on non-PC 
debt treatment.  The IMF said the GOA had written to all non-PC 
creditors in April.  Some of the debt has been forgiven, but the IMF 
will need to do some research and report back next month. 
 
 
PARIS 00002899  002 OF 005 
 
 
------ 
Angola 
------ 
 
¶4.  (SBU) PC Chairman Xavier Musca reported on encouraging 
discussions with the Angolan Finance Minister De Morais, who said he 
would present the PC with a proposal within the next two months on 
resolving $2 billion in outstanding late interest (none of which is 
owed to the U.S.).  De Morais indicated eagerness to resolve this in 
order to regain access to export credit financing.  The Netherlands 
and Sweden reported that they had not yet received arrears payments, 
but in the interest of time agreed to allow Musca to begin 
negotiating with Angola immediately based on the plan of action 
agreed to in March.  (According to this plan, once arrears have been 
cleared, Angola must unilaterally pay 40-60% of late interest due, 
then propose a schedule for paying off the balance over time. In 
return, Paris Club member export credit agencies (ECAs) could, at 
their discretion, decide to reopen export cover.  As an additional 
inducement, creditors could offer, on a bilateral basis, but subject 
to Paris Club coordination, to eliminate the "penalty" portion of 
late interest.) 
 
¶5.  (SBU) Japan said its ECA was under great pressure to reopen, and 
Denmark noted that its ECA was considering a change in its cover 
policy.  Musca stressed the critical importance of ECAs not going 
back on cover prematurely, and expressed disappointment that some 
had.  He stated his intention to speak personally to finance 
ministers on this issue. 
 
--------- 
Argentina 
--------- 
 
¶6.  (SBU) Musca reported on a meeting with Finance Secretary Chodos 
who continues to seek a rescheduling of Argentina's arrears over six 
to seven years - a non-starter for the Paris Club in the absence of 
an IMF program.  Musca urged Chodos to consider a unilateral plan to 
clear arrears over a short period of time.  The Secretariat remains 
open to technical talks with Argentina, but is not optimistic there 
will be progress prior to national elections in October.  There is 
no plan for future discussions and the next step remains with 
Argentina.  The IMF noted that Argentina's external situation 
remains strong, with reserves up to $41 billion (compared to $4.5 
billion in Paris Club arrears). 
 
------- 
Comoros 
------- 
 
¶7.  (U) The IMF said rising political tensions cast doubt on the 
viability of the economic program and could jeopardize the new PRGF, 
which is schedule for Board discussion on July 25.  Agreement to 
clear the Comoros' arrears with the African Development Bank (AfDB) 
 
PARIS 00002899  003 OF 005 
 
 
is still needed.  Under the best case scenario, the Comoros could 
come to the Paris Club in September. (The U.S. is not a creditor.) 
 
----------------- 
Congo-Brazzaville 
----------------- 
 
¶8.  (SBU) IMF staff have reached a tentative agreement with the 
authorities on a Staff Monitored Program (SMP) covering the period 
April-September 2007. If Congo-B performs adequately, the third 
review of the currently stalled PRGF could be completed in early 
¶2008.  The Secretariat will send a letter to the authorities 
reiterating the importance of getting the PRGF back on track so that 
the Paris Club can resume interim HIPC relief. 
 
------------- 
Cote d'Ivoire 
------------- 
 
¶9.  (SBU) Cote d'Ivoire must clear arrears with the World Bank and 
AfDB and establish an Emergency Post Conflict Arrangement (EPCA) 
with the IMF as first steps to normalizing relations with creditors. 
An EPCA covering the period April-December 2007 will be considered 
by the IMF's Executive Board in July.  The World Bank said a new 
arrears clearance plan was in place, under which Cote d'Ivoire will 
begin to service current maturities in the second half of 2007, 
leading to an arrears clearance operation in February 2008.  Half of 
the financing for the operation will be provided by Cote d'Ivoire, 
with the other half coming from donors.  The Secretariat summarized 
the results of a recent data call; arrears and late interest to PC 
creditors of both ODA and non-ODA (NODA) total around $3.7 billion. 
France is by far the largest PC creditor. 
 
----- 
Gabon 
----- 
 
¶10.  (U) Creditors voiced no serious objection to the principle of a 
buyback at a discount and applauded Gabon's intention to use oil 
profits to improve debt management.  The Secretariat reminded 
creditors they are free to decide independently on participation. 
Creditors rejected Gabon's proposal for a 33% discount, and only 
Spain supported the Secretariat's call for a 20% discount.  Italy, 
the Netherlands, and the UK said their preliminary assessment 
pointed to a market-based discount closer to 10%, while Brazil said 
it would accept the consensus rate that emerges.  The U.S., Canada, 
and Japan, said they could not participate in a discounted buyback, 
but could accept a prepayment at face value.  Belgium and 
Switzerland had not yet decided on either participation or the 
discount rate. 
 
¶11.  (U) The U.S., Italy, and Canada reported small arrears, which 
the Secretariat acknowledged would have to be cleared prior to any 
 
PARIS 00002899  004 OF 005 
 
 
early repayment operation.  Germany questioned whether prepayment at 
face value might be more appropriate given the absence of direct 
market references for Gabon's debt.  The World Bank noted that 
despite its relatively higher GDP per capita, many of Gabon's social 
indicators are no better than other much poorer African countries. 
The U.S. suggested that Gabon should consider a hybrid 
buyback-prepayment approach if its goal is to maximize creditor 
participation.  The Secretariat argued that a prepayment was not in 
Gabon's interest. 
 
¶12.  (U) Despite the apparent lack of consensus on how to price the 
debt, and an appeal by Germany and Switzerland to hold the operation 
until September, the Secretariat declared that the next steps would 
be to complete the data reconciliation process and invite Gabon to 
Paris in July to negotiate the terms of a buyback.  France is the 
largest creditor, accounting for 60% of Gabon's NODA Paris Club 
debt. 
 
------------- 
Guinea Bissau 
------------- 
 
¶13.  (U) An EPCA is scheduled to come to the executive board in late 
July or early August.  The IMF projects a substantial financing gap 
in 2007 equal to 11% of GDP.  External debt is now over 320% of GDP, 
three-quarters of which is in arrears.  Closing this gap will 
require further donor support, which has not yet been identified. 
The IMF does not expect a PRGF to be in place before 2008. (Guinea 
Bissau is a post-HIPC Decision Point country whose previous PRGF 
went off track. The U.S. is not a creditor.) 
 
---- 
Iraq 
---- 
 
¶14.  (U) The IMF said the current SBA is set to expire on September 
28, 2007, and a successor arrangement would not be in place before 
the end of the year.  Hence, as is common practice in the IMF, there 
will be a gap of several weeks between programs.  The IMF 
emphasized, however, that the successor arrangement could have 
retroactive effect, and that Iraq's policies would be closely 
monitored during the intervening period.  There was no reaction from 
creditors, nor from the Secretariat. 
 
¶15.  (SBU) Separately, in reference to the letter from Iraq to the 
Secretariat asserting that Russia was attempting to tie debt relief 
 
SIPDIS 
to oil contracts, Russia repeated the same response offered last 
month, that it had no official reaction at this time.  The U.S. 
expressed its disappointment with Russia's non-response, and 
underscored that any attempt to tie debt relief to other concessions 
would be a clear violation of Paris Club principles.  Russia 
responded by assuring creditors that it would follow the terms of 
the 2004 Paris Club Agreed Minute and said it would convey U.S. 
 
PARIS 00002899  005 OF 005 
 
 
concerns to Moscow.  The Secretariat noted that those concerns were 
shared by all creditors.  The discussion of Germany's post-1990 
claim on Iraq was postponed until next month at the request of 
Germany, which said it needed more time to look into the issue. 
 
--------------- 
Kyrgyz Republic 
--------------- 
 
¶16.  (U) The IMF reported that the new Prime Minister of the Kyrgyz 
Republic had requested debt relief under the Multilateral Debt 
Relief Initiative (MDRI), but that the country exceeds the 
per-capita threshold for participation under the IMF plan.  The 
Kyrgyz Republic was previously identified as a HIPC-eligible country 
based on end-2004 data, but said it was not interested in the 
program.  While the IMF still must do an official assessment of 
end-2006 debt levels, preliminary analysis indicates debt ratios are 
now below the threshold for HIPC eligibility.  If it no longer 
qualifies for HIPC relief, the Kyrgyz Republic would also not 
qualify for MDRI relief from the other IFIs.  The Prime Minister 
subsequently instructed his government to explore the possibility of 
non-traditional bilateral debt relief. (The U.S. is not a 
creditor.) 
 
------ 
Serbia 
------ 
 
¶17.  (U) Germany reported that Serbia and Montenegro had finally 
agreed to apportion their debt to Germany based on the 
debtor/guarantor principle rather than the final beneficiary 
principle.  Other creditors were encouraged by this development and 
decided to hold off sending a letter to the newly appointed Finance 
Minister. (The letter, drafted by the Secretariat on behalf of 
Germany, Japan, the Netherlands, Sweden, and Switzerland, states 
that Serbia and Montenegro must sign new bilateral agreements with 
Paris Club creditors based on the debtor/guarantor principle rather 
than the final beneficiary principle, unless the creditor agrees 
otherwise.)  Creditors will reassess the situation next month. 
 
-------- 
Zimbabwe 
-------- 
 
¶18.  (U) The U.S. announced that Zimbabwe had paid $45 million in 
debt after U.S ExIm Bank threatened to take legal action.  The U.S. 
explained that the timing was driven by the statute of limitations 
under U.S. law and the impending expiration of ExIm's right to seek 
legal remedy on the debt.  Zimbabwe still owes the USG around $125 
million.  There was no comment from other creditors. 
 
STAPLETON