VZCZCXRO5632
RR RUEHBZ RUEHGI RUEHTRO
DE RUEHFR #1423/01 2061653
ZNR UUUUU ZZH
R 241653Z JUL 08
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 3902
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6835
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RUEHBS/USEU BRUSSELS 2360
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RUEHRY/AMEMBASSY CONAKRY 0068
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RUEHAM/AMEMBASSY AMMAN 1204
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RUEHTH/AMEMBASSY ATHENS 0774
RUEHKI/AMEMBASSY KINSHASA 1652
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RUEHBJ/AMEMBASSY BEIJING 1743
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RUEHTV/AMEMBASSY TEL AVIV 0001
RUEHSA/AMEMBASSY PRETORIA 1569
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RUEHPS/AMEMBASSY PRISTINA

UNCLAS SECTION 01 OF 11 PARIS 001423 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA 
TREASURY FOR DO/IDD AND OUSED/IMF 
SECDEF FOR USDP/DSCA 
PASS EXIM FOR CLAIMS - MPAREDES 
PASS USDA FOR CCC -- ALEUNG/WWILLER/JDOSTER PASS USAID FOR CLAIMS -- 
WFULLER 
PASS DOD FOR DSCS -- PBERG 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID XM XA XH XB XF FR
SUBJECT:  PARIS CLUB - JULY 2008 TOUR D'HORIZON AND DISCUSSIONS ON 
METHODOLOGICAL ISSUES 
 
¶1. (SBU) Summary: At the Paris Club's July 7-8 session, the Vice 
Chairman briefed creditors on his recent meetings in Kinshasa with 
the Ministers of Economy and Finance, noting concern that a proposed 
infrastructure deal involving a DRC sovereign guarantee was at odds 
with the Paris Club's projected cancellation of $5 billion in debt 
at completion point.  The Secretariat reported continuing 
discussions with the IMF over how to handle Grenada's poor 2007 
performance on its Poverty Reduction and Growth Facility (PRGF) and 
whether the second phase of the country's May 2006 rescheduling in 
the Paris Club should enter into force.  On Iraq, neither the IMF 
nor Bank had specifics on the reported UAE/Iraq debt agreement.  The 
Secretariat noted the final phase of Iraq's 2004 Paris Club 
agreement will enter into force in December if the country continues 
to perform satisfactorily on its current IMF Stand-By Arrangement 
(SBA). 
 
¶2. (SBU) During the Tour d'Horizon, the U.S. and other creditors 
also discussed relations with Burundi, Congo-B, Guinea, Kosovo, 
Libya, the Seychelles, and Togo.  Several members submitted issues 
for Paris Club consideration, including illegitimate debt and a 
submission to the Doha Financing for Development conference.  The 
Club's long-standing policy on leasing was revisited at the request 
of the Italians; however, with lack of consensus on the issue, the 
Secretariat agreed to send out questionnaires to creditors and 
prepare a working paper for further discussion in September.  End 
Summary. 
 
¶3. (U) For additional information on a specific country or issue, 
please contact Nicholle Manz or David Freudenwald in EEB/IFD/OMA. 
 
------- 
Burundi 
------- 
 
 
PARIS 00001423  002 OF 011 
 
 
¶4. (SBU) The IMF reported that a new PRGF program had been approved 
on July 7, which paved the way for the Paris Club to resume interim 
HIPC relief.  Creditors will need to decide in September whether to 
retroactively extend the consolidation period of the previous Paris 
Club agreement, or negotiate a new agreement with Burundi that would 
fold in arrears.  For now the IMF is assuming that the Paris Club 
will apply existing terms by retroactively extending the previous 
consolidation period.  Should Burundi require a new agreement, 
negotiations would likely take place in October.  The IMF said 
Burundi could reach its HIPC completion point in late 2008 or early 
¶2009. 
 
----------------- 
Congo-Brazzaville 
----------------- 
 
¶5. (SBU) The Secretariat reported that Congo-B authorities have not 
responded to the Paris Club Co-Chairman's April 2008 letter asking 
about press reports of an agreement with litigating creditors.  The 
IMF said a new PRGF program could come to the Executive Board as 
early as mid-October if Congo performs well on its January-June 2008 
Staff-Monitored Program. PRGF discussions began in May 2008 and an 
August IMF mission will assess performance.  IMF and Bank Boards 
will discuss HIPC triggers in September.  The Bank noted work on 
debt management, including data centralization and a debt management 
capacity mission.  A new Country Assistance Strategy should be ready 
in 2009.  A new PRGF program would trigger the resumption of interim 
HIPC relief.  As in the case of Burundi, creditors will have to 
decide whether to retroactively extend the consolidation period of 
the previous Paris Club agreement or negotiate a new agreement.  The 
Secretariat asked creditors whether they had received any payments 
from Congo during the off-track period and several, including the 
U.S., reported receiving a portion of amounts due. 
 
 
PARIS 00001423  003 OF 011 
 
 
--- 
DRC 
--- 
 
¶6. (SBU) The Paris Club's Vice Chairman briefed creditors on his 
recent Ministerial meetings in Kinshasa.  DRC authorities 
acknowledged that a new, large investment deal involves a sovereign 
guarantee, but they argued that the financing is sufficiently 
concessional to not significantly effect the Paris Club rescheduling 
agreement.  An IMF team, however, is assessing this issue because 
the size of the project could impact debt sustainability.  The Paris 
Club is set to cancel approximately $5 billion in debt at completion 
point. The authorities appear to understand the need for greater 
transparency and are sharing information with the IMF and World Bank 
in an attempt to finalize the deal without jeopardizing their 
aspiration of reaching HIPC completion point. 
 
------- 
Grenada 
------- 
 
¶7. (SBU) The Secretariat reported ongoing discussions with the IMF 
on Grenada. At issue is whether the Paris Club should enter into 
force the second phase of Grenada's May 2006 rescheduling, which 
covers maturities falling due in 2007.  Given Grenada's poor 
performance on its PRGF in 2007, the Paris Club is contemplating not 
allowing the second phase to enter into force.  The IMF expressed 
concern last month that such a decision would be tantamount to 
withdrawing financing assurances and could jeopardize the financing 
of future IMF programs for countries in similar situations.  The 
Secretariat acknowledged that the Paris Club's decision on Grenada 
would have implications for Paris Club policy going forward.  Canada 
asked whether creditors could assume that the third phase of 
Grenada's agreement, covering 2008 maturities, would enter into 
 
PARIS 00001423  004 OF 011 
 
 
force.  The Secretariat said yes, but planned to inform the 
authorities after the Club's decision about the second phase. 
 
------ 
Guinea 
------ 
 
¶8. (SBU) The Secretariat reported that, ahead of the July 31 
deadline, Guinea has concluded, or is on the verge of concluding, 
with its Paris Club creditors bilateral agreements implementing the 
January 2008 Agreed Minute on Cologne terms.  (The US bilateral 
agreement entered into force in June.)  Brazil's agreement could be 
completed in the next two months; Russia's would be done "pretty 
soon"; Spain will sign within a few weeks; and Germany is awaiting 
the GOG's response to a draft agreement.  In addition, Guinea has 
contacted all of its non-Paris Club creditors and thus far has 
concluded bilateral agreements with Romania and Libya, while making 
progress with China, the Saudi Fund for Development, and the Kuwait 
Fund (these three plan to conclude an agreement after Guinea reaches 
completion point).  The Secretariat proposed sending letters to 
Bulgaria, Egypt, Morocco, and Thailand encouraging comparable 
treatment.  The IMF said Guinea has largely met its PRGF program 
targets, despite external shocks and domestic political instability. 
 The Board will hold the first PRGF program review for Guinea on 
July 28; discussion of HIPC triggers and the second review will take 
place in the fall; and Guinea could reach its HIPC completion point 
by the end of the year. 
 
----- 
Haiti 
----- 
 
¶9. (SBU) Creditors supported the Secretariat's draft response to an 
open letter from NGOs to European heads of state and government 
 
PARIS 00001423  005 OF 011 
 
 
calling for immediate debt cancellation for Haiti. Several creditors 
suggested minor changes to the content and tone of the response. The 
Secretariat will send a revised version that, taking into account 
non-European Paris Club members, addresses Paris Club members' 
generous support for Haiti without referring to European recipients 
of the letter. 
 
---- 
Iraq 
---- 
 
¶10. (SBU) The Secretariat clarified that if Iraq continues to 
perform satisfactorily on its SBA, the third and final phase of its 
2004 Paris Club agreement will enter into force in December, raising 
the level of cancellation from 60% to 80%. The IMF noted that the 
SBA was tailored to satisfy the Paris Club's requirement of three 
consecutive years of performance:  the mid-June mission reached 
broad ad-ref agreement on required steps; the first review will be 
on September 5; the second in November/December, and the third by 
the end of the year.  Neither the IMF nor Bank had specifics about 
reports of an UAE/Iraq debt agreement.  (Brazil attended the 
discussion but was not asked about its failure to provide comparable 
treatment.) 
 
------ 
Kosovo 
------ 
 
¶11. (SBU) The World Bank reported that the Kosovo Debt Management 
Support Program (KDMSP) was approved on July 3, in a contentious 
Board decision. The World Bank noted that the US was prepared to 
contribute $125 million to the IDA-administered trust fund set up to 
finance the KDMSP.  Debt related to Bank projects on Kosovar soil 
amounts to approximately $615 million currently, i.e., nearly half 
 
PARIS 00001423  006 OF 011 
 
 
of an estimated $1.3 billion in external debt that Serbia notionally 
attributes to Kosovo.  To date, Serbia has been servicing Kosovo's 
debt.  The IMF has been providing technical assistance to Kosovo 
under a 1999 Board decision.  Once the IMF completes its poll to 
confirm a majority of its membership recognizes Kosovo as an 
independent country, the IMF planned to accept Kosovo's application 
for membership (Kosovo later submitted its application to the Fund 
and Bank on July 10.)  Russia stated that Kosovo is not a sovereign 
state, so there should not be discussion of separate issues or 
documents regarding Kosovo.  The US said it recognized Kosovo's 
independence in February 2008, asked the Secretariat about sharing 
loan documentation with the authorities in Pristina, and welcomed 
the World Bank's decision to establish trust funds for budget 
support and debt relief.  Given that the Serbian government has 
changed since the Secretariat sent its May 2007 letter about sharing 
loan information, the Secretariat offered to send a new letter 
regarding this issue. 
 
------- 
Liberia 
------- 
 
¶12. (SBU) The IMF said Liberia met with its commercial creditors in 
April and was likely to pursue a buyback operation through IDA's 
Debt Reduction Facility (DRF). The IMF noted that Liberia had also 
contacted its non-Paris Club bilateral creditors. The World Bank 
said it was prepared to finance a large portion of a DRF operation 
and was eager to move forward as soon as possible.  The Bank is 
providing $1.3 million to fund the debt advisory group, which is 
negotiating with Liberia's commercial creditors; the Bank will seek 
the advisors' views on the timetable.  A DRF operation would involve 
about $48 million, or 3% of the $1.6 billion in commercial debt 
outstanding.  Of the $48 million, Liberia is asking donors to 
provide $25 million.  President Johnson-Sirleaf wrote to seven 
 
PARIS 00001423  007 OF 011 
 
 
countries asking for contributions: Germany, Japan, Norway, Sweden, 
Switzerland, UK, and the US.  Norway will respond positively to a 
Liberian request for a $5 million contribution. 
 
----- 
Libya 
----- 
 
¶13. (SBU) In June, the Secretariat promised to contact the 
authorities to find out whether the finance minister intends to 
respond to the Paris Club's January 2008 letter, which expressed 
concern that Libya had concluded bilateral agreements with certain 
creditors while remaining in default toward seven Paris Club 
creditors.  Libya asked to postpone a scheduled July 7 meeting with 
the Secretariat. 
 
---------- 
Seychelles 
---------- 
 
¶14. (SBU) The IMF confirmed that the Seychellois finance minister 
has written a letter to request an IMF program. The authorities were 
motivated by a desire to address the country's public debt.  The IMF 
said the authorities have been taking steps in the right direction, 
including exchange rate depreciation vis-a-vis the dollar.  The Bank 
is providing technical advisory services in key areas.  A mission in 
the field is discussing an interim strategy to support an IMF 
program which, in turn, would open the door to a Paris Club debt 
treatment under the Evian approach. 
 
---- 
Togo 
---- 
 
 
PARIS 00001423  008 OF 011 
 
 
¶15. (SBU) Following Togo's Naples treatment in June, and considering 
that Togo could reach HIPC decision point as early as this fall, 
creditors debated whether to conclude two separate bilateral 
agreements (per usual practice) or wait until decision point and 
conclude a single bilateral agreement.  While last month's Naples 
agreement established a deadline for concluding bilateral 
agreements, creditors could choose to wait until decision point to 
conclude a single agreement.  Since June, the Bank has provided $17 
million for rural community development and food security and $3 
million to offset food price increases; in September, the Board will 
discuss additional steps to address the food crisis. 
 
------------------------------ 
Methodological Discussions: 
Paris Club's Policy on Leasing 
------------------------------ 
 
¶16. (SBU) At Italy's request, the Paris Club discussed its 
long-standing policy on leases. The Secretariat described the key 
considerations that led creditors to decide two decades ago to 
exclude leases from Paris Club treatments and noted that lease 
activity has since increased significantly. In order to make an 
accurate assessment of risk, Italy said it was important to have a 
clear picture of how leases could be treated in the Paris Club and 
believed the risk assessment should not be affected by the type of 
financing chosen.  Some creditors expressed willingness to review 
the policy.  The UK added its ECA's view that the current policy was 
fine.  The U.S. stated that the current policy was working well and 
should not be changed.  The Secretariat noted the merit of 
conducting the exercise, despite the lack of consensus, and said it 
would proceed with a questionnaire and preparation of a Working 
Paper for discussion in September. 
 
--------------------------------------------- ---- 
 
PARIS 00001423  009 OF 011 
 
 
Methodological Discussions: Proposed Work Program 
--------------------------------------------- ---- 
 
¶17. (SBU) At the invitation of the Secretariat, creditors proposed a 
number of methodological issues that the Paris Club could tackle in 
coming months. 
 
-- Italy suggested submitting a written statement to the Doha 
conference on Financing for Development in November 2008 to 
highlight the Paris Club's contributions related to the "External 
Debt" pillar (e.g., HIPC initiative, debt sustainability, Evian 
approach, litigating creditors, and outreach to emerging creditors). 
 Italy suggested that the Paris Club meet with the OECD's Export 
Credit Group and its Development Assistance Committee (DAC) in 
September/October to discuss lending guidelines and soft loans, 
which could be channeled into the Financing for Development process. 
 
 
-- Germany called for a closer look at the concept of illegitimate 
debt, noting Ecuador's debt commission and NGO, UN and other 
discussions on this issue.  Norway supported this idea, but the UK 
warned that, given that it is a highly contentious, 
politically-charged concept, there should be an ample exchange of 
views before the Secretariat contemplates drafting a Working Paper. 
 
-- Spain suggested a study of Paris Club versus non-Paris Club 
lending and examination of how to deal with countries that do not 
want IMF programs, citing Angola, Argentina, and Cuba. 
 
-- The Netherlands proposed further discussion of approaches to 
debtor countries, noting lack of proper instruments for dealing with 
countries facing debt repayment profile problems. 
 
-- Japan agreed generally with the proposals and suggested examining 
 
PARIS 00001423  010 OF 011 
 
 
prepayments and buybacks, the Paris Club's relations with non-Paris 
Club creditors, and fragile states. 
 
-- The US asked about the status of the two possible working groups 
that Chairman Musca proposed during the June meeting with the 
private sector.  The Secretariat is planning an informal meeting in 
October with the eight non-Paris Club creditors invited to the June 
private sector meeting and other non-Paris Club official creditors 
in order to solicit views on Paris Club policies.  If this first 
step succeeds, the Secretariat plans to organize a more formal 
plenary.  As for formation of a group with private creditors to 
discuss vulture funds, the Secretariat has contacted the Institute 
for International Finance to discuss a possible work agenda.  The US 
also asked to revisit comparability of treatment related to 
buybacks. 
 
¶18. (SBU) The Secretariat stated it could not tackle all of these 
issues, noting concern about whether the Paris Club was the correct 
forum to address some of them.  It expressed doubt about addressing 
the difficult topic of illegitimate debt (and agreed even a Working 
Paper would be premature) or discussing accounting rules and soft 
loan guidelines with the DAC.  The Secretariat will compile a list 
of all the suggestions submitted, establish an order of priority, 
and identify possible deliverables, including in particular the Doha 
FfD submission. 
 
--------------------------------------------- -- 
Attendance of Representatives From Multilateral 
Institutions at Paris Club Negotiations 
--------------------------------------------- -- 
 
¶19. (SBU) Creditors debated whether to allow representatives from 
institutions other than the IMF and World Bank to be present for the 
duration of Paris Club negotiations with debtor countries. 
 
PARIS 00001423  011 OF 011 
 
 
Currently, observers from organizations other than the IMF and World 
Bank leave the negotiation, along with the debtor country, when the 
internal discussions among creditors begin.  The Secretariat 
concluded that current practice would continue. 
 
STAPLETON