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UNCLAS SECTION 01 OF 21 PARIS 000973 
 
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 - JUNE 2009 TOUR D'HORIZON AND DISCUSSIONS ON 
METHODOLOGICAL ISSUES 
 
¶1. (SBU) Summary: At the Paris Club's June 23 meeting, the U.S. 
opposed a proposal to give new seniority status to crisis-related 
bilateral financing.  Russia dropped its opposition to extending 
Afghanistan's Club treatment, clearing the way for continued debt 
relief as Afghanistan implements its International Monetary Fund 
(IMF) program.  The Secretariat reported Haiti was on track to reach 
completion point, with Paris Club negotiations on July 8.  The 
Central African Republic (CAR) is on track for completion point, and 
we expect negotiations with the Club in September.  Other countries 
of note on the June agenda included Congo-Brazzaville, Ecuador, 
Kazakhstan and Moldova.  On June 24, the Paris Club held its annual 
meeting with non-Paris Club bilateral creditors and the private 
sector, followed by a high-level conference co-hosted with the 
International Institute of Finance on "The World Crisis and its 
Implications for Emerging and Developing Countries."  The Club 
released its second annual report, available at www.clubdeparis.org. 
 End summary. 
 
----------- 
AFGHANISTAN 
----------- 
 
¶2. (SBU) The only issue before the Club was extension of 
Afghanistan's interim treatment under the Heavily Indebted Poor 
Countries (HIPC) Initiative to support extension of its program 
 
PARIS 00000973  002 OF 021 
 
 
under the Poverty Reduction Growth Facility (PRGF).  Russia, which 
had previously blocked the extension, consented with no discussion 
or elaboration.  The Secretariat will send a letter to the Afghan 
authorities informing them of the decision. 
 
------ 
ANGOLA 
------ 
 
¶3. (SBU) The Club discussed paired letters received from the Angolan 
parliament and finance minister, asking that the country's January 
2010 $400 million late interest payment to Paris Club creditors be 
swapped for development and social projects, although the minister 
also indicated that Angola would make the payment.  Some creditors 
had received reports from a June 23 meeting in Luanda at which the 
proposal had been discussed, but the presentation apparently had not 
been clear. 
 
The proposal was vague and confusing ("even in French," the 
Secretariat reported).  It is not clear whether the Angolans foresee 
a mass swap with creditors, or individual swaps with each creditor. 
Several creditors expressed opposition; others were skeptical.  The 
Club needs more information before considering the issue further. 
The World Bank reported that reserves had fallen from about $18 
billion in January to less than $13 billion in April, reflecting oil 
 
PARIS 00000973  003 OF 021 
 
 
production and prices and the country's exchange rate regime. 
 
--------- 
ARGENTINA 
--------- 
 
¶4. (SBU) The main topic was Brazil's $700 million loan to 
state-owned Aerolineas Argentinas (and/or its subsidiary, Austral). 
Brazil failed to provide information about the loan, claiming a need 
to coordinate among three ministries, but promised to respond within 
a week.  The Vice-Chairman requested a reply ahead of the July 8-9 
Paris Club meeting. 
 
¶5. (SBU) The U.S. asked about recent Argentine press reports that 
the GoA was again prepared to pay the Club.  The Secretariat 
reported that the French Embassy in Buenos Aires had been told that 
the story had not originated with the authorities, and opined that 
payment in the short run was unlikely, despite the relatively good 
economic situation.  The Secretariat would contact the authorities 
again in late July or September, after the elections. 
 
------------------------ 
CENTRAL AFRICAN REPUBLIC 
------------------------ 
 
 
PARIS 00000973  004 OF 021 
 
 
¶6. (SBU) The IMF noted that Argentine financing assurances were the 
only remaining obstacle to reaching completion point, and that the 
Board meeting had been delayed until June 29.  The Fund 
representative summarized the completion point paper, and the 
Secretariat confirmed that negotiations with the Club were planned 
for September.  (Note: Argentina subsequently provided the needed 
assurances; the IMF and World Bank Executive Boards approved 
completion point on June 29 and 30 respectively.) 
 
--- 
DRC 
--- 
 
¶7. (SBU) The main focus was again the Chinese loan.  The IMF 
reported that its Managing Director had emphasized the issue during 
his recent trip to Kinshasa.  The Fund had heard that the DRC 
authorities had requested that the sovereign guarantee be dropped 
from the mining portion of the project, keeping it on the $3 billion 
first infrastructure phase.  (The second $3 billion infrastructure 
phase had been eliminated.)  This could be codified during the first 
DRC-PRC annual review of the agreement, due by the end of June -- 
well before completion of the feasibility report, now expected by 
end-September.  This would leave only concessionality as the major 
obstacle.  The Fund reported that there was a notional interest rate 
in the framework agreement with China, but that loans extended under 
 
PARIS 00000973  005 OF 021 
 
 
it appeared to have been more concessional, some at a zero interest 
rate.  Echoing the Managing Director's public statement, the IMF 
representative said the PRGF program was "not going to move forward 
without resolution" of the issue, and that there might be a 
freestanding Article IV review. 
 
¶8. (SBU) The Fund reported that macroeconomic conditions were 
improving.  Inflation, which had reached 100% in February, had 
dropped to 63% in April as a result of tight monetary and 
"relatively prudent" fiscal policies.  Reserves, which had fallen to 
just $30 million in February, had risen above $200 million due to 
IMF and World Bank disbursements.  Two and a half percent growth was 
projected for 2009, with inflation down to 30% by year-end, though 
the current account would widen by 6 percentage points to 21% of 
Gross Domestic Product (GDP).  The Fund and the authorities had 
reached an ad-ref agreement on the macro framework and structural 
reform agenda for a new PRGF, with quantitative goals including 6% 
growth, single-digit inflation, and reserves rising to cover six 
weeks of non-aid imports; structural reforms were aimed at 
mobilizing revenues, strengthening management, and bolstering the 
economy's supply response through SOE reform and strengthening the 
private sector and regulatory environments.  The program envisaged 
no government borrowing from the central bank, prudent monetary 
policy, and fiscal policy focused on small, labor-intensive 
projects. 
 
PARIS 00000973  006 OF 021 
 
 
 
¶9. (SBU) The World Bank reported that multilateral financial support 
had allowed the central bank to intervene to stabilize the currency 
and thereby moderate inflation, though inflation would still create 
fiscal pressures.  The Bank also noted that President Kabila was 
asserting control of expenditures, at the expense of the Prime 
Minister, who was from another party.  There were some indications 
that the DRC was working to revise the PRC deal.  The Bank reported 
progress on structural reforms. 
 
------------------- 
CONGO - BRAZZAVILLE 
------------------- 
 
¶10. (SBU) The IMF reported Board completion of Congo-B's PRGF 
review, with satisfactory performance on all quantitative and 
structural conditions except for violation of the non-concessional 
debt ceiling and delays in meeting structural conditions.  A mission 
was expected in late September.  Completion point could come by 
year-end.  Six of eight triggers had been met, and good progress had 
been made on the remaining two.  The Bank noted significant 
performance on public financial investment and management, 
anti-corruption efforts, and other areas.  The new French 
non-concessional loan for the port had required a waiver. 
 
 
PARIS 00000973  007 OF 021 
 
 
¶11. (SBU) The discussion then turned to Congo's $800 million 
settlement with litigating creditors, and the authorities' recent 
report to the Club explaining the amount.  Fund staff were 
attempting to reconcile the data with information provided to the 
Fund and Bank for their annual litigation survey, but reconciliation 
seemed "quite challenging."  The Secretariat would continue to 
refine its analysis and would discuss its calculations with Fund 
staff.  Nevertheless, even by the authorities' reckoning the 
discount granted by the litigating creditors was 66%, less than full 
HIPC comparability, which required 78% in Net Present Value (NPV) 
terms. 
 
------- 
ECUADOR 
------- 
 
¶12. (SBU) The IMF reported that Ecuador had been buffeted by terms 
of trade shocks and falls in remittances and demand for exports. 
GDP was expected to fall 2% in 2009, after climbing 6.5% in 2008, 
oil receipts had plummeted by 60%, and remittances had fallen 10% in 
the first part of 2009.  Non-oil imports had fallen 5%, in part 
because of trade restrictions (to be phased out by January 2010, per 
agreement with the WTO).  The current account was expected to be in 
deficit by 2% of GDP in 2009, following a 2.5% surplus in 2008. 
Reserves had fallen from $4.4 billion at end-2008 to just over $2 
 
PARIS 00000973  008 OF 021 
 
 
billion.  The deficit of the non-financial public sector was 
projected to reach 3% of GDP in 2009, suggesting the need for either 
expenditure cuts or additional financing, of 1.75% of GDP. 
 
¶13. (SBU) Ecuador's recent offer to buy back $3.2 billion (6% of 
GDP) of defaulted bonds had been priced with a 66% discount, and 
attracted 91% participation, reducing public external debt to 20% of 
GDP while costing some $900 million.  As a result of the offer's 
success, S&P had upgraded the country from selective default to 
CCC+.  Bolstered by this success, Ecuador was reviewing the 
legitimacy of other debts.  The Secretariat reported Ecuador's claim 
that almost all of the holdouts from its offer were retail 
investors, with just one fund perhaps included, and that it planned 
"discussions" with bilateral and multilateral creditors, although 
Italy reported the Ecuadorian Foreign Minister had not raised the 
issue during a recent visit.  The country's last Article IV review 
was in January 2008; the 2009 review had been delayed by April 
elections, but a mission was likely in August. 
 
----- 
HAITI 
----- 
 
¶14. (SBU) Haiti, like CAR, was on the verge of completion point. 
The IMF reported that acceptable progress had been made on 11 of the 
 
PARIS 00000973  009 OF 021 
 
 
15 triggers, though four waivers had been requested.  The U.S. asked 
about the recent minimum wage increases; the Fund responded that 
staff were concerned about the risk of contagion to all public 
sector wages, which could cost 0.4% of GDP.  The Club will negotiate 
completion point treatment with Haiti on July 8. 
 
---------- 
KAZAKHSTAN 
---------- 
 
¶15. (SBU) The IMF opined that despite current banking problems, the 
longer-term outlook was positive, with oil output expected to double 
by the middle of the next decade as the Kashagan field comes on 
line.  External assets totaled about $20 billion, public debt was 
low, and growth prospects good. 
 
¶16. (SBU) More immediately, though, the country had been hit by two 
shocks -- the unraveling of financial markets and the drop in oil 
prices from their 2008 peaks.  Kazakh banks had borrowed heavily in 
international markets, especially in 2006 and early 2007.  For a 
while they had been cushioned by high oil prices, whose fall had had 
major effects on the economy, with growth having fallen from 10% per 
year in mid 2007 to an estimated -2% currently.  The current account 
had returned to deficit, though inflation had eased below 9% in May. 
 The banking sector, however, faced serious solvency risks, with 
 
PARIS 00000973  010 OF 021 
 
 
non-performing loans having soared and amidst serious doubts about 
the values of external assets (BTA, for example, had 40% of its 
assets in Russia).  The banks had about $40 billion in external 
liabilities, of which about a quarter matured in 2009.  Three major 
institutions - BTA, Alliance, and Astana Finance - had stopped 
making principal payments in April. 
 
¶17. (SBU) The government had responded with an anti-crisis program 
totaling 10% of GDP, designed to stabilize banks and stimulate the 
economy.  The banking measures included injecting $2.2 billion in 
capital into the top three banks (with the government having taken a 
controlling share of BTA in February), deposits from the public 
development agency, and crisis spending being channeled through 
banks.  Nevertheless, the situations at BTA and Alliance had 
continued to deteriorate, leading to the April standstill. 
 
¶18. (SBU) Kazakhstan had made no request for Fund support.  IMF 
Managing Director Strauss-Kahn had visited recently; on July 1, the 
Executive Board would discuss results of the 2009 Article IV 
mission.  The Bank noted that despite the "big three" defaults, many 
banks continued to honor their commitments and in fact banks' 
external debts by April had fallen to $33 billion from the $40 
billion cited by the Fund.  Of this, $12 billion would fall due in 
2009; $5-6 billion, in 2010.  Reserves had actually risen $2 billion 
in April and May after falling $6.5 billion in the first quarter. 
 
PARIS 00000973  011 OF 021 
 
 
The country had also attracted loan commitments of $10 billion from 
China, $3.5 billion from Russia, and $1 billion from the UAE. 
 
¶19. (SBU) The Secretariat noted that a number of Club ECAs had 
exposure to the nationalized BTA, and that major questions for the 
Club were whether the government had extended guarantees to cover 
these debts, and whether the Club should take coordinated action, as 
several ECAs had done in a joint letter.  The ECAs had received a 
reply from the President (which we had not seen), stating that the 
government was not assuming the debt. 
 
¶20. (SBU) Italy, which had requested discussion of Kazakhstan, 
sought coordinated action to support the ECAs.  Italy indicated that 
Kazakhstan and its advisors were seeking a substantial haircut, 
which was at odds with the country's outlook.  Italy noted that GOK 
infighting and corruption were impediments to a solution.  Numerous 
creditors reported exposure to the banks, including Austria, 
Belgium, Canada, Denmark, Finland, Germany, Italy, Japan, the 
Netherlands, Sweden, Switzerland, the UK, and the U.S.  Creditors 
arguing for a Club role suggested that the nationalization of BTA 
made the GoK responsible for its debts, and cited the argument made 
by the ECAs that their debts should be senior to others.  (We had 
not seen the letter before it was sent and do not know the grounds 
for this argument, beyond that the defaults could threaten future 
ECA lending.) 
 
PARIS 00000973  012 OF 021 
 
 
 
¶21. (SBU) The Secretariat said negotiations on resolving Alliance 
were scheduled for July, and for BTA in August; if the Club were to 
act, it would need to do so soon.  There was general support for a 
Club letter to authorities, but disagreement on what it should say. 
One faction (which included the U.S. and the Secretariat) urged a 
pared-down letter noting the Club's concern about the issues and 
their resolution; others urged that the letter assert GoK 
responsibility for the debts, repeat the ECAs' assertion of 
seniority, and indicate that a negative outcome for ECAs could 
affect any (highly theoretical) Club treatment for Kazakhstan.  The 
Secretariat will prepare a draft, reflecting its toned-down 
preference.  There will also be a data call ahead of further 
discussion in September.  The Secretariat will also seek information 
from the EBRD. 
 
------- 
MOLDOVA 
------- 
 
¶22. (SBU) The Fund reported that a mission had taken place in late 
May/early June.  Discussions of a proposed program had been 
suspended as a result of parliament's failure to elect a new 
president.  The authorities would welcome an early visit after the 
late-July elections.  The Bank reported little movement, except some 
 
PARIS 00000973  013 OF 021 
 
 
enterprise-related work, but noted one bank has serious liquidity 
problems.  The bank could be closed or bailed out, and have a 
broader impact on the financial sector. 
 
------- 
UKRAINE 
------- 
 
¶23. (SBU) Ukraine was likely on the agenda because of concern about 
energy issues and the impact of continued political wrangling on 
policy reforms, although no Club issues were raised.  The IMF 
reported that years of high growth (averaging over 7% per year since 
2000) had created multiple vulnerabilities.  By 2008 the economy was 
overheating badly, with 30% inflation, 70% credit growth, and 
soaring property prices.  The current account deficit had reached 7% 
of GDP, with the hryvnia overvalued by 10-20%, and household and 
business balance sheets deteriorating because of borrowing in 
foreign currencies.  Russia's phasing out of gas subsidies was 
followed by a reversal of capital flows.  Ukraine was shut out of 
credit markets (though lines were mostly rolled over), spreads 
soared, and the country was downgraded.  Banks came under strain, 
with runs on deposits. 
 
¶24. (SBU) The Fund program that began in November was aimed at 
rebuilding confidence and restoring financial stability.  Elements 
 
PARIS 00000973  014 OF 021 
 
 
included a flexible exchange rate policy, appropriate fiscal stance, 
and energy prices being moved towards international levels.  The May 
8 review had allowed a $2.8 billion disbursement from the Fund, and 
a mission was in the country.  The current account had moved into 
balance as a result of recession, with GDP expected to fall more 
than 10% in 2009.  There had been large outflows, but these had 
ended, as had deposit outflows.  Exchange rate pressures had eased 
after a 35% depreciation, and inflation was falling. 
 
¶25. (SBU) Financial sector reform was on track, with diagnostics 
completed.  Most major banks - including all foreign-owned ones - 
had agreed to capital injections, although a few systemically 
important local banks had not yet agreed and were still being 
"worked on."  There remained large downside risks, including fiscal 
risk from Naftogaz.  The Bank concurred about downside risk, 
pointing especially to refinancing risk for the private sector 
(which owed $22 billion in short-term debt and $16 billion in 
medium-term debt, with an estimated rollover rate of only 80%, much 
less than the financial sector's) and to the 2010 presidential 
elections. 
 
------------------------------------ 
Methodological Issues 
SENIORITY OF NEW BILATERAL FINANCING 
------------------------------------ 
 
PARIS 00000973  015 OF 021 
 
 
 
¶26. (SBU) There was discussion of the Secretariat's proposal to 
create a new seniority level - below the international financial 
institutions' (IFIs') preferred creditor status but above all other 
Paris Club debt - for bilateral loans made alongside the IMF in the 
context of the current crisis.  The Secretariat outlined revisions 
in its third working paper on this topic.  The IMF stressed need to 
preserve the IFIs' preferred creditor status.  The U.S. indicated 
firmly that it would not agree to the proposal, for two principal 
reasons - additional seniority was not needed to provide incentives 
to make such bilateral loans, and it raised the specter of the Paris 
Club judging loans based on purpose and circumstances, rather than 
purely financial conditions. 
 
¶27. (SBU) The Inter-American Development Bank (IDB) had offered a 
similar proposal to extend its preferred creditor status to 
bilateral creditors lending alongside it.  Bank EVP Zelikow had 
discussed the Bank's proposal with the Secretariat.  Without 
revealing the Club's discussions, the Secretariat had indicated to 
him that bilateral loans would have to be inferior to the Bank's. 
The U.S. indicated it would oppose the IDB proposal; the same 
arguments applied, and it made no sense to support special status 
for lending alongside the IDB while rejecting it alongside the Fund. 
 There were no grounds for extending the IFIs' own preferred 
creditor status to loans in which they had no financial interest. 
 
PARIS 00000973  016 OF 021 
 
 
The Vice-Chairman noted that, given Multilateral Development Banks' 
(MDBs') desire to use seniority to elicit further bilateral lending, 
rejecting the proposal would increase pressure for MDB capital 
increases.  Nonetheless, in view of various countries' reservations, 
the Secretariat undertook to tell the IDB that there was no Club 
consensus to support the IDB's proposal. 
 
--------------------------------------------- - 
Meeting with Non-Paris Club Official Creditors 
and the Private Sector 
--------------------------------------------- -- 
 
¶28. (SBU) The Institute of International Finance co-hosted the 
Club's annual meeting with the private sector.  Non-Club official 
creditors that attended were Brazil, China, South Korea, Israel, 
Poland, Romania and Turkey; notably no Gulf countries accepted the 
Club's invitation this year.  The IIF made presentations on its 
"Principles for Stable Capital Flows and Fair Debt Restructuring in 
Emerging Markets," debt reconciliation, and litigating creditors. 
The Paris Club Secretariat presented recent Club activities and 
country cases. 
 
¶29. (SBU) The IIF took an aggressive stance on litigating creditors, 
reporting its research, which identified 47 cases involving 11 
HIPCs.  Of those, 26 were settled out of court, and of the remaining 
 
PARIS 00000973  017 OF 021 
 
 
21, 3 involved financial investors.  In most cases, the IIF argued, 
the cases were small relative to the countries' GDP.  Among 
non-HIPCs, IIF was aware of fifty cases, of which nine were subject 
to litigation.  Excluding Argentina, the total sum involved was only 
$1.5 billion, and recoveries $230 million.  Notably, IIF appeared 
unaware of the recent Congo-B settlement.  IIF argued strongly that 
rights to litigation were essential for the functioning of markets, 
and that these had been weakened by recent GM and Chrysler 
developments.  IIF argued litigation was expensive, rarely led to 
collections, and was usually not worthwhile.  Individual IIF members 
pointed out that they sometimes had to file suit because of statutes 
of limitation; BNP Paribas noted that creditors that had not sued 
were kept out of Nicaragua's International Development Assistance 
(IDA)-supported debt buyback because their claims had been 
time-barred.  The Secretariat responded that comparability of 
treatment was the key issue for the Club, and noted that some claims 
were big, and that some HIPCs could not afford even small amounts. 
 
 
¶30. (SBU) The African Development Bank's (AfDB) General Counsel 
solicited support for the Bank's African Legal Support Facility, 
noting that it had received twenty requests for support.  The 
facility had signed up forty African members, but only two donors - 
Belgium and Brazil - ahead of its formal launch on June 29.  (Club 
Chairman Ramon Fernandez said that France will join.)  The fund has 
 
PARIS 00000973  018 OF 021 
 
 
$50 million and an additional $10 million in pledges, and seeks to 
mobilize $50 million in the coming year. 
 
¶31. (SBU) The discussion of Ecuador yielded the most interesting 
argument:  an observation from Hans Humes of Greylock that the 
buyback demonstrated how little power private creditors had, despite 
the concerns about litigating creditors and vulture funds.  Humes 
claimed private sector creditors had been undermined by IDB lending 
to Ecuador; the country did not have to reach agreement and forced 
private creditors to capitulate. 
 
--------------------------------------------- ------ 
CONFERENCE ON THE WORLD CRISIS AND ITS IMPLICATIONS 
FOR EMERGING AND DEVELOPING COUNTRIES 
--------------------------------------------- ------ 
 
¶32. (SBU) The Conference attracted a number of high-level speakers, 
including French Minister Lagarde, John Lipsky of the IMF, Christian 
Noyer of the Banque de France, former European Bank for 
Reconstruction and Development (EBRD) President Jean Lemierre, AfDB 
President Kaberuka, finance ministers from Indonesia and Cameroon, 
and the central bank governors of Hungary and Ghana.  Most of the 
speakers covered familiar ground, but there were some interesting 
points: 
 
 
PARIS 00000973  019.2 OF 021 
 
 
-- Lipsky was optimistic, saying fears of a serious setback had been 
overcome and that the Fund was likely to increase growth forecasts. 
The U.S. banking crisis was receding, due to capital raising, stress 
tests, and earnings, and called for countries to develop exit 
strategies from crisis policies.  Lipsky questioned the value of 
accumulating large reserves, noting that reserves had become 
unusable during the crisis since spending them caused confidence to 
drop.  Noyer observed that even countries with large reserves (such 
as Russia and China) had been hit, suggesting that markets were 
focused on flows rather than balance sheets. 
 
-- Indonesian Finance Minister Sri Mulyani Indrawati noted her 
country had been relatively insulated from the crisis, and that the 
economy was still growing.  Nevertheless, it had been affected by 
falling capital flows and negative perceptions.  While volatility 
was declining, the worst could still be ahead.  She described 
Indonesia as an "innocent victim" of the current crisis and had 
pointed remarks about the IMF (the photo of Camdessus "cannot be 
eliminated" from Indonesians' minds); Asian countries' belief, based 
on the response of "West-dominated institutions" to the Asian 
financial crisis, that they need their own "self-insurance" and 
regional efforts to address vulnerabilities; and the negative impact 
on all countries of a volatile dollar.  With speakers from Australia 
and Japan, she discussed regional support efforts for Indonesia. 
When asked whether there was a conflict between such efforts and 
 
PARIS 00000973  020 OF 021 
 
 
G-20 agreement to strengthen the Fund's role, she said she wished 
she could trust the Fund, but that her first priority had to be 
protecting Indonesia. 
 
-- Hungarian Central Bank Governor Simor acknowledged his country's 
errors in building vulnerabilities, while arguing that all of them 
came to a head a week after the Lehman Brothers failure.  He noted 
that Hungary had followed procyclical policies before the crisis hit 
and was forced to follow procyclical policies now. 
 
-- AfDB President Kaberuka deftly sidestepped a question about the 
bank's views on China's role in Africa.  Referring to the 2007 AfDB 
Annual Meetings held in Shanghai, he noted that China was an AfDB 
member and an "important partner for Africa," but went on to 
emphasize the importance of debt sustainability and of enhancing 
African countries' capacity to negotiate contracts that provide 
advantages to both parties and take into account debt 
sustainability. 
 
-- In response to a question about Ghana's heavy borrowing on 
non-commercial terms, Central Bank Governor Acquah admitted that the 
Eurobond had been expensive, but argued that the coupon rate was not 
high at the time of issuance.  He asserted that many of the proceeds 
were used for infrastructure before the food and fuel price 
increases and elections affected spending priorities. 
 
PARIS 00000973  021 OF 021 
 
 
 
-- Otaviano Canuto of the World Bank presented a detailed discussion 
of the Debt Sustainability Framework review, which the G-7/G-20 had 
tasked the Bank and Fund to complete by the 2009 Annual Meetings. 
Areas being examined included the linkage between investment and 
growth, threshold effects from use of the CPIA, inclusion of 
remittances in the analysis, updating the discount rate, and 
treatment of SOEs.  A paper would be sent to the Executive Board the 
last week in August, in preparation for the Annual Meetings. 
PEKALA