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courage is contagious

Viewing cable 08PARIS826, PARIS CLUB - PARIS CLUB - APRIL 2008 TOUR D'HORIZON AND

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Reference ID Created Released Classification Origin
08PARIS826 2008-04-29 07:14 2011-08-24 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Paris
VZCZCXRO0350
RR RUEHBW RUEHBZ RUEHGI RUEHPOD
DE RUEHFR #0826/01 1200714
ZNR UUUUU ZZH
R 290714Z APR 08
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 2828
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RUEHRL/AMEMBASSY BERLIN 6782
RUEHSW/AMEMBASSY BERN 2101
RUEHBS/AMEMBASSY BRUSSELS 6694
RUEHCP/AMEMBASSY COPENHAGEN 1552
RUEHLO/AMEMBASSY LONDON 6898
RUEHMD/AMEMBASSY MADRID 2813
RUEHMO/AMEMBASSY MOSCOW 6094
RUEHNY/AMEMBASSY OSLO 1596
RUEHRO/AMEMBASSY ROME 8820
RUEHSM/AMEMBASSY STOCKHOLM 1607
RUEHTC/AMEMBASSY THE HAGUE 2963
RUEHKO/AMEMBASSY TOKYO 2725
RUEHBS/USEU BRUSSELS 2283
RUEHLU/AMEMBASSY LUANDA 0950
RUEHGI/AMEMBASSY BANGUI 0186
RUEHRY/AMEMBASSY CONAKRY 0025
RUEHBZ/AMEMBASSY BRAZZAVILLE 0116
RUEHGB/AMEMBASSY BAGHDAD 0056
RUEHAM/AMEMBASSY AMMAN 1148
RUEHMV/AMEMBASSY MONROVIA 7342
RUEHBW/AMEMBASSY BELGRADE 0925
RUEHPOD/AMEMBASSY PODGORICA 0085
RUEHPS/USOFFICE PRISTINA
RUEHUB/USINT HAVANA 0063
RUEHKI/AMEMBASSY KINSHASA 1599
RUEHAB/AMEMBASSY ABIDJAN 1188
RUEHLC/AMEMBASSY LIBREVILLE 1331
RUEHJL/AMEMBASSY BANJUL 0369
RUEHPU/AMEMBASSY PORT AU PRINCE 0819
RUEHPC/AMEMBASSY LOME 1065
RUEHBU/AMEMBASSY BUENOS AIRES 1514
RUEHKH/AMEMBASSY KHARTOUM 0254
RUEHPO/AMEMBASSY PARAMARIBO 0065
RUEHHI/AMEMBASSY HANOI 0257
RUEHBP/AMEMBASSY BAMAKO 0978
UNCLAS SECTION 01 OF 10 PARIS 000826 
 
SIPDIS 
 
 
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 - PARIS CLUB - APRIL 2008 TOUR D'HORIZON AND 
NEGOTIATION WITH LIBERIA 
 
1.  (SBU) Summary:  At the Paris Club's April 16-17 session, the 
U.S. and other creditors signed an accord with Liberia to begin 
interim debt relief under the enhanced Heavily Indebted Poor 
Countries (HIPC) initiative.  During the Tour d'Horizon, France, 
Germany, and the U.S. reported on recent bilateral contacts with 
Argentina.  Finance Secretary Secondini told the French that 
Argentina hopes to reach a settlement by the end of 2008, and the 
French believe that Argentina is preparing a formal proposal to the 
Paris Club.  The Secretariat urged Brazil to implement the 2004 debt 
treatment for Iraq, and the Club discussed relations with the 
Central African Republic, Cote d'Ivoire, Serbia, Seychelles, and 
Togo.  Despite opposition from the United States and Sweden and 
concerns raised by several other creditors, France continued to push 
its "fragile states" proposal for the Paris Club to provide an 
unconditional debt deferral for low-income countries that are 
participating in Emergency Post-Conflict Assistance (EPCA) programs 
with the IMF.  The Secretariat also reported on what it 
characterized as promising initial technical meetings with multiple 
Chinese government ministries involved in PRC aid and lending 
activities.  Creditors also discussed preparation of a Paris Club 
annual report.  End Summary. 
 
--------- 
Argentina 
--------- 
 
2.  (SBU) France reported Argentine Finance Secretary Secondini met 
Paris Club Chairman Musca on the margins of the IMF-World Bank 
Spring Meetings and expressed Argentina's desire to reach a 
settlement with the Paris Club by the end of the year.  France said 
that, contrary to press reports, Sarkozy and Fernandez de Kirchner 
did not discuss debt in their April 7 meeting in Paris. According to 
the Secretariat's account, Secondini did not specify terms.  The 
Secretariat believes the GOA, knowing it cannot obtain a traditional 
 
SIPDIS 
Paris Club rescheduling without an IMF program, is working instead 
on a voluntary arrears clearance proposal.  The U.S. reported that 
senior Treasury and State Department officials recently met with 
their Argentine counterparts and pressed them to make a serious 
offer to the Club.  Germany said it also met with Argentina but did 
not raise Paris Club issues.  Separately, the Secretariat summarized 
the results of the latest data call.  As of March 1, 2008, Argentina 
owed the Paris Club $7.92 billion (excluding the $1 billion 
 
PARIS 00000826  002 OF 010 
 
 
restructured Spanish loan), of which $5.36 billion consisted of 
arrears and $1.21 billion consisted of late interest.  Japan, 
Norway, and Spain said they had received modest payments on debts 
contracted after the December 1983 cutoff date.  The Netherlands 
said it may have also received some payments but would confirm.  The 
Secretariat will update the data call to reflect these payments and 
 
SIPDIS 
questioned whether Argentina was paying certain creditors 
selectively, which could complicate efforts to reach a settlement. 
Final payments on debts rescheduled through previous Paris Club 
agreements are due by the end of 2008. 
 
------------------------------ 
Central African Republic (CAR) 
------------------------------ 
 
3.  (SBU) The IMF said a significant share of CAR's external debt is 
owed to non-Paris Club creditors, some of which are considering 
litigation.  The IMF warned that it will be challenging for CAR to 
secure financing assurances from creditors holding 80 percent of the 
debt -- a requirement for reaching HIPC Completion Point. (CAR 
barely reached the 70 percent threshold necessary for the IMF to 
provide interim debt relief at Decision Point.)  The authorities 
have approached the African Development Bank for legal assistance. 
The Secretariat said it was important for the Paris Club to maintain 
pressure on non-Paris Club creditors.  One possibility is to send 
letters to CAR's non-Paris Club creditors, similar to what the Paris 
Club did for Iraq.  Several creditors, including the U.S., reported 
that they were close to concluding bilateral agreements to implement 
the Paris Club's December 2007 HIPC Decision Point debt treatment. 
 
------------- 
Cote d'Ivoire 
------------- 
 
4.  (SBU) The IMF said if Cote d'Ivoire performs satisfactorily 
under its second Emergency Post-Conflict Assistance (EPCA) program, 
it could reach HIPC Decision Point and begin to benefit from interim 
debt relief at the same time a follow-on Poverty Reduction and 
Growth Facility (PRGF) program is approved.  The government would 
like to reach Decision Point by the end of 2008.  The IMF noted, 
however, that Cote d'Ivoire's track record under its first EPCA was 
not encouraging; overall performance was uneven, with unproductive 
 
PARIS 00000826  003 OF 010 
 
 
spending and delays in structural reforms.  The Secretariat said it 
could begin to think about the terms of an eventual Paris Club 
treatment and approach the London Club to discuss comparable 
treatment as soon as a macroeconomic framework is in place. 
Preliminary contacts with the London Club suggest willingness to 
have a cooperative dialogue.  The Secretariat indicated that debts 
contracted after the January 1983 cutoff date may have to be 
included in the debt treatment.  The IMF said most of Cote 
d'Ivoire's private debt is owed to the London Club and repeated 
previous statements that the Fund is not aware of any Ivorian debt 
held by litigating creditors.  Reconciliation of debt data is well 
advanced.  The World Bank reported that recent arrears clearance 
operations enabled the Bank to provide $35 million in budget support 
and reactivate $104 million in undisbursed funds.  In the coming 
months, there will be approval of $122 million in grants to support 
emergency urban infrastructure, government and institution building, 
among other projects. 
 
---- 
Iraq 
---- 
 
5.  (SBU) The Secretariat reported that Iraq's advisers had asked 
the Secretariat to write to Algeria and Morocco and urge them to 
provide comparable treatment.  Creditors gave their consent.  The 
Secretariat asked Brazil for an update on progress toward concluding 
 
SIPDIS 
a bilateral agreement with Iraq.  Brazil's delegation stated that, 
although Brazil participated in the 2004 negotiations, the GOB did 
not sign the Agreed Minute for three reasons:  (1) it did not agree 
with the terms of the treatment; (2) the majority of Iraq's 
creditors was not present at the Paris Club negotiations, and Brazil 
did not know how those creditors would react to the Paris Club 
agreement; and (3) there were other complicating factors, including 
legal issues, involving many actors in Brazil.  The Brazilian 
representative promised that a response to the Secretariat's letter 
would be forthcoming, adding that Brazil had maintained an open 
dialogue with Iraq's advisers and was working internally to find a 
solution even though Iraq was a very complicated issue domestically. 
 The Secretariat pressed the issue, noting that the situation had 
changed significantly since 2004.  No longer could Brazil cite 
concerns about the reaction of other creditors considering that many 
of Iraq's creditors have delivered comparable treatment.  The 
 
PARIS 00000826  004 OF 010 
 
 
Secretariat reiterated that the comparability of treatment principle 
 
SIPDIS 
applies to all non-Paris Club creditors and especially to a country 
like Brazil that has participated in so many Paris Club meetings. 
 
6.  (SBU) The UK asked whether there had been further discussions 
with Iraq's EU creditors.  The Secretariat said it had initiated 
contacts with Poland and Greece, but there was nothing to report 
yet.  The U.S. asked for an update on Iraq's discussions with China 
and India.  The Secretariat said an agreement with India had been 
concluded, and prospects for an agreement with China were good. 
[Note:  our understanding is that this assessment may be a bit 
simplified and overly optimistic.]  Spain asked the IMF about 
prospects for the third-phase review of the Stand-by Arrangement 
(SBA) occurring no later than December 31, 2008.  The IMF reported 
that a mid-June mission will review the SBA; if performance is 
satisfactory, the IMF Executive Board could discuss the review in 
August or September. 
 
------- 
Liberia 
------- 
 
7.  (U) During the April 17 negotiation, Paris Club creditors 
provided Liberia a flow treatment on the Club's standard terms for 
HIPCs at Decision Point.  The Paris Club's "Agreed Minute" with 
Liberia commits creditors to provide debt relief on the following 
terms, although several creditors will provide more generous 
relief: 
 
-- cancellation of 67 percent of arrears on non-official development 
assistance (ODA) debts contracted before the January 1983 cutoff 
date and rescheduling the residual amount over 23 years, with a 
6-year grace period, 
 
-- rescheduling over 40 years (with a 16-year grace period) all 
pre-cutoff ODA arrears as well as all ODA debt service payments 
falling due during the three-year period of the IMF program, and 
 
-- deferral of all post-cutoff date and short-term debt and to 
capitalize all moratorium interest payments, given Liberia's 
extremely limited capacity to pay. 
 
 
PARIS 00000826  005 OF 010 
 
 
8.  (U) As a result, a minimum of $254 million of Liberia's $1.4 
billion Paris Club debt stock will be cancelled immediately, and 
Liberia will not have any payments due to the Paris Club during the 
period of the IMF program, as long as the program remains on track. 
Additional bilateral relief from the U.S. and other Paris Club 
creditors will further increase the amount of up-front cancellation. 
 Given the large proportion of arrears involved, this means the U.S. 
will cancel nearly $400 million of Liberia's $430 million debt to 
the U.S. when implementing the April 17 Paris Club accord.  Liberia 
also committed to obtain comparable debt relief from its commercial 
and other bilateral creditors. 
 
9.  (SBU) Although HIPC Decision Point treatments are typically 
uncontroversial, two aspects of Liberia's request provoked debate. 
First, Liberia asked for zero payments during the period of the IMF 
program.  The IMF's own balance of payments projections surprisingly 
showed that Liberia had the capacity to pay $6 million to the Paris 
Club during the 2008-2010 program period, leading the Secretariat to 
suggest that Liberia apply the $6 million to a small portion of 
moratorium interest on deferred post-cutoff date debt.  Several 
creditors supported the Secretariat's proposal. 
 
10.  (SBU) The U.S. strongly disagreed, arguing that it was critical 
to provide Liberia a cushion given balance of payment risks, and 
citing the symbolic importance of zero payments.  We reminded 
creditors of a recent precedent:  when Haiti received its HIPC 
Decision Point treatment in December 2006, the Paris Club had not 
asked for any payments despite Haiti's larger capacity to pay. 
Germany strongly supported our position; Italy, Norway, and the UK 
also made helpful comments.  The Secretariat did not try to defend 
its proposal and agreed that providing a cushion was important.  A 
consensus quickly formed in favor of requiring zero payments. 
 
11.  (SBU) Liberia further asked the Paris Club to reduce pre-cutoff 
date non-ODA arrears by 90 percent rather than the standard 67 
percent.  Belgium, Germany, Italy, Norway, and the U.S. expressed 
their willingness to reduce these arrears by 90 percent; however, 
other creditors held to 67 percent.  The Liberians did not insist, 
but rather asked creditors that intended to go beyond the terms of 
the Agreed Minute to publicize this additional debt relief through 
bilateral press releases. 
 
 
PARIS 00000826  006 OF 010 
 
 
------ 
Serbia 
------ 
 
12.  (U) Switzerland said Serbia had declared that, even though the 
two countries had agreed on the text and figures of a bilateral 
agreement recognizing Serbia's share of the debt of the former 
Serbia and Montenegro, Serbia could not sign the bilateral agreement 
until a new government takes office following May 11 elections. 
France said it was in the same position.  The Secretariat promised 
to review the situation in May or June. 
 
---------- 
Seychelles 
---------- 
 
13.  (SBU) The Seychellois finance minister told the Secretariat 
that the Seychelles intends to seek an IMF program, which it 
understands is a precondition for a Paris Club treatment.  The IMF 
said the Seychellois principal secretary of finance met with Fund 
staff and also expressed interest in a program, although there has 
been no official written communication.  The Secretariat expressed 
cautious optimism that the Seychelles is moving in the right 
direction.  The government understands that comparability of 
treatment will require an approach to commercial creditors, and the 
Seychelles has also established a new debt committee in an attempt 
to exercise restraint on the central bank.  (The U.S. is not a 
creditor.) 
 
---- 
Togo 
---- 
 
14.  (U) The IMF said Togo's PRGF, which the Fund's Executive Board 
approved on April 21, could pave the way for debt relief under HIPC 
and the Multilateral Debt Relief Initiative (MDRI). Based on 
end-2007 data, Togo's high ratio of debt-to-government revenue is 
likely to exceed the 250 percent threshold necessary to qualify for 
HIPC.  The preliminary HIPC document should be completed by late 
summer, and Togo could reach Decision Point if performance is strong 
when the IMF completes its first review of Togo's PRGF.  The World 
Bank reported arrears to its International Development Association 
 
PARIS 00000826  007 OF 010 
 
 
(IDA) and noted a May 29 Board discussion would address an arrears 
clearance operation similar to Cote d'Ivoire's, with actual arrears 
clearance to occur the following day.  After budget support of $18 
million, there would be an IDA lending envelope.  No date is set yet 
for clearance of arrears to the African Development Bank (AfDB), 
although preparations are well advanced.  Germany said it received a 
letter from Togo asking for a 160,000 euros contribution toward the 
clearance of Togo's arrears to the African Development Bank.  France 
explained that the AfDB will pay 99 percent of the arrears, leaving 
Togo to cover the remaining 1 percent -- an amount equal to 160,000 
euros.  Togo has also asked France to pay the 160,000 euros; 
discussions are ongoing.  Assuming PRGF approval and arrears 
clearance to the World Bank and AfDB, negotiations in the Paris Club 
on a pre-HIPC debt treatment could take place in June.  (U.S. claims 
total just $6,000.  We requested a de minimis clause at the March 
2008 meeting.) 
 
-------------------------- 
Methodological Discussion: 
Fragile States 
-------------------------- 
 
15.  (SBU) Despite opposition from the U.S. and mixed reactions from 
other creditors, the Secretariat continued to press ahead with the 
proposal it first raised in March 2008 for the Paris Club to provide 
debt relief to low-income "IDA-only" countries, based on an IMF 
Emergency Post-Conflict Assistance (EPCA) program.  (The proposal 
calls for the Paris Club, on a case-by-case basis, to defer all 
arrears and debt service falling due during the period of the EPCA, 
and to capitalize moratorium interest.  If the country obtains a 
follow-on PRGF, creditors would reschedule deferred amounts and 
cancel the accrued moratorium interest.)  The U.S. said it could not 
support the proposal.  We reiterated our concerns about the 
precedent of providing debt relief -- even for a short period of 
time -- without conditionality and noted that the U.S. could face 
legal and budgetary obstacles in implementing such a deferral.  The 
Secretariat did not appear overly concerned about potential U.S. 
 
SIPDIS 
legal difficulties, noting that the U.S. Congress had provided the 
necessary legislation in the past in the context of the HIPC 
initiative. 
 
16.  (SBU) Creditors asked the Secretariat to 1) omit the reference 
 
PARIS 00000826  008 OF 010 
 
 
to Iraq in the working paper (Russia); 2) insert a claw-back 
provision to strengthen the link to a PRGF (Spain); 3) await the 
result of IMF and IBRD deliberations on fragile states before acting 
(Netherlands); and 4) provide a list of countries that could receive 
such treatment (Italy). 
 
17.  (SBU) Germany argued against automatically providing a deferral 
and said it could not agree to defer all categories of debt, as the 
inclusion of post-cutoff-date debt could affect export credit agency 
cover policy.  Germany, Japan, Sweden, and the UK all expressed 
concern about canceling moratorium interest without regard to the 
debtor country's capacity to pay once a PRGF is approved.  Sweden 
seconded all these concerns, pointed out Sri Lanka was paying its 
debt when the tsunami occurred, and questioned whether the 
Secretariat's proposal was the right way to help fragile states. 
 
SIPDIS 
 
18.  (SBU) No creditor other than the U.S. and Sweden, however, 
challenged the premise that the Paris Club should do something to 
help fragile states.  (Despite its reservations, Sweden said it did 
not intend to block any Paris Club decision.)  Indeed, several 
countries (Italy, Japan, Spain, UK) said they supported the proposal 
in principle.  The Secretariat picked up on this sentiment, 
concluding that "no one" around the table disagreed that the Paris 
Club should try to help fragile states; the question was how to 
respond. 
 
19.  (SBU) Given creditors' desire to take into account the outcomes 
of IMF and IBRD discussions, the Secretariat said the previous U.S. 
proposal to send a letter stating the Club's willingness to provide 
a debt treatment once a PRGF is in place could serve as an initial 
step.  The Secretariat offered to prepare a draft text for such a 
letter and update the working paper to reflect creditors' comments 
regarding conditionality.  The Secretariat stressed that the 
deferral would be applied on a case-by-case basis rather than 
automatically to all IDA-only countries on EPCAs.  Guinea-Bissau and 
the Comoros are likely candidates; Cote d'Ivoire and Lebanon are 
not.  The Secretariat proposed that, as the results of IMF and IBRD 
meetings emerge, the Paris Club continue its "fragile states" 
discussion. 
 
-------------------------- 
Methodological Discussion: 
 
PARIS 00000826  009 OF 010 
 
 
Relationships with China 
-------------------------- 
 
20.  (SBU) Paris Club Secretary General Courbe reported on the 
Secretariat's March 31 visit to Beijing to discuss the practices of 
 
SIPDIS 
the Paris Club with PRC officials.  The visit included separate 
meetings with staff-level officials from the Ministry of Commerce 
(MOFCOM), the Ministry of Foreign Affairs, and China Exim Bank.  The 
four-hour MOFCOM meeting involved twenty officials, including 
Africa, external aid, research institute, MFA and central bank 
experts, a sign of interest in the dialogue.  Commerce officials 
stressed that China's overseas aid was South-South cooperation and 
not comparable to development aid OECD countries provide; Commerce 
officials also strongly criticized conditionality attached to debt 
relief and development aid.  Questions focused on the Paris Club's 
practices with respect to conditionality, debt swaps, and how 
exchange rates are handled in debt treatments.  MFA officials made 
it clear that China could not become a member of the Paris Club, 
while at the same time acknowledging the Club's efforts in Africa. 
Exim Bank officials were also critical of conditionality but said 
they were willing to share data and experiences concerning 
particular debtor countries.  They also indicated a willingness to 
participate as an observer at a future Paris Club discussion; 
however, the Secretariat questioned whether China Exim's statement 
reflected a fully cleared position. 
 
21.  (SBU) The Secretariat was generally encouraged by these initial 
contacts.  While it is clear that China is not prepared to associate 
itself in any formal way with the Paris Club, Chinese officials 
remain open to a technical dialogue.  Possible next steps include 
inviting China's Ministry of Finance to discuss its own practices at 
a future Paris Club meeting; inviting China to participate in the 
Paris Club's annual meeting with the private sector, alongside other 
invited emerging market creditors; or inviting China to a seminar on 
debt not officially affiliated with the Paris Club.  The Chinese 
have not responded to these ideas. 
 
-------------------------- 
Methodological Discussion: 
Paris Club Annual Report 
-------------------------- 
 
 
PARIS 00000826  010 OF 010 
 
 
22.  (U) Creditors had very few comments on the first draft of the 
annual report prepared by the Secretariat.  The IMF said it strongly 
supported the initiative.  The UK suggested -- and the Secretariat 
agreed -- that it would be helpful to include a section describing 
how the resources made available by debt relief are used to reduce 
poverty.  The Secretariat seeks proposed edits within two weeks and 
aims to finalize the draft report by the beginning of May. 
 
STAPLETON 
 
 
 
2