US embassy cable - 04SANTODOMINGO990

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 000990 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/OMA; TREASURY FOR DO:NLEE, 
LLAMONICA, RTOLOUI; PARIS FOR TREASURY ATTACHE 
 
E.O. 12958: DECL: 02/18/2007 
TAGS: DR, EFIN 
SUBJECT: DOMINICAN REPUBLIC-PARIS CLUB: AVOIDING BURDEN 
SHARING FOR PRIVATE CREDITORS? 
 
 
Classified By: Eco-Pol Counselor Michael Meigs.  Reason: 1.5 (b) and (d 
). 
 
 1.  (SBU) Summary.  On February 17 Dominican Presidency 
official Carlos Despradel asked the Charge to seek U.S. 
support in an effort to avoid burden sharing for holders of 
sovereign debt bonds. Having just received the portfolio for 
Paris Club negotiations, he is deeply concerned about the 
impact on the country,s credit rating.  Despradel is willing 
to travel to Washington next week (February 23-27) to discuss 
the question. Embassy is sympathetic to his effort to 
maintain access to financial markets even for a future 
administration but appreciates the significant downside of 
backing away from an IMF commitment just days after the 
standby was approved.  End summary. 
 
2.  (SBU) On February 17 Technical Secretary of the Dominican 
Presidency Carlos Despradel called at short notice on the 
Charge and set forth his analysis for the Paris Club 
rescheduling.  Despradel said that he had just received the 
assignment and upon examination of the dossiers had concluded 
that if the country fails to pay coupons due on sovereign 
debt, the deterioration in its credit rating will be very 
costly when it faces renewal in 2006 of its issue of USD 500 
million in sovereign bonds.  ("I do not expect to be in the 
government at that time, but this is a point of principle for 
me, a matter of national interest.") 
 
3. (SBU) Talks with the Paris Club are scheduled for March 5 
but he finds this gives insufficient time to prepare.  Even 
so, after conferring with the IMF, he is aiming to meet the 
March 5 date.  He asked the Charge to advise U.S. authorities 
of this plight and to seek U.S. support for continuing to 
make coupon payments on sovereign bonds, despite the 
country,s formal commitment to comparable treatment for 
other creditors. 
 
Background 
- - - - - - - - - 
 
4.  (SBU) In its program for the standby agreement renewed, 
finally, on February 12, the Dominican Republic aimed at 
obtaining USD 300 million in debt relief for calendar year 
2004, half of which would come from rescheduling of 150 
million in Paris Club bilateral debt (originating pre-1984). 
Despradel says that total pre-1984 debt payments due in 2004 
are USD 264 million (USD 153m due to the U.S., 54m to Spain, 
40m to Japan, 10m to Germany and 6m to France).  He stressed 
that the Dominican Republic will continue to service all 
post-1984 debt to Paris Club members.  Despradel regrets that 
the agreement is to obtain only one year of debt relief; he 
recalled that the 1991 Paris Club rescheduling had been for 
three years of payments (1991-1993) due on pre-1984 debt, 
rescheduled over 15 years. 
 
5.  (SBU) The rest of the USD 150 million is to come from 
other creditors, meaning either the holders of sovereign debt 
or non-Paris-Club official creditors.  The country is 
servicing two issues of sovereign bonds: 27m due in January 
2004 was paid within the grace period, 25m is due in March, 
27m in July and 25m in September, for a total of USD 104 
scheduled for payment for the full year.  The three coupon 
payments remaining in 2004 represent USD 77m.    The only 
other significant non-Paris-Club creditors are Venezuela 
(20m), Brazil (21m) and Mexico (17m).  Despradel comments 
that each of these official creditors has provided 
supplier,s credits under ALADI or the San Jose accord on 
petroleum. He believes that it will be very difficult to 
obtain any relief from any of the three Latin American 
countries. 
 
6.  (SBU) Despradel is hoping that with support from the 
United States and Spain, the two largest creditors, he will 
be able to get Paris Club creditors to reschedule the entire 
USD 264m due in 2004 on pre-1984 debt.  He thinks that 
eventually and with considerable difficulty the Dominicans 
might get debt relief of perhaps USD 10m due to Latin 
American countries. 
 
7. (C)  The Technical Secretary says that he met in private 
with President Mejia on the need to comply with IMF 
conditions (&Using the military will not work, we must show 
them during the March review that we are in strict 
compliance8).  Despradel says that Mejia subsequently told a 
full economic cabinet meeting that the administration had to 
adhere to conditions "down to the last cent."  The IMF has 
prepared a tabular presentation of relevant indicators, to be 
renewed weekly. 
 
8.  (SBU) Despradel said again -- "and this is very 
important" -- that the GODR will continue to pay all of its 
post-1984 debt servicing.  He reminded Charge that according 
to the standby, the government will continue to make peso 
payments for rescheduled debt but that these will go into the 
Central Bank to reduce its holdings of short-term debt. 
 
9.  (SBU) Despradel is willing to travel to Washington next 
week (February 23-27) to discuss these matters with Treasury 
and with the IMF and he expects to travel to Madrid for the 
same purpose.  A five-person technical team arrives in 
Washington today, February 17, for a morning of contacts with 
the IMF before continuing to New York, where they will 
consult Dominican legal counsel and J.P. Morgan, the 
country,s agent for dealing with bondholders. 
 
10. (SBU)  Charge and Eco-Pol Counselor took note of 
Despradel,s arguments and proposal and promised to provide 
them promptly to Washington authorities.  The Charge reminded 
Despradel of U.S. Treasury misgivings about the Dominican 
desire to approach the Paris Club as part of the renewed 
standby; Despradel shrugged, implying that Dominican 
authorities had not found any other reasonable approach. 
 
Comment 
- - - - - - - 
 
11.  (C) We were dismayed to see Carlos Despradel given this 
ill-prepared dossier.  Finance Secretary Calderon declined 
the job, saying that he was too involved with electricity 
sector negotiations. Central Bank Governor Lois Malkun, 
co-signer with Calderon of the mid-January declaration of 
intent to seek comparable treatment for other creditors, 
simply turned it down.  We are sympathetic to Despradel,s 
concern about the impact of Paris Club rescheduling on access 
to financial markets even for a future administration but 
appreciate the significant downside of backing away from an 
IMF commitment just days after the standby was approved. 
KUBISKE