US embassy cable - 04AMMAN1456

UNCLAS AMMAN 001456 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR DEMOPULOS 
 
E.O. 12958: N/A 
TAGS: EFIN, JO 
SUBJECT: JORDAN REDEEMS ITS BRADY BONDS 
 
 
1. (SBU) SUMMARY: A December 2003 redemption by the Jordanian 
Ministry of Finance of the balance of Jordan,s Brady bonds 
will result in substantial savings in annual interest 
payments by the GOJ.  While the rising value of Jordan,s 
euro-denominated debt has essentially offset the buyback's 
impact on Jordan's debt-to-GDP ratio, this move for early 
redemption of high-cost foreign debt and replacement of it by 
low-cost domestic debt points the way forward for Jordan,s 
Ministry of Finance if Jordan,s creditors will allow it. END 
SUMMARY. 
 
2. (SBU) In December 2003, the Ministry of Finance redeemed 
all of its outstanding Brady bonds, paying a market price of 
JD 210.8 million (approx. US$300 million) for zero coupon 
bonds with a face value of US$465 million.   Together with 
the elimination of 70 million British pounds of debt through 
a debt-equity swap with Britain, which also took place in 
December, the GOJ eliminated 6% of its outstanding foreign 
debt.  According to Finance Ministry sources, the Brady 
buyback alone will save Jordan $17 million per year in 
interest payments through the year the bonds were to be 
retired (in 2023). 
 
3. (SBU) Due to a significant decline in the value of the 
dinar against the euro and the yen (which has increased the 
dinar value of Jordan,s substantially euro and 
yen-denominated foreign debt), however, Jordan,s overall 
amount of foreign debt grew slightly during 2003 to US$5,392 
million or 76.9% of GDP.  Consonant with policies agreed with 
the IMF, the Brady bond redemption was financed with domestic 
debt.   As this debt receives a lower rate of interest than 
did the Brady bonds, the cost savings for the government of 
Jordan still looks to be substantial. 
 
4. (SBU) Visiting IMF staff told us in a private meeting 
February 17 that the most rational course of action for the 
Finance Ministry would be to continue such efforts to replace 
foreign with domestic debt, particularly in the case of old, 
high-interest debt owed to European export credit agencies. 
The IMF still feared, however, that the Paris Club will 
reject this approach and instead insist that any prepayments 
give equal weight to all creditors, regardless of the 
interest rate of their debt.  While this would still generate 
cost savings for the Jordanians, these savings will be much 
less substantial. 
GNEHM