US embassy cable - 02AMMAN2475

C O N F I D E N T I A L AMMAN 002475 
 
SIPDIS 
 
S/ES-O FOR UNDER SECRETARY LARSON OOB 5/20 
TREASURY FOR UNDER SECRETARY TAYLOR AND MICHAEL KAPLAN 
NSC FOR GARY EDSON/CLAY LOWERY 
 
E.O. 12958: DECL: 05/20/2007 
TAGS: EFIN, JO 
SUBJECT: IMF MISSION VIEWS ON JORDAN DEBT 
 
 
1.  (c)  Summary.  IMF staff currently in Amman says that 
Jordan needs a new Fund program that will allow it to 
"refinace" its Paris Club debt in such a way as to guarantee 
its graduation from the IMF process.  Given its low credit 
rating and volatile neighborhood, Jordan does not have 
market-based alternatives.  Being by far the largest 
creditor, Japanese support for such a refinancing is 
critical.  The IMF's points will be spelled out in staff 
papers to be issued following the May 23 end of its current 
mission to Amman. End summary. 
 
2.  (c)  According to Ihsan Mansur, the leader of the IMF 
mission that is currently in Amman to negotiate a new IMF 
program, the IMF's timeline remains to have a new 2-year, 
$105 million (SDR 85 million) stand-by program approved by 
the IMF in July, followed immediately thereafter by a Paris 
Club negotiation.  Mansur said the mission should wrap-up on 
May 22 or 23 with a press conference.  The new director of 
the IMF's Middle East department, George Abed, would fly in 
to seal the deal on the new program and deal with the press. 
 
3.  (c)  Mansur said that this agreement would mark Jordan's 
"graduation" from the IMF.  Thus, Mansur stressed to Econ 
chief, Jordan needs a Paris Club agreement that will allow it 
to "refinance" its external debt in such a way that it will 
never need to return to the Paris Club (i.e. the 
"reprofiling" the Jordanians are seeking).  He said that if 
Jordan does not obtain this refinancing, it will have to 
borrow from the market at high interest rates.  This, plus 
short market maturities, would leave Jordan financially 
vulnerable to external events and periodic rollover crises. 
These could be associated with political uncertainties in 
Jordan's volatile "neighborhood."  All this, Mansur said, 
increases the likelihood of a future debt or payments crisis 
absent a refinancing (he cited Turkey and Lebanon as negative 
examples). 
 
4.  (c)  Mansur also stressed the importance of Japan's 
support for such an approach, since it is by far the largest 
creditor and has the highest interest rates on its debt 
(relative to market rates).  They stressed that even if it is 
willing to follow such an approach on its own debt, Japan 
needs the multilateral cover of the Paris Club to take 
action.  A member of the IMF mission with experience in Japan 
described how it would create domestic political problems for 
the Japanese to be seen as acting alone. 
 
5.  (c)  Comment:  Mansur said that the IMF's financial 
points would be spelled out in the staff papers that would be 
distributed following the visit, but that it was up to 
creditors to find the most appropriate mechanisms to meet 
Jordan's needs.  Jordan's limited access to market finance 
was highlighted by Standard and Poor's April 30 decision to 
remove its "positive" outlook on Jordan's "BB-" credit 
rating.  Recognizing Jordan's success in implementing 
economic reforms, S and P cited the uncertain regional 
situation as the main factor in its decision.  The rating is 
now exactly at the same level as it was at the beginning of 
Jordan's current IMF program, before it joined the WTO and 
negotiated an FTA with the United States.  This suggests that 
Jordan does not yet have a meaningful, affordable alternative 
to the Paris Club for dealing with its medium-long term debt 
exposure. 
Gnehm