US embassy cable - 05WARSAW3277

C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 003277 
 
SIPDIS 
 
STATE FOR EUR/NCE MICHAEL SESSUMS 
STATE FOR NEW/I-ECON LAIRD TREIBER 
PARIS FOR OTTO VAN MAERSSEN 
TREASURY FOR OASIA MATTHEW GAERTNER AND ERIC MEYER 
FRANKFURT FOR TREASURY JIM WALLAR 
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS 
 
E.O. 12958: DECL: 12/31/2015 
TAGS: EFIN, PREL, PL, IZ, Iraq Debt Forgiveness 
SUBJECT: POLAND DEFERS DECISION ON IRAQI DEBT TO NEXT 
GOVERNMENT 
 
REF: WARSAW 3010 
 
Classified By: Economic Counselor Richard Rorvig, reasons 1.4 (b) and ( 
d) 
 
1.  (U)  This cable contains an action request - see para 4. 
 
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Summary 
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2.  (C)  Polish Finance Ministry Under Secretary Wieslaw 
Szczuka told us September 1 that, despite press reports, the 
Polish Government still has taken no decision regarding a 
write-off of Iraqi debt.  At present, the Poles and Iraqis 
are trying to reach agreement on the actual amount of debt 
and accumulated interest.  The Ministry figures Iraq owes 
Poland about $800 million, which would make it Warsaw's 
largest debtor.  Given the short time remaining to Poland's 
September 25 parliamentary elections, Sczuka expects the 
current Polish Government to leave the problem to its 
successor.  The Finance Ministry has heard rumors that the 
U.S. remains the only Paris Club member that has actually 
concluded a follow-on bilateral agreement with Iraq to 
implement actual debt forgiveness.  Szczuka reiterated the 
Finance Ministry's long-standing position that it would be 
much easier politically for Poland's Government to forgive 
Iraq's debt if Baghdad (or the U.S.) could offer sweeteners 
such as debt-equity swaps, construction contracts, or oil 
deliveries to soften the pain. 
 
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No Agreement yet on Numbers 
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3.  (C)  Finance Ministry Under Secretary Wieslaw Szczuka 
told us September 1 that press reports that Prime Minister 
Belka reached a debt write-off deal with Iraq during his 
recent visit to Baghdad were incorrect.  Iraq's debt to 
Poland was discussed, but no resolution was reached.  Poland 
and Iraq are still trying to agree on the exact size of the 
debt principal and accumulated interest.  Until that issue is 
resolved, the process can't proceed much further.  The 
Finance Ministry estimates Baghdad's debt to be approximately 
$800 million, making it Warsaw's largest debtor.  By 
contrast, Sudan owes Poland only about $80 million.  Polish 
Finance Minister Miroslaw Gronicki hopes to meet his Iraqi 
counterpart on the margins of the upcoming IMF and World Bank 
meetings in Washington DC to further explore this subject. 
 
4.  (C)  Szczuka stated that one option for resolving the 
issue would be to follow the Paris Club model.  However, the 
Government of Poland has heard that only the U.S. has 
followed up on the overall Paris Club Agreement by 
negotiating a bilateral accord with Iraq to implement actual 
reductions.  Szczuka asked if the U.S. could provide 
information as to whether other Paris Club members have 
actually followed through on their commitments.  (Post would 
appreciate any information the Department can provide in this 
regard.) 
 
5.  (C)  According to Szczuka, the Government of Poland has 
an existing agreement with Iraq which says that the Middle 
East country's debt would be repaid with future oil 
shipments.  He stated that it would be very difficult to 
explain to the Polish public that, in addition to the large 
expenses related to Poland's troop deployment to Iraq, the 
country will have to make further financial concessions.  In 
this regard, a sweetener, such as equity participation in 
Iraqi companies, oil deliveries, or further contracts for 
Polish companies would be extremely helpful to the Polish 
government politically.  Szczuka suggested that the U.S. 
could also offer to provide such a carrot. 
 
6.  (C) With oil prices currently hovering above $70 a barrel 
and Iraq estimated to hold nearly 10% of global reserves, 
Poland's Finance Ministry hopes yet to salvage something from 
Baghdad's debt.  The hope is underpinned by an expectation 
that at some point the situation in Iraq will stabilize 
enough to permit a significant expansion of petroleum oil 
exports, and hence in Iraq's ability to service its remaining 
foreign debts.  In this regard, Poland views Iraq as a very 
different case from Syria, with which it recently agreed on a 
debt write off under the presumption that Damascus' debts 
(for military equipment delivered in communist times) were, 
in any case, uncollectible.  The Finance Ministry figures 
that the unreimbursed costs of Poland's troop deployments to 
Iraq have been running at roughly $100 million per year, 
which it considers to be a relatively large burden for a 
middle-income country like Poland. It fears that the Polish 
public will be critical of further Iraq-related financial 
costs such as a debt write-off, unless the GOP can find some 
offsetting sweeteners that make the pill easier to swallow. 
 
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Comment 
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7. (C) Given the proximity of the September 25 parliamentary 
elections and the first and second rounds of the Presidential 
elections on October 9 and 23, respectively, it is unlikely 
that the present Belka Government will be able to resolve 
this issue during its remaining time in office.  Most 
observers agree that a successor government is not likely to 
be in place in Warsaw until late October at the earliest.  It 
will take even longer to fill all of the key sub-Ministerial 
positions relating to technical debt and budget issues.  Thus 
it may not be until January 2006 that we can resume the Iraqi 
debt discussion with officials who feel knowledgeable and 
secure enough to take a decision. 
Ashe