Cote d’Ivoire seeks fresh debt write-downs

28/11/2007 | Philip Alexander

A finance ministry official has told EM that the country is pushing for further Paris Club debt forgiveness, which could have implications for Brady bond valuations

The government of Prime Minister Guillaume Soro in Cote d’Ivoire is requesting further debt forgiveness from the Paris Club of creditor nations, Emerging Markets has learnt. This follows a deal to write off 80% of the country’s official sector debt in 2002.

“We are committed to repaying at least 50% of the remaining obligations, but beyond that, it depends on the outcome of negotiations,” Annick Kone, technical advisor to the finance ministry in Abidjan, told Emerging Markets.

She added that a full deal would probably have to await Cote d’Ivoire’s completion of its ongoing IMF emergency post-conflict assistance (EPCA) programme, most likely in early 2009. But she was confident that creditors would offer a sympathetic response, given the country’s significance for the West African Economic and Monetary Union (WAEMU).

“Even after the political crisis of the past few years, Cote d’Ivoire still accounts for 40% of the total WAEMU economy,” Kone said.

Cote d’Ivoire descended into several years of civil war just months after the 2002 Paris Club treatment, but the Ouagadougou accord, signed in the capital of Burkina Faso in March 2007, created a national unity government under former rebel leader Soro. This facilitated the EPCA agreement in August 2007, together with $120 million in post-conflict assistance granted by the World Bank in July despite outstanding loan arrears.

The accord has also raised hopes among investors that Cote d’Ivoire will negotiate with its London Club commercial creditors to settle its $2.45 billion in outstanding Brady bonds. The PDI and FLIRB bonds, on which the government has been in default since 2000, are some of the few remaining examples of a near extinct global asset class.

The prices of these bonds have doubled to almost 40 cents on the dollar since the Ouagadougou accord, but that surge could be called into question if Cote d’Ivoire receives further Paris Club debt forgiveness. The creditor nations usually ask for “comparable treatment” by the private sector, implying a deeper haircut on the principal and interest arrears of the Brady bonds.

“People may find they are caught in between, they are going to realize they’ve overpaid. I think we have probably seen the top of the market,” said Henry Avis-Vieira, president of Wesbruin Capital, a leading US distressed and exotic sovereign debt trading firm.

Avis-Vieira also expected that any bond to replace the existing London Club debt would carry a longer maturity (the PDIs and FLIRBs are currently dated 2018) and a back-loaded repayment schedule.

But George Estes, analyst for the $4 billion emerging country debt fund at US-based Grantham, Mayo, Van Otterloo (GMO), indicated that private creditors would not necessarily agree to offer comparable treatment, given significant forgiveness at the time of the original Brady restructuring in 1998.

“The London Club creditors have already given a huge amount of relief in the initial deal, more than the Paris Club terms, so certainly we would want to have that recognized,” Estes said. GMO was one of the founder members of the Private Creditors’ Advisory Committee for Cote d’Ivoire, formed in 2001.

Estes added that it was not possible to read much into the run-up in Brady bond prices, as it had occurred “in thin trading.” And he said the London Club had not yet held discussions directly with the Ivorian government, as the national reconciliation process in the country “has not been very constructive”.

Plans for fresh elections to cement the peace accord have been repeatedly delayed, but a decision earlier in November to allow immigrants to vote without residence permits may remove one of the major obstacles. Many of Soro’s supporters are first or second generation immigrants from Burkina Faso who had previously been barred from voting.

The country is also working to clear arrears to the World Bank. Kone said the government had followed the model used by other African countries, sending letters directly to individual creditors and major World Bank shareholders to ask for pledges of financial support to enable a comprehensive deal.

According to Kone, both government officials and the financial sector have now been able to return to the areas previously controlled by the rebels. The African Development Bank is also preparing to return to the commercial capital Abidjan, having moved its headquarters to Tunisia when the Ivorian civil war began in 2002.

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