CONFIDENTIAL
14
arrears, is attempting to arrange a refinancing of ECA debts without resort to the
Pari Club. A scheme has been put to ECAS involving the issue of an FRN backed by
a high quality zero coupon bond. ECAS would receive payment to settle arrears and forthcoming maturities on certain non-oil related guaranteed debts from the proceeds
of the FRN issue, but would assume a contingent liability through being required to
guarantee 60% of the FRN payments. ECAS would also be expected to continue to
provide interest rate make-up where the rate payable on the FRN exceeded the fixed
rates agreed on the final contracts. The proposal was put to the Paris Club at the
June meeting, but was not well received; delegates considered it too complicated
and lacking in conditionality, the latter a particular problem if future maturities
as well as arrears are to be refinanced/rescheduled.
34
In Sudan, following the appointment of a new (but largely unchanged) Cabinet,
further talks with the Fund are tentatively set for 25-30 July; there is still no
indication that the two sides have moved any closer to an agreement. An
inconclusive meeting with London Club representatives of creditor banks took place
in June to consider the restructuring of debts totalling $1.7 bn. However,
American banks are reportedly insisting on repayment of $1 bn before entering into
any negotiations. Further talks are planned for October. On 19 June Uganda
secured a Paris Club rescheduling, based on a SAF, of 100% of interest and principal
on arrears and maturities falling due from 1 July 1987 to 30 June 1988, of contracts
concluded before 1 July 1981. Repayment is now to be effected over fifteen years, with six years' grace.
Middle East & North Africa
35 In Egypt, the introduction of the first stage of exchange reforms has not been
without problems. Branches of foreign banks have effectively been prevented from doing business because of a requirement for 100% local currency cover (in which they
are prohibited to deal) for letters of credit. Furthermore, the arrest of over 250
currency dealers has meant that foreign banks' customers are unable to buy the
necessary funds to repay loans previously taken out in foreign currency. Nevertheless, the Fund seems reasonably satisfied with progress under the programme
so far. Preliminary details of the budget for FY87/88 (which takes effect in July)
have been announced. A striking feature is the projected 46% increase in revenues
but the figures seem over-optimistic, unless the authorities intend to introduce
further revenue raising measures which have yet to be discussed with the IMF. If
the budget is fully implemented, the resultant deficit of 9.3% of GDP will be well
inside the IMF's target of 13.3% under the current programme.