Common use of THE DEBT PROBLEM Clause in Contracts

THE DEBT PROBLEM. The success of the strategy adopted by the authorities inevitably depends on a satisfactory resolution of the external debt problem and on the restoration of the Republic’s international creditworthiness. One of the conditions for the country’s development will indeed be its capacity to attract the necessary foreign investment and to encourage the growth of national saving. The debt sustainability analyses (DSA) prepared by the IMF and the World Bank to support the determination of eligibility of the Republic to the HIPC Initiative — a preliminary DSA prepared in 2004 and the final DSA of January 31, 2006 in support of the proposed adoption of the decision point — bring into xxxxx relief the unsustainable level of the Republic of Congo’s external indebtedness and the significant obstacle it poses to the implementation of the poverty reduction strategy – as well as to reaching the Millennium Development Goals (MDG), the set of objectives designed to improve living standards as defined by the Millennium Declaration by the Member States of the United Nations (UN). At the end of 2004, nominal debt represented almost 200% of GDP, more than 230% of exports of goods and services, and close to 615% of the country’s tax revenues, one of the highest such ratios in the world. In net present value (NPV) terms, these ratios were only marginally lower as most of the debt had been contracted on commercial terms. The simulations provided by these analyses also indicate that the traditional mechanisms of debt reduction (the so-called “Naples Terms”) would fall well short of allowing the Republic to reach the debt sustainability thresholds set by the indicators retained for the HIPC Initiative. The debt/budget revenue ratio would have declined to only 370% at the end of 2004, compared with a maximum target of 150% under the HIPC Initiative. It is these considerations, combined with the performance of the Republic under the PRGF program, that led the international community, in March 2006, to approve the eligibility of the Republic to the “decision point” under the HIPC Initiative, and therefore to launch the process of alleviating the country’s external debt burden. The April 2006 additional relief by the Paris Club was granted on these bases. The decisions of the Paris Club are nevertheless conditional upon the granting by other creditors of conditions at least as favorable as the Club’s, and this participation in the joint effort is, in any event, required by the need to meet the debt sustainability thresholds. The agreement in principle reached by the Republic with the London Club Committee represents an important step toward meeting this objective, even though its implementation will have a significant financial impact on the Republic’s treasury cash flow owing to the weight of the down-payment made on the closing date. LE SYSTEME BANCAIRE Organisation du système bancaire congolais I. AUTORITES MONETAIRES ET FINANCIERS La principale autorité monétaire et financière de la République est le Ministère de l'Economie, des Finances et du Budget à Brazzaville. Le Ministre de l'Economie, des Finances et du Budget est M. Pacifique ISSOIBEKA

THE DEBT PROBLEM. 1. The Congo’s External Debt The success of the strategy adopted by the authorities inevitably depends on a satisfactory resolution of the external debt problem and on the restoration of the RepublicCongo’s international creditworthiness. One of the conditions for the country’s development will indeed be its capacity to attract the necessary foreign investment and to encourage the growth of national saving. The debt sustainability analyses (DSA) prepared by the IMF and the World Bank to support the determination of eligibility of the Republic Congo to the HIPC Initiative — a preliminary DSA prepared in 2004 and the final DSA of January 31, 2006 in support of the proposed adoption of the decision point — bring into xxxxx relief the unsustainable level of the Republic of Congo’s external indebtedness and the significant obstacle it poses to the implementation of the poverty reduction strategy – as well as to reaching the Millennium Development Goals (MDG), the set of objectives designed to improve living standards as defined by the Millennium Declaration by the Member States of the United Nations (UN). At the end of 2004, nominal debt represented almost 200% of GDP, more than 230% of exports of goods and services, and close to 615% of the country’s tax revenues, one of the highest such ratios in the world. In net present value (NPV) terms, these ratios were only marginally lower as most of the debt had been contracted on commercial terms. The simulations provided by these analyses also indicate that the traditional mechanisms of debt reduction (the so-called “Naples Terms”) would fall well short of allowing the Republic Congo to reach the debt sustainability thresholds set by the indicators retained for the HIPC Initiative. The debt/budget revenue ratio would have declined to only 370% at the end of 2004, compared with a maximum target of 150% under the HIPC Initiative. It is these considerations, combined with the performance of the Republic Congo under the PRGF program, that led the international community, in March 2006, to approve the eligibility of the Republic Congo to the “decision point” under the HIPC Initiative, and therefore to launch the process of alleviating the country’s external debt burden. The April 2006 additional relief by the Paris Club was granted on these bases. The decisions of the Paris Club are nevertheless conditional upon the granting by other creditors of conditions at least as favorable as the Club’s, and this participation in the joint effort is, in any event, required by the need to meet the debt sustainability thresholds. The agreement in principle reached by the Republic Congo with the London Club Committee represents an important step toward meeting this objective, even though its implementation will have a significant financial impact on the RepublicCongo’s treasury cash flow owing to the weight of the down-payment that has to be made on the closing date. LE SYSTEME BANCAIRE Organisation du système bancaire congolais I. AUTORITES MONETAIRES ET FINANCIERS La principale autorité monétaire et financière de la République est le Ministère de l'Economie, des Finances et du Budget à Brazzaville. Le Ministre de l'Economie, des Finances et du Budget est M. Pacifique ISSOIBEKA.