Paris Club
From Taighde
The Paris Club (Club de Paris) is an informal group of official creditors who work towards coordinated solutions to the payment difficulties experienced by debtor countries. Its members provide debt treatment to debtor countries undertaking macroeconomic and financial reforms in the form of rescheduling and/or reducing debt obligations.
The Paris Club originated in 1956, when Argentina met with its public creditors in Paris. Since then, the Paris Club has reached 405 agreements with 85 different debtor countries; the debt treated amounts to $512 billion.
The Paris Club generally agrees to treat public debts, including those owed by private entities but guaranteed by the public sector; medium- and long-term debts, and debts granted before the initiation of Club-debtor country meetings.
Paris Club creditor countries normally meet each month (except in February and August) in Paris for a one-day meeting called a "Tour d'Horizon", during which Paris Club creditors discuss among themselves the external debt situation of debtor countries, or methodological issues regarding the debt of developing countries. This session may also include negotiation meetings with one or more debtor countries that have met all conditions for a negotiation.
Contents |
Members
The Paris Club has 19 permanent members: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
Other official creditors can also actively participate in negotiation sessions on a case-by-case basis, subject to the agreement of permanent members and of the debtor country. Countries that have done so are: the United Arab Emirates, South Africa, Argentina, Brazil, Korea, Israel, Kuwait, Mexico, Morocco, New Zealand, Portugal, Trinidad and Tobago, and Turkey.
Flow Treatments
The Paris Club employs flow treatments in its dealings with debtor countries. Flow treatments aim to close the debtor country's financing gap as identified by the IMF in the framework of its programs. This gap is the result of external resources - exports, reserves, revenue from foreign assets, remittances, foreign direct investment (FDI), loans and grants - not covering external needs - imports, debt service, repatriation of dividends produced by FDI.
Paris Club agreements usually coincide with the period of time covered by the IMF program, called the "consolidation period".
Only maturities owed to Paris Club creditors and falling due during this period are treated. However, in some cases, arrears accumulated as of the start of the "consolidation period" are also treated.
Stock Treatments
The aim of agreements covering the stock of debt is to provide a debtor country with a final Paris Club treatment called an exit treatment. Such agreements are used in two cases:
- under the HIPC initiative, the Paris Club creditors may initiate a stock treatment granted at completion point
- in other cases, stock treatments may be granted, on a case-by-case basis, for countries that have a satisfactory track record with both the Paris Club and the IMF, and where there is sufficient confidence in the debtor country's ability to meet its obligations under the debt agreement
Payment Terms
Over the years two trends have developed in the payment terms for agreements with Paris Club creditors:
- Longer repayment periods: a maximum repayment period of 23 years for commercial loans and 40 years for official development aid loans.
- Debt cancellation: concessional agreements have become more accetable to Paris Club creditors, and are now offered for up to 90% of debt.
Debt Swapping
Paris Club agreements may allow creditors to voluntarily engage in debt swaps. These operations may take the form of debt-for-nature, debt-for aid, debt-for-equity or other local currency debt swaps. These swaps usually take one of the following forms:
- the debtor country directs the servicing of the debt to a fund that will be used to finance development projects in the country (debt-for-development swaps)
- the sale of the debt by the creditor government to an investor, who in turn sells the debt to the debtor government in return for shares in a local company or local currency to be used for projects in the country
In order to preserve comparability of treatment and solidarity among creditors, debt swap amounts are capped at a certain percentage of each individual Paris Club creditor's stock of claims.
