Paris club
The Paris Club is a space for discussion and negotiation between official creditors and debtor countries. Its function is to renegotiate in a coordinated and joint manner the external debts of debtor countries with payment difficulties. Its creation, which is the first informal meeting, dates from 1956, when Argentina agreed to hold a meeting with its public creditors.
Meetings are held in Paris 10 to 11 times a year between renegotiation sessions, debt analysis or methodological aspects. The President of the sessions is a senior management official of the French Treasury. The Co-Chairman and Vice-Chairman are also officials of the French Treasury.
From 1956 to 2022 there have been 478 agreements agreed under the Paris Club framework related to 102 debtor countries, representing a total of 6.14 billion dollars
Members of the Paris Club
Currently, there are 22 permanent members:
Australia
Austria
Belgium
Brazil
Canada
Denmark
Finland
France
Germany
Ireland
Israel
Italy
Japan
Netherlands
Norway
Russia
South Korea
Spain
Sweden
Switzerland
United Kingdom
United States
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The following have participated as debtors at some point: Argentina, Chile, Peru, Ecuador, Cuba, the United Arab Emirates, Israel, Angola, Kuwait, Morocco, Mexico, New Zealand, Portugal, Trinidad and Tobago, Turkey, Tuvalu, and Uganda.
History
Creation
In 1956, Argentina requested a meeting in Paris with all its creditor governments. This is how the Paris Club was born, an association that brings together 19 countries with which Argentina contracted various debts. There were renegotiations in the years 1962, 1965, 1985, 1987, 1989, 1991 and 1992, and default fell again as a result of the crisis that the country suffered in 2001.
Agreement with Argentina in 2014
In January 2011, the amount owed to the Paris Club was around $9 billion. Hernán Lorenzino, the Finance Secretary, along with Amado Boudou, led the project, but the negotiations were not closed. About half of the unpaid commitments were prior to 1983, mainly taken between the military dictatorship of Aramburu and the last civic-military dictatorship (1976-1983). 9% of the debt was taken during the government of Raúl Alfonsín, while the remaining 2% were assumed during the mandates of Carlos Menem and Fernando de la Rúa. Since then Argentina made eight attempts to renegotiate until finally reaching this agreement.
On May 29, 2014, the government of Cristina Fernández de Kirchner reached an agreement to settle the debt with the Paris Club within five years. Axel Kicillof led the Argentine delegation, from which they also took part Pablo López (secretary of Finance) and Federico Thea (legal and administrative secretary); Luis Briones (director of the National Public Credit Office), Claudio Dal Din (Director of Public Debt Administration), Hernán Lorenzino (Chief of the Debt Restructuring Unit) and Adrián Cosentino (Coordinator of the Unit). On the side of the Paris Club the negotiation was led by the head of the multilateral forum, Frenchman Ramón Fernández.
It was agreed that the debt would be cancelled over the next five years, with an initial cash disbursement of $1150 million: an initial capital payment of $650 million would be made in July 2014 and the remaining $500 million would be delivered in May 2015. The agreement established a minimum payment of 3 % to face Argentina per year and set an additional payment criterion in case of increased investments from Club member countries. If, over the five-year period, additional investments were insufficient to cover the total debt, the country may postpone the maturity to two years. The agreed payment scheme significantly reduces the financial cost of this unpaid debt from an average rate of about 7% to 3%. This is the first time that a middle-income country has agreed to cancel its debt with the Club within five years and without the IMF intervention.
On 28 July 2014, Argentina paid $642 million to the Paris Club in a first capital disbursement due after the agreement signed in May of that year.[The deal] is a kind of shared effort. It is a way for governments to encourage companies to generate investments in the country. Once we begin to pay for the first losses, they will re-enable the windows so that those countries will lend them to companies that want to invest in Argentina.Axel Kicillof
Principles
The Paris Club is a non-institution, mixing Anglo-Saxon pragmatism with Latin imagination.
The fact of not having legal personality or constitutive texts, but only a series of principles and norms, allows the Paris Club to be very flexible in the face of the different situations of debtors. The lack of formalization of the negotiation rules also responds to the need to deal with each country on a case-by-case basis.
Over the years, a body of debt rescheduling or cancellation methods has developed. However, the Paris Club is free to change its rules at any time. For example, until the y years, cancellation of debt actions was not possible, although it has been a feature of many agreements since then.
It is up to the debtor country to contact the Paris Club. Your request must provide a detailed description of your economic and financial situation, demonstrating your inability to service your foreign debt. You must also have signed a program with the IMF, the analysis of which must show a financing need that makes debt treatment necessary.
Despite being an informal group, it has the following principles:
- Decisions are taken on a case-by-case basis, depending on the situation of the debtor country.
- Decisions are made by consensus among creditor countries.
- It is conditional, it is only with countries that need to restructure their debt and implement reforms to solve payment problems. In practice, this means that there must be a loan or rescheduling program previously approved by the IMF.
- Solidarity, creditors agree with each other, to implement the new terms of the Agreement to apply to each debtor country.
- Equal treatment among creditors. No debtor country can treat another creditor with which consensus has been reached at the Paris Club.
Solidarity
When negotiating with an indebted country, all members of the Paris Club act as a group and are sensitive to the impact that managing their own credits can have on the credits of other members.
Consensus
In the Paris Club, no decision can be made that does not reflect the consensus of the participating creditor countries.
Share Information
The Paris Club is a unique forum for the exchange of information. Paris Club members regularly share information and opinions with each other on the situation of debtor countries, benefit from the participation of the IMF and the World Bank, and share data on their credits reciprocally. The productive nature of the discussions should not prevent the confidentiality of the deliberations.
Case-by-case decisions
The Paris Club makes decisions on a case-by-case basis to continually adapt to the specific situation of each debtor country.
Conditionality
The Paris Club meets with a debtor only when:
- There is a need to reduce debt. The debtor country should provide a detailed description of its economic and financial situation;
- the debtor has implemented and is committed to implementing reforms to restore its economic and financial situation.
In practice, this means that the debtor must have an ongoing program with the IMF backed by an agreement with conditions (ADS, Expanded Agreement, Facility for Growth and Poverty Reduction, Policy Support Instrument). The level of debt treatment is based on the financing need identified in the IMF program.
In the case of a flow treatment, the vesting period is the period during which the IMF agreement identifies a financing need. When this treatment of flows continues for a long period of time (usually more than a year), the Paris Club agreement is divided into phases. The amounts due in the first phase are processed as soon as the Paris Club agreement enters into force. Subsequent phases are executed subject to the conditions established in the Agreed Minute, including the absence of accumulation of arrears and the approval of the IMF program review.
Comparability of treatment
A debtor country that signs an agreement with its Paris Club creditors undertakes not to accept from its non-Paris Club bilateral and commercial creditors a treatment of its debt under less favorable conditions for it than those agreed in the agreement. Paris Club.
Criticism of the Paris Club
Critics argue that the Paris Club is not transparent. In 2006, a significant number of non-governmental organizations requested a change in the Paris Club rules, especially regarding transparency.
In 2009, the Paris Club created a new website reiterating the terms of all treatment given to 90 debtor countries. Since 2008, the Paris Club has published an annual report, which includes detailed data on the credits that its members have with foreign States.