Paris Club

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Content

• Introduction
• How has Paris Club been involved in debt agreements: Key Features of Paris Club Debt Agreements

Introduction

The Paris Club is a group of mostly western creditor countries that grew from a 1956 meeting in which Argentina agreed to meet its public creditors in Paris.

• It describes itself as a forum where official creditors meet to solve payment difficulties faced by debtor countries.
• When debt countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club Creditor provide an appropriate debt treatment.
• Their objective is to find sustainable debt relief solutions for countries that are unable to repay their bilateral loans.
• There are 22 members to this grouping and all of them are members of OECD
  • Members are: Canada, USA, Brazil, Ireland, UK, Spain, France, Italy, Switzerland, Germany, Belgium, Netherlands, Denmark Austria, Norway, Sweden, Finland, Russia, Japan, South Korea, Israel, and Australia.

How many agreements have Paris Club been involved in?

• Since its beginning, Paris Club has reached 470+ agreements with 102 different debtor countries. Since 1956, the debt treated in the framework of Paris Club Agreements amount to more than $610 billion.

How has Paris Club been involved in debt agreements: Key Features of Paris Club Debt Agreements:

• • Principle of Consensus and Solidarity: Any agreement reached with debtor country will apply equally to all its Paris Club creditors.
  • A debtor country that signs an agreement with its Paris Club Creditors, should not then accept from its non-Paris Club commercial and bilateral creditors such terms of treatment of its debt that are less favorable to the debtor than those agreed with the Paris Club.
• The role and importance of Paris Club Creditors:
  • The Paris Club countries dominated bilateral lending in the last century, but their importance has receded over the last two decades or so. This is because of rise of China as the world’s largest bilateral lender.
• Sri Lanka agrees debt restructuring with Paris Club Creditors and India (Nov 2023)
  • Sri Lanka has reached an “agreement in principle” with India and the Paris Club group of creditors including Japan, on a debt treatment plan that will help the crisis hit island nation tap the next tranche of the IMF’s nearly $3 billion recovery package.
• Background:
  • Due to economic crisis, Sri Lanka defaulted on its nearly $51 billion foreign debt. Therefore, restructuring of loan became necessary to begin its economic recovery plan.
  • Major lenders formed OCC (Official Creditor Committee) in May 2023 in response to Colombo’s request for debt treatment.
    • This OCC is co-chaired by India, Japan, and France, as chair of the Paris Club.
    • This committee held several discussions with Sri Lankan officials over the last few months, evaluating possible options in recasting Colombo’s outstanding debt, such as altering the interest payments or the term of loans.
    • China, which is the largest creditor of Sri Lanka has decided to stay out of the platform but attended the meeting as observer.
    • Japan and India, the two other largest creditors for Sri Lanka have called for the need for creditor parity and transparency.
• In Nov 2023, the OCC [Official Creditor Committee] and Sri Lanka agreed on the main parameters of a debt treatment consistent with those of the Extended Fund Facility arrangement between Sri Lanka and IMF.
  • The parameters of the agreement have not been finalized yet, but the Paris Club said that OCC is ready and looks forward to formalizing the agreement in the coming weeks in a MoU with Sri Lanka.
  • OCC has also noted that it expects that “other bilateral creditors” (a reference to China) should consent to sharing in a transparent manner, the information necessary for the OCC to evaluate comparability of treatment regarding their own bilateral agreement.
  • The OCC further asked Sri Lanka to continue to engage with its private creditors – who would hold the largest chunk of the island’s foreign debt – and swiftly firm up “an agreement on terms at least as favorable as the terms offered by the OCC”.
  • China has assured Sri Lanka of cooperation in the debt restructuring process and Sri Lanka has, in turn, assured other creditors of China’s transparent participation, but the specifics of the possible debt treatment plan are awaited