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What do we know about the Paris Club?

10 Sep 2022

Paris Club became a familiar name for Sri Lankans following a statement issued by the Club soon after the International Monetary Fund (IMF) Staff-Level Agreement (SLA) with Sri Lanka, expressing its willingness to restructure debt with the country and also get non-Paris Club members on board to do the same.  After Argentine President Juan Domingo Perón was overthrown by a military coup in 1955, the new regime was eager to re-establish the goodwill of creditors. It quickly requested membership in the IMF and the World Bank. This meant regularising the country’s debt situation and meeting with its principal creditor countries. This meeting was held on 16 May 1956 in Paris at the invitation of the French Minister of the Economy and was the founding act of the Paris Club. Sixty years later, the Paris Club, along with the IMF and the World Bank, has become a strategic instrument of developed countries for maintaining their grip on the world’s economy. The Club still meets in the premises of the French Ministry of the Economy at Bercy in Paris, where it has its headquarters. Its aim is to renegotiate the debt of the developing countries having repayment difficulties.  The original 11 members have now become 20: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the UK, and the US. Other creditor countries may occasionally participate. When a country goes before the Paris Club for the first time a cut-off date is decided. Officially, only debts taken on or before such date may be subject to a new repayment calendar. This is to reassure the financial markets and creditors on the guarantees covering any new loans. Madagascar, Niger, and Côte d'Ivoire had their cut-off date set at 1 July 1983, which drastically reduced the amount of debt that may eventually be considered for renegotiation. The Paris Club recognises two classes of debt: Official Development Assistance (ODA), granted at below the market interest rates that supposedly encourages development and non-ODA debts (or commercial debts) which alone will be considered for easing. Generally, Paris Club debt relief is limited to the poorest and the most indebted countries. For the great majority of countries having payment difficulties, the Paris Club grants only payment rescheduling facilities, which does no more than put the problems off to a later date. The living conditions of the poorest populations is not the Paris Club’s problem as it considers itself to be no more than a debt recovery agency. It is run by the Finance Ministry, not the Foreign Affairs Ministry or the Ministry for Development and Cooperation.  The Paris Club objective is to make the debtor countries repay as much as possible – Paris Club creditors seek to recover the highest possible amount of their loans. So, an immediate payment of the highest possible amount is demanded. The remaining amounts are rescheduled so that future repayments are balanced and the risk of future default and renewed requests to the Paris Club are minimised. Is it a surprise that the Paris Club and the big banks are in collusion? Jean-Pierre Jouyet left the presidency of the Paris Club in July 2005 to take the post of non-executive President of Barclays. Emmanuel Moulin, General Secretary of the Club, took a new position at Citibank, the world’s biggest banking group, and there are other examples. The Paris Club describes itself as informal, a ‘non-institution’. It has no statutes or judicial existence. Technically, the agreements that are the outcomes of these negotiations are simple recommendations that become effective as and when a creditor country independently applies them to the bilateral agreements, which are the pertinent legal frameworks, with the debtor country. Nevertheless, in respect of the principle of solidarity the Club’s recommendations are systematically followed.  A clever way of sharing responsibilities – in fact, the Club has no responsibilities because its decisions are not binding in themselves even though members do apply them strictly. What is more, the Club’s role is fundamental because it forms a creditor country’s united front to recover payment of bilateral debts. On the other hand, each debtor country is alone and isolated, its situation being examined independently, considering IMF figures which are often excessively optimistic.  Quick to insist on ‘good governance’ elsewhere, the Club does not feel concerned itself. Meeting agendas are never made public in advance; the subjects of internal discussions and the positions of the different countries are never announced. The meetings are held behind closed doors, without the presence of independent observers. Whilst the Club is judge and party, the debtors are isolated before a united front of creditors. This implies that the decisions are weighed in favour of the financial interests of the rich countries. It is interesting to note that the Paris Club capitalises the interests on Paris Club debts that are finally added to the balance of outstanding debt, thus creating their own interest even if most South American constitutions, and some European ones, such as the Italian Constitution, prohibit such practices. So, the Paris Club effectively presses debtor countries into violating their own constitutions! Pressure is clearly used to discourage the forming of a ‘debtors’ union’. The Paris Club website says: “Creditworthiness usually takes a long time to build, as lenders tend to assess over time the capacity of the debtor to repay its debt before entering into large lending. In contrast, failure to fulfil debt obligations can rapidly damage creditworthiness. Under circumstances where debt restructuring cannot be avoided, countries that do not accumulate arrears and take preventive steps to reach a coordinated solution with their creditors, notably in the Paris Club, can restore their creditworthiness more rapidly afterwards. In contrast, debtors that declare a unilateral moratorium tend to lose access to new financing for some time.” Finally, after the Paris Club, the indebted state can then turn to negotiating its debt towards private creditors under conditions that are still more abominable, surrounded by a nauseating odour of profit by any means.  

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Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!


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