5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 1/19

 

 THE PARISCLUB

FINANCIAL MARKETSAND INSTITUTIONS

Submitted by:

 YASIR MUHIBNAVEED ALI KHANBBA (HONS) SEVENTH SEMESTERFINANCE GROUPMORNING SHIFT

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 2/19

 

3

Submitted to:

  MR. HAIDER

 TAJ

INSTITUTE OF MANAGEMENT STUDIES,

UNIVERSITY OF PESHAWAR, NWFP, PAKISTAN

THE PARIS CLUBHISTORY Since 1956, the Paris Club has remained a central player in the resolution of 

developing and emerging countries’ debt problems. In 1956, the world

economy was emerging from the aftermath of the Second World War. The

Bretton Woods institutions were in the early stages of their existence,

international capital flows were scarce, and exchange rates were fixed. Few

African countries were independent and the world was divided along Cold

War lines. Yet there was a strong spirit of international cooperation in the

Western world and, when Argentina voiced the need to meet its sovereign

creditors to prevent a default, France offered to host an exceptional three-

day meeting in Paris that took place from 14 to 16 May 1956.

 Today, the Paris Club provides debt treatments to debtor countries in a

totally different world. Most countries are active players in the world

economy and are interdependent through goods and capital flows. Financial

globalization has created new opportunities for developing and emerging

countries but has brought with it new risks of crisis. Sovereign debt is a

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 3/19

 

3

minor source of borrowing for emerging economies given the development of 

emerging bond markets. But the low-income countries generally do not have

access to these markets and assistance from bilateral and multilateral

donors remains vital for them. Non-Paris Club creditors are becoming an

increasingly important source of financing for these countries. Yet despitethe fact that Paris Club creditors now have to deal with far more complex

and diverse debt situations than in 1956, their original principles still stand.

The Early Years (1956-1980)From 1956 to 1980, the Paris Club’s activity level was low. The number of agreements signed with debtor countries never exceeded four per year. TheParis Club took advantage of these early years to gradually standardize itsnegotiation process and agreements.

Few countries were granted debt treatments. They were mainly located inLatin America (Argentina, Brazil, Chile and Peru) and in Asia (Indonesia,

Pakistan, Turkey and Cambodia). The first African country to conclude a debt

treatment agreement with the Paris Club was Zaire (now Democratic

Republic of Congo) in 1976. Countries that had gained their independence in

the 1960s were in a period of debt accumulation, whereas some “older”

countries were already experiencing balance of payments problems. After

1976, some African debtor countries approached the Paris Club for one or

more debt treatments (Sierra Leone, Togo, Sudan and Liberia), but at a

relatively slow pace compared with the subsequent period.

During these early years, Paris Club agreements were fairly simple. They

were based on standard “Classic terms” which were the sole terms of 

treatment used by creditors from 1956 to 1987. Under Classic terms, debtor

countries were granted a rescheduling of credits (whether ODA or non-ODA)

at the appropriate market rate with a repayment profile negotiated on a

case-by-case basis (generally a ten-year repayment period including a three-

year grace period). The Paris Club offered non-concessional flow relief to

support IMF adjustment programs. In many cases, several Paris Club debt

treatments were required in fairly quick succession to help the debtor

country to exit the cycle of rescheduling.

Dealing with the Debt Crisis (1981-1996)

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 4/19

 

3

1981 marked a turning point in Paris Club activity. The number of 

agreements concluded per year rose to more than ten and even to 24 in

1989. This was the famous “debt crisis” of the 1980s, triggered by Mexico

defaulting on its sovereign debt in 1982 and followed by a long period during

which many countries negotiated multiple debt agreements with the ParisClub, mainly in sub-Saharan Africa and Latin America, but also in Asia (the

Philippines), the Middle East (Egypt and Jordan) and Eastern Europe (Poland,

 Yugoslavia and Bulgaria). Following the collapse of the Soviet Union in 1992,

Russia joined the list of countries that have concluded an agreement with the

Paris Club. So by the 1990s, Paris Club activity had become truly

international.

From 1981 to 1987, creditors continued to apply the same rules despite thegrowing number of countries facing payment difficulties. Classic terms,

designed for dealing with temporary liquidity problems, were systematically

used for debt treatment. Amounts treated were generally small,

corresponding to one or two years of installments due to creditors and to the

implementation period for an IMF-supported program.

 Yet in the mid-1980s, growing concerns about the ability of poor countries to

repay their debts led creditors to consider new terms of treatment. In 1987,

Paris Club creditors adopted Venice terms (non-concessional terms that

provide debtor countries with longer deferral and repayment periods).

In October 1988, Paris Club creditors agreed to implement Toronto terms,

which introduced for the first time a partial cancellation of the debt of the

poorest and most heavily indebted countries. Twenty poor countries were

granted Toronto terms from 1988 to 1991 and a total of 26 agreements were

signed on these terms during the period.

 The Toronto terms were designed for the poorest and most heavily indebted

countries, while the Classic terms were to remain the treatment used for

other debtors. The debt crisis also hit lower middle-income countries. So in

September 1990, the Paris Club creditors decided to adopt new debt

treatment rules for some of these countries facing high indebtedness and a

stock of official bilateral debt totaling at least 150% of their private debt.

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 5/19

 

3

 These new treatment terms were called "Houston terms". They introduced

three significant improvements compared with Classic terms. To date, 35

agreements have been concluded with 19 countries under Houston terms.

Given the lasting impact of the debt crisis on the poorest and most heavilyindebted countries, the Paris Club creditors agreed in December 1991 to

raise the level of debt cancellation from 33.33%, as defined in the Toronto

terms, to 50%. Thus were born London terms. A total of 23 countries were

granted the London terms from 1991 to 1994, when these terms were

replaced by Naples terms.

  The adoption of Naples terms in December 1994 made two substantial

improvements to London terms. The level of debt cancellation was raised toat least 50% and a maximum of 67% of eligible non-ODA credits. Secondly,

the Paris Club made the ground-breaking decision that stock treatments

could be implemented on a case-by-case basis for countries with a

satisfactory track record with both the Paris Club and the IMF, provided there

was ample confidence in the ability of the debtor country to meet its

obligations under the debt agreement. Eligibility for Naples terms is assessed

on a case-by-case basis. The adoption of Naples Terms marked a major

turning point in Paris Club history. For the first time ever, Paris Club creditors

agreed to consider major levels of debt reduction extending beyond flow

treatments to include stock treatments. This development reflected a

growing understanding within both the official and private creditor

community that the poorest countries’ debt burdens were unsustainable.

Implementing the HIPC Initiative The international financial community recognized in 1996 that the external

debt situation for a number of low-income countries, mostly in Africa, had

become extremely difficult and influenced the prospects for economic

development. This was the starting point of the Heavily Indebted PoorCountries (HIPC) Initiative.

For these countries, even full use of traditional mechanisms of rescheduling

and debt reduction (the most concessional being Naples terms) - together

with continued provision of concessional financing and pursuit of sound

economic policies - may not be sufficient to attain sustainable external debt

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 6/19

 

3

levels within a reasonable period of time and without additional external

support. The international financial institutions defined a group of 40

countries in such a situation and considered them as potential candidates for

the HIPC initiative.

 The HIPC Initiative entails coordinated action by the international financial

community, including multilateral institutions, to reduce to sustainable levels

the external debt burden of these countries. The HIPC Initiative was

enhanced in September 1999.

 The HIPC initiative will not solve all the difficulties of the countries. Even if all

of the external debts of these countries were forgiven, most would still need

to mobilize significant resources to finance their productive investments for

economic development. Beyond implementing sound economic policies and

mobilizing further domestic resources, many countries will also continue to

depend on significant levels of concessional external assistance.

The Evian approach

  The HIPC Initiative demonstrated the need for creditors to take a more

tailored approach when deciding on debt treatment for debtor countries.

Hence in October 2003, Paris Club creditors adopted a new approach to non-

HIPCs: the “Evian Approach”. 

FIVE KEY PRINCIPLES OF THE PARIS CLUB

• Case by Case The Paris Club makes decisions on a case-by-case basis in order to tailor its

action to each debtor country’s individual situation. This principle was

consolidated by the Evian Approach.

• Consensus

Paris Club decisions cannot be taken without a consensus among the

participating creditor countries.

• Conditionality

 The Paris Club only negotiates debt restructurings with debtor countries that:- need debt relief. Debtor countries are expected to provide a precise

description of their economic and financial situation,

 

- have implemented and are committed to implementing reforms to restore

their economic and financial situation, and

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 7/19

 

3

- have a demonstrated track record of implementing reforms under an IMF

program.

 

  This means in practice that the country must have a current programsupported by an appropriate arrangement with the IMF (Stand-By, Extended

Fund Facility, Poverty Reduction and Growth Facility, Policy Support

Instrument). The level of the debt treatment is based on the financing gap

identified in the IMF program.

In the case of a flow treatment, the consolidation period coincides with the

period when the IMF arrangement shows a need for debt relief. When the

flow treatment extends over a long period of time (generally more than one

year), the Paris Club agreement is divided into phases. The amounts fallingdue during the first phase are treated as soon as the agreement enters into

force. Subsequent phases are implemented following completion of 

conditions mentioned in the Agreed Minutes, including non-accumulation of 

arrears and approval of the reviews of the IMF program.

• SolidarityAll members of the Paris Club agree to act as a group in their dealings with a

given debtor country and be sensitive to the effect that the management of 

their particular claims may have on the claims of other members.

• Comparability of treatmentA debtor country that signs an agreement with its Paris Club creditors should

not accept from its non-Paris Club creditor’s terms of treatment of its debt

less favorable to the debtor than those agreed with the Paris Club.

THE CHAIRMAN AND PERMANENT MEMBERS The Chairman of the Paris Club, traditionally a senior official of the French

 Treasury, is currently Mr. Ramon FERNANDEZ, Director General of the

 Treasury and Economic Policy.

His deputies at the French Treasury and Economic Policy General Directorateserve as Co-Chairperson and Vice-Chairman. Ms Delphine d'AMARZIT,

Assistant Secretary for Multilateral and Development Affairs, is Co-

Chairperson, and Mr. Rémy RIOUX, his Deputy in charge of International

Financial Affairs and Development, is Vice-Chairman.

 The following countries are permanent Paris Club members:

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 8/19

 

3

AUSTRALIA

AUSTRIA

BELGIUM

CANADA

DENMARK FINLAND

FRANCE

GERMANY

IRELAND

ITALY

 JAPAN

NETHERLANDSNORWAY

RUSSIAN

FEDERATION

SPAIN

SWEDEN

SWITZERLAND

UNITED KINGDOMUNITED STATES OF

AMERICA

ASSOCIATED MEMBERSOther official creditors can also actively participate in negotiation sessions, subject to

the agreement of permanent members and of the debtor country. When participating in

a negotiation meeting, invited creditors agree to act in good faith and to follow the

principles of the Paris Club. The following countries have participated as creditors in

some Paris Club agreements:

Abu Dhabi

Argentina

Brazil

Korea

Israel

Kuwait

Mexico

Morocco

New Zealand 

Portugal

South Africa 

Trinidad and Tobago

Turkey

STANDARD TERMS OF A TREATMENT

Paris Club treatments are defined individually, by consensus of all creditorcountries. Most treatments fall under the following pre-defined categories,

listed below by increased degree of concessionality:

- "Classic terms“: standard treatment

- "Houston terms“: for highly-indebted lower-middle-income

countries

- "Naples terms“: for highly-indebted poor countries

- "Cologne terms“: for countries eligible to the HIPC initiative.

Eligibility for the different terms is assessed on a case-by-case basis by ParisClub creditors, taking into account the track record of the debtor country

with the Paris Club and the IMF and various criteria, notably per-capita

income, level of indebtedness and of debt service. Any debtor country

declared eligible for specific terms by Paris Club creditors may decline these

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 9/19

 

3

terms in favor of a less concessional set of terms, notably if it considers them

to have a negative impact for its creditworthiness.

Other terms had been defined in previous Paris Club treatments. Though

they are no longer used, a part of the outstanding debt owed by debtor

countries was treated according to these terms:- "Toronto terms" (replaced by "Naples terms")

- "London terms" (replaced by "Naples terms")

- "Lyon terms" (replaced by "Cologne terms")

THE DEBTS TREATED IN THE PARIS CLUB NETWORK Among the different types of debt, Paris Club agreements generally concernonly:

• Public debts, as the agreement is signed with the government of thedebtor country unable to meet its external obligations. Debts owed byprivate entities and guaranteed by the public sector are considered tobe part of the public debts. On the creditor side, the debts treated arecredits and loans granted by Paris Club creditors’ governments orrelevant institutions, as well as commercial credits guaranteed bythem.

• Medium- and long-term debts. Short-term debts (debts with a maturity

of one year or less) are usually excluded from the treatments, as their

restructuring can significantly undermine the debtor country’s capacityto participate in international trade.

• Debts granted before the initial date set when the debtor country

meets with the Paris Club, also known as the cut-off date.

THE DEBT FOR DEVELOPING COUNTRIESExternal debt is one of the sources of external financing for developing

countries, with equity (notably foreign direct investment), grants and worker

remittances. This external debt can be classified under different categories.

GENERALITIESExternal debt is a source of financing for developing countriesDeveloping countries and countries in transition can raise funds from the

international financial community and finance their development through a

number of instruments, including attracting equity (notably foreign direct

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 10/19

 

3

investment), receiving grants from donors, or borrowing from foreign

lenders.

According to the Word Bank, net flows of capital received by developing and

emerging countries in 2007 reached $370 billion in the form of foreign direct

investments, $140 billion in equity flows, $166 billion in new lending and $75

billion in grants.

Among these four instruments, debt results directly in future obligations for

the borrower (debt must be repaid). This makes it necessary for the borrower

to make sure that it will, in the future, be in a position to repay its debt,

notably through an efficient use of the loans, in order to generate income

that will be used to repay the debt. This is why debt is often considered as a

development tool. However, for the poorest and most indebted countries, the

accumulated debt burden has become a drawback for development; this is

why the international financial community designed the Heavily Indebted

Poor Countries (HIPC) Initiative, and most Paris Club member governmentsdecided to provide financing to these countries mostly through grants.

The external debt of developing countries comprises several typesof debtsEach organization compiling and publishing debt figures may have different

ways to categorize and to measure debt.

 The debt owed by a country can be broken down into a number of different

types by debtor (which may be a sovereign government, a public company

or a private debtor), or by creditor (which may be a multilateral creditor, a

government, a private creditor). Over time, the share of private debt (debtowed by private debtors) and the share of private claims (debt owed to

private creditors) have increased, reflecting the increased role of the private

sector in both industrialized and developing countries.

As of 31 December 2007, the total debt of developing and emerging

countries was estimated by the World Bank to be $3,357 billion, out of which

$2,558 billion of medium- and long-term debt, broken down as follows:

2007

Medium and long term debt outstanding 2 558 100%

Public and publicly guaranteed 1 335 52%

Official creditors 646

Multilateral creditors 365

Bilateral creditors 281

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 11/19

 

3

Private creditors 688

Private non guaranteed 1 226 48%

Public and publicly-guaranteed medium- and long-term debt can be brokendown as follows:

 

According to the World Bank, the total amount of the medium- and long-termdebt of developing countries has increased as follows over the past tenyears:

(USD Millions)

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 12/19

 

3

 

Creditworthiness varies significantly from country to country The creditworthiness of a country is the assessment by potential lenders of 

the country's capacity to repay its external debt. Being creditworthy is a key

to success for developing countries because they can borrow larger amounts

to finance growth and development. In addition, a creditworthy debtor is in a

position to borrow funds used to refinance its existing debt obligations.

Governments of debtor countries have a significant impact on the

creditworthiness of all borrowers of developing countries, since agovernment default can have consequences for the capacity of other

borrowers to repay their debt.

A number of factors influence creditworthiness. Some are linked to economic

factors, such as the capacity of the country to generate balance-of-payment

receipts, and the volatility of these receipts. Others are financial factors,

such as the debt repayment profile. Political factors also play a role in the

creditworthiness of a debtor country, when its government considers the

cost of paying debt to be too high.

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 fulfill 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

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 13/19

 

3

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.

CLASSIFICATION  The debt owed by a country can be divided into various categories.

Each organization compiling and publishing debt figures may have slightly

different ways to categorize and to measure debt. The main categorizations

used in the framework of the Paris Club are the following:

External debt and domestic debt External debt is generally defined using a residency criterion: it is debt owed

by public and private entities resident in a country to non-residents. This

type of debt has a direct impact on the balance of payments of the debtor

country. The domestic debt, on the contrary, is debt owed by resident

entities to other resident entities in the country.

However, for practical purposes, external debt is sometimes compiled

according to the currency of the debt and without using a residency criterion

(being then similar to foreign currency debt).

Classification by categories of debtors: Private and public debt External debt may be owed by public sector entities or by private sector

entities of the debtor country. In the first case, it is called public debt, in the

second case, private debt. Debt owed by private sector entities but

guaranteed by public sector entities is often included in the public debt

(which is sometimes called "public and publicly guaranteed debt").

Public debt may be owed by the government or by other public sector

entities, including public enterprises.

Classification by creditor: multilateral, bilateral and private debt

Multilateral creditors

Claims granted by international financial institutions (mainly the IMF, theWorld Bank or regional development banks) constitute multilateral debt.

Official bilateral creditors

Claims granted by official bilateral creditors i.e. States (governments or their

appropriate institutions, especially export credit agencies) constitutebilateral debt. The Paris Club brings official bilateral creditors together.

Although not all official bilateral creditors are members of the Paris Club,

Paris Club creditors hold the majority of official bilateral claims worldwide.

Other official bilateral creditors may participate in Paris Club sessions on an

ad-hoc basis.

Official bilateral claims result from two types of financing:

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 14/19

 

3

- Credits guaranteed by the Governments or their institutions. In most

cases, these credits were commercial credits granted to finance

imports by the debtor country;

- Direct loans from the Governments or their institutions to the

government or other public entities of the debtor country.

Government loans may be granted under "Official Development Assistance"

(ODA) conditions, as defined by the OECD (low interest loans aimed at

supporting the development of the debtor country).

Private creditors

All creditors not mentioned as multilateral or official bilateral creditors areconsidered private creditors. These include suppliers, commercial banks andbondholders.

EXCEPTIONAL TREATMENTS IN CASE OF CRISESOver the past few years, the Paris Club has adapted debt relief, taking into

account debt sustainability, in response to major exogenous shocks, which is

also in line with the recommendations contained in Monterrey Consensus:

• In case of natural catastrophes, Paris Club members granted a three-

year deferral of all payments on debt service for Honduras and

Nicaragua, two countries hit by Hurricane Mitch in 1998 and a one-year

deferral for Indonesia and Sri Lanka hit by the Indian Ocean Tsunami in2004.

• for countries that have been affected by long-standing internal political

conflicts, the Paris Club decided to go beyond usual terms by granting,

for instance, a three-year deferral of all debt service payments for

Liberia in April 2008.

• as a response to rocketing food and petroleum prices, Paris Club

members resorted to exceptional terms in June 2008 (three-yeardeferral of all payments on bilateral debt service beyond usual Naples

terms) to help Togo, which is one of the 5 countries most severely

affected by the resulting trade shock in 2008, cope with the situation.

RESCHEDULING AND CANCELLING A DEBT AGREEMENT

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 15/19

 

3

 Throughout its existence, the Paris Club has aimed to produce agreements

that lead to levels of payments sustainable for the debtor. Over time,

practice and theory have developed, and two trends have emerged in the

terms of Paris Club agreements:

•Longer repayment periods have been considered. In early Paris Club

agreements, repayment terms did not exceed ten years including a

grace period (in which only payments of interest on the consolidation

are due). For poorer countries, these terms have been constantly

extended. The maximum repayment period is now 23 years (including

6 years of grace) for commercial loans and 40 years (including 16

years of grace) for official development aid loans.

•

Debt cancellation has been increasingly used. The first concessionalagreement was concluded with Mali in 1988 under the Toronto terms

(33.33% cancellation). The cancellation rate has been regularly raised,

achieving 90% or more when necessary to reach debt sustainability in

the framework of the Heavily Indebted Poor Countries Initiative.

If Paris Club treatments are defined on a case by case basis, most of them

are however based on pre-defined categories and fall under two main

frameworks: the Heavily Indebted Poor Countries Initiative and the Evian

approach.

EARLY REPAYMENT OPERATIONSIn order to adapt to a rapidly evolving macroeconomic context, a country

might want to manage its debt in a dynamic fashion. Such dynamic

management can involve changes in the structure of its debt: i.e. its time-

structure (duration, etc.); its currency composition; and its exposure to

market risk. Actually a Paris Club debt treatment already involves such debt

restructuring as it gives the country a last opportunity to adapt its debt

structure (e.g. its duration) to exceptional circumstances (e.g. a shortage in

short-term financing due to structural problems). Conversely, for dynamic

management purposes, a country might want to buy back its debt ahead of 

schedule. The main reasons for doing this are usually: to reduce one’s debt

service; to reduce one’s exposure to a given currency; or to develop one’s

domestic bond market or increase its liquidity, by swapping external debt for

domestic debt. Most of the time, this dynamic management scheme helps to

achieve beneficial outcomes for both creditor and debtor countries. The Paris

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 16/19

 

3

Club has been implementing this option since 1997, allowing some debtor

countries to prepay their debt.

Early repayment is restricted to debtor countries that have graduated from

the risk of a new Paris Club rescheduling. This assessment requires the

consensus of all Paris Club creditors. To preserve solidarity between Paris

Club creditors, the early repayment offer has to be made on the same terms

to all Paris Club creditors. The terms of the early repayment operation also

have to be agreed upon by consensus of all Paris Club creditors. Participation

in the early repayment operation is then voluntary. Each Paris Club creditor

may decide whether or not to participate. Early repayment operations can be

realized under two frameworks:

1. Prepayment at par: the debtor country offers to repay the debt at face

value.2. Buyback at market value: the debtor country offers to repay the debt

at market value.

 The market value is defined as the Net Present Value (NPV) of the remaining

cash flows. The NPV is calculated by discounting the cash flows at a discount

rate, which is the sum of a risk-free discount rate and a country-risk spread.

 The market value of the debt may be higher or lower than its face value.

Breakdown of eligible debt (in nominal value) covered by early

repayment agreements in 2005 – 2007

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 17/19

 

3

 There has been an increase in early repayment operations in the Paris Club

in the last few years: Poland, Brazil, Russia, Algeria, the Former Yugoslav

Republic of Macedonia, Peru, Gabon and Jordan offered early repayments of 

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 18/19

 

3

around USD 70 billion of debt in face value in 2005, 2006 and 2007. The last

early repayment operations were concluded with the following countries:

 The Former Yugoslav Republic of Macedonia’s offer to prepay at par its debt

previously rescheduled under the Paris Club agreement concluded in 1995

was accepted on 24 January 2007. The debt eligible for the prepaymentoperation amounted to USD 104 million. All of Macedonia’s Paris Club

creditors decided to participate in the operation.

Peru’s offer to prepay at par its debt previously rescheduled under the 1993

and 1996 Paris Club agreements and not granted under official Development

Assistance was accepted on 23 May 2007. A first partial prepayment

operation had been accepted by Paris Club creditors in 2005. The debt

eligible for this second prepayment operation amounted to around USD 2.5

billion. Almost all of Peru’s Paris Club creditors decided to participate in theoperation.

Gabon’s offer to buy back at market value its debt previously rescheduled

under Paris Club agreements concluded in 1994, 1995, 2000 and 2004 and

not granted under Official Development Assistance was accepted by Paris

Club creditors on 18 July 2007. The debt eligible for this buyback operation

amounted to around USD 2.2 billion. Almost all of Gabon’s Paris Club

creditors decided to participate in the operation.

 Jordan’s offer to buyback at market value its debt previously rescheduledunder the 1994, 1997, 1999 and 2002 Paris Club agreements and not

granted under Official Development Assistance was accepted by Paris Club

creditors on 18 October 2007. The debt eligible for this buyback operation

amounted to approximately USD 2.5 billion. Almost all of Jordan’s Paris Club

creditors decided to participate in the operation.

DEBT SWAP AGREEMENTParis Club agreements may contain a provision enabling 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 debtswaps. These swaps usually take one of the following terms:

- 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)

5/8/2018 Paris Club - slidepdf.com

http://slidepdf.com/reader/full/paris-club 19/19

 

3

- the sale of the debt by the creditor government to an investor who in

turns 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 for non-ODA claims are capped at a certainpercentage of each individual Paris Club creditor's stock of claims. There are

no restrictions regarding debt swaps on ODA claims.

 To ensure full transparency between creditors, debtors and creditors submit

a report to the Paris Club Secretariat on the transactions conducted.