Definition of the Paris Club

What is the Paris Club?

The Paris Club is an informal group of creditor countries whose goal is to find viable solutions to the payment problems facing debtor countries. The Paris Club has 22 permanent members, including most Western and Scandinavian European nations, the United States, the United Kingdom, and Japan. The Paris Club highlights the informal nature of its existence. As an informal group, it has no official statutes or formal start date, although its first meeting with a debtor nation was in 1956, with Argentina.

Key takeaways

  • The goal of the Paris Club, an informal group of creditor countries that meets every month in the French capital, is to find viable solutions to the payment problems facing debtor countries.
  • The group is organized around the principles that each debtor nation is treated on a case-by-case basis, with consensus, conditionality, solidarity and comparability of treatment.
  • In addition to the 22 member countries of the Paris Club, there are observers, often international NGOs, who attend but cannot participate in the meetings.

Understand the Paris Club

Members of the Paris Club meet every month, except February and August, in the French capital. These monthly meetings may also include negotiations with one or more debtor countries that have met the Club’s preconditions for debt negotiation. The main conditions that a debtor nation must meet are that it must have a demonstrated need for debt relief and that it must commit to economic reform. In effect, that means that the country must already have a current program with the International Monetary Fund (IMF) backed by a conditional agreement.

The Paris Club has five key operating principles:

  1. Case by case
  2. Consensus
  3. Conditionality
  4. Solidarity
  5. Comparability of treatment

The Paris Club treats debts owed by the governments of debtor countries and certain private sector entities as guaranteed by the public sector to members of the Paris Club. It offers a standard set of tiered terms for debt treatment, ranging from rescheduling payments at market rates to canceling up to 90% of certain debts. The exact set of terms offered to each debtor is based on each individual case based on their position, characteristics, and repayment history.

Since 1956, the Paris Club has signed 473 agreements with 100 different countries covering more than $ 611 billion.

The creditor countries meet ten times a year in Paris for general business and to negotiate with the representatives of the debtor countries. At these meetings, the representatives of the debtor countries present their debt relief case to the members of the Paris Club, who then decide in closed session what treatment to offer the debtor. This process can be repeated with counter offers and requests for additional information until an agreement is reached. The resulting agreements are not themselves legally binding, but will be used as the basis for legally binding bilateral agreements between the debtor country and the Paris Club creditor countries.

The meetings take place in the French Treasury, which has a small secretariat to organize the meetings and a senior official to preside over them.

The aim of the Paris Club has been to avoid debt crises and the resulting international tensions that in the past have led to conflicts and even invasions of debtor countries. The Paris Club debt treatment was one of the best options for developing countries to manage their debt and obtain relief in the past, especially during the 20th century, but it has been overshadowed by Chinese financing of the world’s debt. in development in recent years.

Three categories of Paris Club observers

Observers can attend Paris Club trading sessions, but cannot participate in the session. Here are the three categories of observers:

1. Representatives of international institutions:

2. Representatives of permanent members of the Paris Club, who are free of conflicts of interest with debtors or non-creditors of the debtor country.

3. Representatives of non-Paris Club countries that have claims against the debtor country, but are not in a position to sign the Paris Club agreement as ad hoc participants, provided that the permanent members and the debtor country agree to attend. .

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Mark Holland

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