Paris Club’s role in the financing of development

1. Paris Club’s role in the financing of development Thomas Courbe – Secretary General of the Paris Club Informal Review Session on Chapter V of the Monterrey Consensus 10-11 March 2008, UN Headquarters Paris Club’s role in the financing of development March 2008

2. Outline 1- Paris Club’s frameworks of action 2- Paris Club’s achievements since Monterrey 3- New challenges Paris Club’s role in the financing of development March 2008

3. What is the Paris Club ? • An informal group of 19 creditor countries • 50 years of debt treatment • All decisions are made by consensus, with a case by case approach • Participation of IMF and World Bank to all meetings • Two different frameworks to answer liquidity and debt sustainability problems Paris Club’s role in the financing of development March 2008

4. Paris Club’s debt relief for HIPCs • The Paris Club provides debt treatments : • When a country is declared eligible to the initiative; • When a country reaches the Decision point; • When a country reaches the Completion point. • At completion point, the Paris Club provides all necessary debt relief to reach the common reduction factor determined by the IMF and World Bank. • All Paris Club creditors go beyond the requirements of HIPC initiative and provide additional bilateral debt relief. Paris Club’s role in the financing of development March 2008

5. Evian approach • The Evian approach was launched in 2003 to answer non-HIPC problems of sustainability and/or liquidity • It extends debt sustainability analyses to debt treatments of non-HIPC countries • The debt sustainability of the debtor country is assessed before the negotiation on the basis of the DSA (IMF and World Bank) Paris Club’s role in the financing of development March 2008

6. Paris Club’s achievements since Monterrey • Paris Club creditors have tried to answer the needs of developing countries facing different external debt challenges: • Restoring debt sustainability of HIPCs • Treating the debt of other developing countries facing unsustainable debts or liquidity crisis • Adopting emergency measures in case of natural catastrophes • Offering sound debt management options Paris Club’s role in the financing of development March 2008

7. Debt relief for HIPCs since Monterrey(figures for the 23 post-completion point countries) Paris Club debt treatments in the framework of the HIPC initiative : 7.6 billion dollars (NPV 2006) Additional bilateral efforts from Paris Clubcreditors: 7 billion dollars (NPV 2006) MDRI : 37.6 billion dollars (in nominal terms) Paris Club’s role in the financing of development March 2008

8. Impact of HIPC debt treatments • For the 32 HIPCs that have reached the decision point, debt service was 5% of exports in 2007, compared to 16.6% of exports in 2000. • Moreover, poverty-reducing expenditures in post decision point HIPCs represented 9.4% of GDP in 2007, compared to 6.8% of GDP in 2000. Paris Club’s role in the financing of development March 2008

9. Sustainable cases Kenya (January 2004) Dominican Republic (April 2004 and October 2005) Moldova (May 2006) Unsustainable cases Iraq (November 2004) Kyrgyz Rep. (March 2005) Nigeria (October 2005) 9 countries have been treated under the Evian approach since Monterrey • Sustainable cases with goodwill clauses • Gabon (June 2004) • Georgia (July 2004) • Grenada (May 2006) Paris Club’s role in the financing of development March 2008

10. Impact of Evian approach treatments • Countries that had been granted a goodwill clause did not need to use it. Gabon gained access to private international bond markets. • Nigeria’s external debt is 2% of its GDP in 2007, compared to 41% in 2004. • Iraq’s external debt is 84% of GDP in 2008. It was 379% of GDP in 2004 Paris Club’s role in the financing of development March 2008

11. Debt treatments in case of natural catastrophes • Hurricane Mitch (1998): 3 year moratorium on debt service for Honduras and Nicaragua • Indian Ocean Tsunami (2004): 1 year moratorium on debt service for Indonesia and Sri Lanka Paris Club’s role in the financing of development March 2008

12. Early repayments to the Paris Club • The favorable evolution of the economic and financial situation of emerging countries has lead some of them to offer an early repayment of their debt towards the Paris Club. • The Paris Club supports active debt management strategies • The Paris Club accepts to consider offers of early repayments under two frameworks: • Early repayment at par (Algeria, Brazil, Macedonia, Peru, Poland); • Buyback at market value (Gabon, Jordan, Russia) Paris Club’s role in the financing of development March 2008

13. Early repayments to the Paris Club since the Monterrey Conference Paris Club’s role in the financing of development March 2008

14. New challenges ahead • Full implementation of debt relief efforts • Litigation against HIPCs • Creditors coordination • Long-term debt sustainability Paris Club’s role in the financing of development March 2008

15. Full implementation of debt relief effortsis critical • Full delivery by all non Paris Club bilateral creditors and private creditors of their share of efforts is an important objective • Some private creditors use aggressive litigation to obtain the full payment of their claims on HIPCs • This is harmful for debtors : • they can be deprived of the full benefit of HIPC initiative • some of their foreign assets or exports can be seized by litigating creditors. • Paris Club has undertaken measures to tackle aggressive litigation against HIPC but the challenge remains Paris Club’s role in the financing of development March 2008

16. Paris Club creditors look forward increased inter-creditors coordination • Paris Club creditors acknowledge the rising role of private creditors and emerging bilateral creditors. • Paris Club creditors already have regular contacts with representatives of the private sector. • Some non Paris Club creditors participate regularly to Paris Club negotiations. • An enhanced dialogue is needed with emerging lenders. Paris Club’s role in the financing of development March 2008

17. Debt sustainability is a key long-term challenge • The HIPC and MDRI initiatives obviously strengthened the debt sustainability of HIPCs. • However, debt sustainability analyses from the IMF and World Bank show that some post debt-relief countries are already at medium risk or high risk of debt distress. • This is not a mark of failure of HIPC and MDRI initiatives but reflects the persisting weakness of those countries’ external resources. • Sustainable lending and borrowing policies are the only ways to prevent a new debt crisis Paris Club’s role in the financing of development March 2008

18. www.clubdeparis.org Paris Club’s role in the financing of development March 2008