Paris Club


Paris Club is a group of major creditor countries aiming to provide a sustainable way to tackle debt problems in debtor countries. Its creation, which is the first informal meeting, dates back to 1956, when Argentina agreed to hold a meeting with its public creditors.
The Paris Club treats public claims, guaranteed by the public sector to Paris Club members. A similar process used to occur for public debt held by private creditors in the London Club, which was organized in 1970 on the model of the Paris Club as an informal group of commercial banks renegotiating together the debt they hold on sovereign debtors which were no longer able to repay.
Creditor countries meet c. ten times a year for Tour d'Horizon and negotiating sessions. To facilitate Paris Club operations, the French Treasury provides a small secretariat, and the Director general of the French Treasury acts as chairman.
Paris club has reached 478 agreements with 102 debtor countries to date for approximately USD 600 bn rescheduled.

Members of the Paris Club

There are currently 22 Permanent Members of the Paris Club:
Creditor delegations are generally led by a senior delegate from the Ministry of Finance.

Ad hoc participants

Other official creditors can also participate in negotiation sessions or in monthly "Tours d'Horizon" discussions, subject to the agreement of permanent members and of the debtor country. When participating in Paris Club discussions, invited creditors act in good faith and abide by the practices described below. The following creditors have participated in some Paris Club agreements or Tours d'Horizon in an ad hoc manner:

  • Observers

Observers are invited to attend the negotiating sessions of the Paris Club but they cannot participate in the negotiation itself, nor sign the agreement that formalizes the result of negotiation.
There are three categories of observers:
  1. Representatives of international institutions:
  2. * International Monetary Fund
  3. * World Bank
  4. * Organisation for Economic Co-operation and Development
  5. * United Nations Conference on Trade and Development
  6. * European Commission
  7. * African Development Bank
  8. * Asian Development Bank
  9. * European Bank for Reconstruction and Development
  10. * Inter-American Development Bank
  11. Representatives of permanent members of the Paris Club, which have no claims concerned by the debt treatment, for example creditors whose claims are covered by the de minimis provision or that are not creditors of the debtor country concerned, but nevertheless want to attend the negotiation meeting;
  12. Representatives of non Paris Club countries, which have claims on the debtor country concerned but are not in a position to sign the Paris Club agreement as ad hoc participants, provided that permanent members and the debtor country agree on their attendance.

    Organisation

The Secretariat

The Secretariat was established to prepare more effective negotiating sessions. The Secretariat is composed of a dozen people from the French Directorate General of the Treasury, it is led by a Secretary general.
The Secretariat's role is primarily to safeguard the common interests of creditor countries participating in the Club, and to facilitate the reaching of a consensus between them at each level of the discussions. To achieve this, the Secretariat prepares negotiating sessions according to a specific method.
In the early stages of discussions, the Secretariat analyses the debtor country's payment capacity and provides creditors with a first proposal for a treatment. This proposal is discussed by the creditors. The Secretariat is also responsible for drafting the minutes of negotiation.
The Secretariat also helps to ensure compliance with the various covenants contained in the minutes and maintains external relations with third States creditors and commercial banks, in particular to ensure the greatest possible respect of comparability clause treatment.
Under the common framework for debt treatment, the secretariat acts under the guidance of the co-chairs in the same technical work.

The Chair

Since 1956, the Presidency of the Paris Club is ensured by the French Treasury.
The Chairperson of the Paris Club is Bertrand Dumont, Director-General of the Treasury.
Co-Chairman is William Roos, Assistant Secretary for Multilateral Affairs, Trade and Development Policies Department. Vice-Chair is Shanti Bobin, his Deputy in charge of Multilateral Financial Affairs and Development Division.
One of these three must chair every meeting of the Paris Club.
In particular, during negotiation sessions, the Chairman of the Paris Club plays the role of intermediary between creditors, who elaborate debt treatment proposals, and the representative of the debtor country, usually the Minister of Finance. He is responsible for submitting to the debtor's delegation terms agreed upon by creditors. The Secretary general assists him in the negotiation his team prepares. If the debtor – which is common – refuses the first offer of creditors, the actual negotiation begins, the Chairman acting as a shuttle between the debtor and creditors.
List of chairpersons
Incomplete list:
• Solidarity: All 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.
• Consensus: Paris Club decisions cannot be taken without a consensus among the participating creditor countries.
• Information sharing: The Paris Club is a unique information-sharing forum. Paris Club members regularly share views and information with each other on the situation of debtor countries, benefit from participation by the IMF and World Bank, and share data on their claims on a reciprocal basis. In order for discussions to remain productive, deliberations are kept confidential.
• 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.
• Conditionality: The Paris Club only negotiates debt restructurings with debtor countries that: 1) need debt relief. Debtor countries are expected to provide a precise description of their economic and financial situation, 2) have implemented and are committed to implementing reforms to restore their economic and financial situation, and 3) have a demonstrated track record of implementing reforms under an IMF program. This means in practice that the country must have a current program supported by an appropriate arrangement with the IMF. 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, the Paris Club agreement is divided into phases. The amounts falling due 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.
• Comparability of treatment: the Paris Club requires that debtor countries obtaining Paris Club relief not offer better terms to non-Paris Club bilateral creditors.

Meetings

Paris Club creditor countries generally meet 10 times per year. Each session includes a one-day meeting called a “Tour d'Horizon” during which Paris Club creditors discuss debt situations of debtor countries, or methodological issues regarding the debt issues more broadly. The session may also include negotiation meetings with one or more debtor countries.

Negotiations

A debtor country is invited to a negotiation meeting with its Paris Club creditors when it has concluded an appropriate programme with the International Monetary Fund that demonstrates that the country is not able to meet its external debt obligations and thus needs a new payment arrangement with its external creditors. Paris Club creditors link the debt restructuring to the IMF programme because the economic policy reforms are intended to restore a sound macroeconomic framework that will lower the probability of future financial difficulties.
The twenty two permanent members of the Paris Club may participate in the negotiation meetings, as participating creditors if they have claims towards the invited debtor country, as observers if not. Other official bilateral creditors may be invited to attend negotiation meetings on an ad-hoc basis, subject to the agreement of permanent members and of the debtor country. Representatives of international institutions, notably the IMF, the World Bank and the relevant regional development bank also attend the meeting as observers. The debtor country is usually represented by the Minister of Finance. They generally lead a delegation comprising officials from the Ministry of Finance and the Central Bank.

Steps in a negotiation

After a few words from the chairman to welcome everybody and to open the meeting, the official meeting begins with a statement by the minister of the debtor country, who presents in particular the requested debt treatment.
This statement is followed by statements by the IMF and the World Bank, and, if appropriate, by representatives of other international institutions.
The representatives of creditor countries may then request additional information or clarification from the minister regarding the situation in the debtor country.
After responding to any questions, the delegation of the debtor country then leaves the main room and stays in another room during the entire session.
Creditors then discuss among themselves a proposed debt treatment. Once creditors agree on a treatment, the chairman of the meeting will then present this proposed treatment to the delegation of the debtor country. If the debtor country disagrees and asks for amendments to the creditors' proposal, the chairman will then convey this request to the creditors, who discuss it and consider a new proposal. This process continues until a common agreement between creditors and the debtor country is reached.
Once an agreement is reached on the terms of the treatment, a document called the Agreed Minutes formalizes the accord in writing in French and in English. This agreement is drafted by the Paris Club Secretariat and then approved by the creditors and the debtor.
The delegation of the debtor country then returns to the main room and the Agreed Minutes are signed by the Chairman, the minister of the debtor country and the head of delegation of each participating creditor country.
A press release mutually agreed to by the creditors and the debtor country representatives is released for publication upon completion of the negotiation session.