Rebecca Runge and Adriana Diederich

DefinitionsDebt Relief - to either fully or partially reduce debt from a party or an individual.

Debt Eradication - eliminate all the debt.

Debt Stock - the total value of the debt that a government owes to all lenders.

Arrears - a debt that remains unpaid

External Debt - a part of a country's debt that was borrowed from foreign lenders.

Economic Viability - is when a project demonstrates to be economically viable, original and sustainable.

Paris Club Terms:

Toronto Terms - treatement implemented in 1988, for the debt of the poorest countries. it implements a reduction of the stock of debt of those poor countries.The level of cancellation : 33.33 %20 countries - 1988 - 1991

Naples Terms - implemented in 1994. it was for the poorest and most indebted countries,its level of cancellation was at 50% and was then raised to 67%

What is the Paris Club?

“The Paris Club is a voluntary, informal group (of 20 members) of creditor nations who meet approximately 10 times per year, to provide debt relief to developing countries, in order to stabilise/restore the macroeconomic and financial situation. Members of the Paris Club agree to renegotiate and/or reduce official debt owed to them on a case-by-case basis.”

How does the Paris Club provide debt relief?

● In the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).

Conditions

The Paris Club only negotiates debt restructurings with debtor countries that...

Need debt relief

Committed to implementing reforms

Track record of implementing reforms

Background

Founded in 1956

14-16 May 1956 - Initially created when Argentina had to meet (in Paris) with sovereign creditors in order to prevent a default.

debt crisis in the 1980s - Paris club became the solution to resolve debt crisis around the world.

reached 432 agreements - 90 debtor countries.

since 1956 the debt treated amounts to $ 583 billion.

Members of the Paris Club

20 permanent members

Australia, Austria, Belgium, Canada,

Denmark, Finland, France, Germany,

Ireland, Israel, Italy, Japan,

Netherlands, Norway, Russian

Federation, Spain, Sweden,

Switzerland, United Kingdom &

United States of America

All members are OECD - economically and socially influential over less developed countries.

Members are highly influential in world trade, and must agree with the main principles of Paris Club.

Observers : Divided into 3 CategoriesObservers 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

1. Representatives of International Institutions

2. Representatives of the permanent members of the Paris Club debt not affected by the debt treatment

3. Representatives of non-member countries of the Paris Club as ad hoc participants, provided that the permanent members and the debtor countries accept their presence.

Example of Debt Relief Country:

29th June 2005 - Paris Club creditor countries met to discuss negotiations with Nigeria.

Nigeria must implement a policy support instrument (PSI) approved by the IMF to pay arrears to the creditors.

Paris Club reduces debt on Naples Term

Nigeria - Located in Sub-Saharan Africa

Africa's most indebted nation - $36 billion dollars in debt

Population - 177.5 million

GDP per capita - $3,203

Life Expectancy - 53 years

Literacy Rate - 59.6%

46% of the population live below the poverty line

Why is Nigeria in debt?Main Reason - Inefficient Borrowing

1980 - Huge external borrowing to balance collapse in oil prices

Government gave no regard to economic viability of projects

Little to no implementation due to governance problems

Other Reasons:

Inefficient trade and exchange rate policies.

Adverse exchange and interest rate movements.

Poor lending and inefficient loan utilization.

Poor debt management practices.

Accumulation of arrears and penalties.

How has the Paris Club helped Nigeria?

The debt relief will lift the strain off of Nigeria’s economy.

Amount saved can be spent on infrastructure (education, water, power and road networks)

Amount saved is vital to achieving Millennium Development Goals

Women:Men Ratio Literacy Rates -

1991-2003 (non-implemented reforms by Paris Club years) - 0.77:1.00

2009 - (implemented reforms by Paris Club years) - 0.84:1.00

HIV/AIDS Deaths per year -

2003 - 310,000

2007 - 170,000

Maternal Mortality Rate -

1996-2000 - 824

2003 - 2015 - 810

Positives

- The Paris Club has played a major role in the debt crisis resolution

- period greater than 50 years in emerging and developing countries.

- rules and principles are proven to be highly efficient towards resolving of various debt crisis.

- The Paris Club is very flexible in dealing with the different situations of debtor countries.

- a cancellation of 80% of the stock of debt owed by Iraq, cancelling 30 billion dollars of claim in November 2004

Criticism

- investors are furious that the Paris Club is refusing to adapt to the new economic environment, in which private finance is more reliable.

- The Paris Club is refusing to budge any major issues, therefore they do not get along.

- It has no legal status nor statutory rules of procedures, it has no legal personality or constitutive texts

- Rules are not written officially down, and only treasury officials know them and in addition they keep the ideas for themselves.

Bibliography (URL)

https://www.fas.org/sgp/crs/misc/RS21482.pdf

http://www.clubdeparis.org/en/communications/page/historical-development

http://www.cgdev.org/initiative/nigerian-debt-relief

https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html

http://www.indexmundi.com/nigeria/

http://www.dmo.gov.ng/debtrelief/benefits.php

http://www.clubdeparis.org/en/

https://en.wikipedia.org/wiki/Paris_Club