What Is the Paris Club?
The Paris Club is an informal group of creditor nations whose objective is to find workable solutions to payment problems faced by debtor nations. The Paris Club has 22 permanent members, including most of the western European and Scandinavian nations, the United States, the United Kingdom, and Japan. The Paris Club stresses the informal nature of its existence. As an informal group, it has no official statutes and no formal inception date, although its first meeting with a debtor nation was in 1956, with Argentina.
- The objective of the Paris Club, an informal group of creditor nations that meets each month in the French capital, is to find workable solutions to payment problems faced by debtor nations.
- The group is organized around the principles that each debtor nation be treated case by case, with consensus, conditionality, solidarity, and comparability of treatment.
- In addition to the Paris Club's 22 member nations, there are observers—often international NGOs—who attend but cannot participate in the meetings.
Understanding the Paris Club
The members of the Paris Club meet each month, except for 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 a debtor nation has to meet are that it should have a demonstrated need for debt relief and that it should be committed to implementing economic reform. In effect, that means the country must already have a current program with the International Monetary Fund (IMF) supported by a conditional arrangement.
The Paris Club has six key functioning principles:
- Case by case
- Comparability of treatment
- Information Sharing
The Paris Club treats debts due by governments of debtor countries and certain private sector entities as guaranteed by the public sector to Paris Club members. It offers a standard set of tiered terms for debt treatment, ranging from reschedulung of payments at market rates to cancellation of up to 90% of certain debts. The exact set of terms offered to each debtor are on a case-by-case basis based on their position, characteristics, and track record of repayment.
Since 1956, the Paris Club has signed 473 agreements with 100 different countries covering over $611 billion.
Creditor countries meet 10 times a year in Paris for general business and to negotiate with debtor country representatives. At these meetings, representatives from debtor countries present their case for debt relief to Paris Club members, who then decide in closed session what treatment to offer the debtor. This process can then repeat with additional counteroffers and requests for information until a deal is reached. The agreements that result are not themselves legally binding, but are to be used as the basis for legally binding bilateral arrangements between the debtor country and its Paris Club creditor countries.
The meetings take place at the French Treasury, which provides a small secretariat to organize the meetings and a senior official to chair them.
The Paris Club's goal has been to avoid debt crises and resulting international tensions that have in the past led to conflict and even invasions of debtor countries. Paris Club debt treatment was a top choice for developing countries to manage their debt and obtain relief in the past, especially during the 20th century, but it has been eclipsed by Chinese financing of developing world debt in recent years.
Three Categories of Paris Club Observers
Observers may attend negotiating sessions of the Paris Club, but they cannot participate in the session. Here are the three categories of observers:
1. Representatives of international institutions:
- International Monetary Fund (IMF)
- World Bank
- Organisation for Economic Co-operation and Development (OECD)
- United Nations Conference on Trade and Development (UNCTAD)
- European Commission
- African Development Bank
- Asian Development Bank
- European Bank for Reconstruction and Development (EBRD)
- Inter-American Development Bank (IADB)
2. Representatives of permanent members of the Paris Club, which are free of conflicts of interest with debtors or not creditors of the debtor country.
3. Representatives of non-Paris Club countries which have claims on the debtor country, 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.