1 Private sector restructurings in HIPC cases

2 INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) Status of Implementation Prepared by the Staffs of IDA and IMF Approved by Danny Leipziger and Mark Allen August 21, 2006

3 Creditor Participation. ”Most multilateral creditors participate in the HIPC Initiative. In addition, IDA, the IMF, and AfDF also provide debt relief to HIPCs under the MDRI. Paris Club creditors have continued to grant not only HIPC Initiative debt relief, but also, on a voluntary basis, additional debt relief beyond the HIPC Initiative. Delivery of relief by non–Paris Club official bilateral and commercial creditors, however, has been limited. Staffs have continued their efforts to improve participation of these creditors in the HIPC Initiative. Most commercial creditors have not provided their share of debt relief to HIPCs, and creditor litigation has been on the rise. Stronger efforts will be called for to discourage further litigation and encourage commercial creditor participation in the Initiative.”

4 These statements give the feeling that private creditors (ex “London Club creditors”) are dragging their feet. But the truth, regarding these creditors, as discussed with the IMF, is exactly the opposite.

5 Example : Republic of Congo Long before the implementation of the PRGF, Private Creditors organized themselves in a Committee to enter into good faith negotiations with the debtor. They prepared and reconciled all data regarding their debt vis à vis the Republic and shared detailed figures with the IMF.

6 Then, the IMF and the WB were able to negotiate the PRGF with the country and to calculate the “common reduction factor”. As soon as the factor was available, the Creditor Committee called for a meeting and prepared proposals complying with the comparability of treatment requirement.

7 For various reasons well known by the Multilaterals and the Paris Club, the process is slow. But no delay is due to Private Creditors. As of today, a preliminary agreement has been reached.

8 Other Countries : For Ivory Coast, the Creditor Committee already exists and is prepared to resume negotiations. The contact with the Ministry of Finance never was interrupted and is well established.

9 Other Countries : For Liberia, Creditors started organizing themselves, and exchanged information with the IMF ; but the Ministry of Finance has not yet responded to a proposal for a meeting to initiate the restructuring process.

10 Participation: An agreement negotiated in good faith with a Creditor Committee, in line with the “Principles”, is very likely to attract Creditors and to result in a high participation rate.

11 Participation: An agreement negotiated in good faith with a Creditor Committee, in line with the “Principles”, is very likely to refrain creditors from litigation. ………….The sooner the better !

12 Conclusion: How can the Public sector (Governments and Multilaterals) discourage further litigation and encourage commercial creditor participation in the Initiative ?

13 Conclusion: By encouraging debtor countries to initiate dialogue with Creditor Committees as early as possible and by encouraging them to consider good faith negotiation as a high priority.