Paris Clubs role in the financing of development March Paris Clubs role in the financing of development Thomas Courbe – Secretary General of the Paris Club Informal Review Session on Chapter V of the Monterrey Consensus March 2008, UN Headquarters

Paris Clubs role in the financing of development March Outline 1- Paris Clubs frameworks of action 2- Paris Clubs achievements since Monterrey 3- New challenges

Paris Clubs role in the financing of development March 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 Clubs role in the financing of development March 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 Clubs debt relief for HIPCs

Paris Clubs role in the financing of development March 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 Clubs role in the financing of development March 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 Clubs achievements since Monterrey

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

Paris Clubs role in the financing of development March 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 Moreover, poverty-reducing expenditures in post decision point HIPCs represented 9.4% of GDP in 2007, compared to 6.8% of GDP in Impact of HIPC debt treatments

Paris Clubs role in the financing of development March 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) Sustainable cases with goodwill clauses Gabon (June 2004) Georgia (July 2004) Grenada (May 2006) 9 countries have been treated under the Evian approach since Monterrey

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

Paris Clubs role in the financing of development March 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 Debt treatments in case of natural catastrophes

Paris Clubs role in the financing of development March 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) Early repayments to the Paris Club

Paris Clubs role in the financing of development March Early repayments to the Paris Club since the Monterrey Conference

Paris Clubs role in the financing of development March New challenges ahead Full implementation of debt relief efforts Litigation against HIPCs Creditors coordination Long-term debt sustainability

Paris Clubs role in the financing of development March Full implementation of debt relief efforts is 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 Clubs role in the financing of development March 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 Clubs role in the financing of development March 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 Debt sustainability is a key long-term challenge

Paris Clubs role in the financing of development March