he Paris Club (French: Club de Paris) is an informal group of financial officials from 19 of some of the world's biggest economies,

which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors. Debtors are often recommended by [citation needed] theInternational Monetary Fund after alternative solutions have failed. It meets every six weeks at the French Ministry of the Economy, Finance, and Industry in Paris. It is chaired by a senior official of the French Treasury, currently the Director General of the Treasury [Ramon Fernandez]. The club grew out of crisis talks held in Paris in 1956 between the nation of Argentina and its various creditors. Its principles and procedures were codified at the end of the 1970s in the context of the [citation needed] North-South Dialogue.
Contents
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1 Contemporary events

o o

1.1 1990s 1.2 2000s

2 Members

o o o

2.1 Permanent Members 2.2 Associated 2.3 Observers

3 Former Chairpersons 4 Current chairperson 5 See also 6 References 7 External links

7.1 Articles

[edit]Contemporary [edit]1990s

events

In the 1990s, the club began to treat the HIPC (Heavily-Indebted Poor Countries) and non-HIPCs [citation needed] differently. The club began to grant increasingly larger debt reductions for the HIPCs. For the non-HIPCs, the club engaged less in debt reductions and moved towards encouraging the absorption of non-HIPCs' financial losses by bondholders and other private creditors. [edit]2000s In 2004, the Club decided to write-off the debts of Iraq, as the rebuilding of Iraq is incomparable. needed] After the 2004 Indian Ocean earthquake, the Paris Club decided to suspend temporarily some of the repayment obligations of the affected countries.
[clarification

In November 2005, during the tenure of Dr. Ngozi Okonjo-Iweala as Nigeria's Minister of Finance, the Nigerian government "won Paris Club approval for a debt-relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments ...". This discharged "...$30 billion of Nigeria's total $37 billion [2] external debt." In April 2006, Nigeria became the first African country to fully pay off its debt (estimated $30 billion) owed to the Paris Club."Nigeria settles Paris Club debt". BBC. 2006-04-21. Retrieved 2012-05-11. On September 2, 2008, President Cristina Fernndez de Kirchner of Argentina announced plans to pay off the entirety of debt owed to the Paris Club, which amounted to roughly $6.7 billion. Political pressures [3] ensued and though the government officially insists its intention to repay, government officials have [4] stated that this is unlikely until global credit conditions improve. On September 16, 2010, the Paris Club canceled 1.26 billion dollars of Liberia's debt, 100% of the Paris [5] Club's share of a World Bank-IMF poverty reduction program. On November 18, 2010, the Paris Club canceled $7.35Bn of Democratic Republic of the Congo's debt. [citation needed] This resulted in the removal of over 50% of their debt. [edit]Members [edit]Permanent Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy

[1]

Members
Japan Netherlands Norway Russia Spain Sweden Switzerland United Kingdom United States

[edit]Associated Abu Dhabi Argentina Brazil Israel Kuwait Mexico Morocco New Zealand Portugal South Africa South Korea Trinidad and Tobago Turkey

[edit]Observers

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)

[edit]Former Incomplete list:

Chairpersons

Jean-Pierre Jouyet Jean-Claude Trichet

The complete list of Paris Club Chairmen, and much other useful information about the Paris Club's history and operations, can be found in "Sovereign Debt Restructuring: the Case for Ad Hoc Machinery", by Lex Rieffel (Brookings Institution Press, 2003). [edit]Current

chairperson

Xavier Musca The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable
solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment. Paris Club creditors provide debt treatments to debtor countries 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). The origin of the Paris Club dates back to 1956 when Argentina agreed to meet its public creditors in Paris. Since then, the Paris Club has reached 426 agreements with 89 different debtor countries. Since 1956, the debt treated in the framework of Paris Club agreements amounts to $ 563 billion.

Relationships with private sector creditors and creditor countries non member of the Paris Club
Since 2001, the Paris Club has held regular technical meetings with representatives of major private creditors to discuss matters of common interests in an informal way. For the first time in the June 11th 2008 meeting, sovereign emerging creditors (South Africa, Turkey, China Ex-Im Bank, Kuwait Investment Authority and Abu Dhabi Fund for Development) joined the discussions. In his concluding statement, the Chairman of the Paris Club proposed to set up a new ad hoc working group with representatives of major sovereign emerging creditors, in order to deepen discussions on debt-related issues and foster information sharing amongst its members, on an informal basis. As stated in the Paris Clubs contribution to the Doha Conference on Financing for Development (link), Paris Club members strongly favour deepening ties amongst creditors. Cooperative action lies at the heart of the Paris Club rationale and is a prerequisite for an effective international response to debt difficulties. The Paris Club is in fact committed to strengthening its outreach policy towards major sovereign creditors of developing

countries. Given the primary importance it attaches to having a substantive and sustained dialogue with all creditors, the Paris Club welcomes interactions with all creditors as opportunities to learn from alternative approaches and revisit its own principles and methods, where appropriate.

Debt sustainability challenges for low-income countries

The debt crisis of the last two decades has proved extremely costly both for debtor countries and their creditors. To solve this crisis, the internationa provided massive debt relief to low-income countries, especially through the frameworks of the Heavily Indebted Poor Countries initiative (HIPC) an Preserving long-term sustainability remains a challenge, even after provision of debt relief.

Only nine post-completion point HIPCs (out of 23) have a low risk of debt distress. Risk distribution worsened from mid-2007 to mid-2008, while the increased fourfold (from one to four).

Debt sustainability in low-income countries is sensitive to a number of external factors, including export shocks and volumes and terms of new finan

In about 60 percent of debt sustainability analyses for post-completion point HIPCs, less favourable terms for new borrowing (i.e. a 2% increase in th external debt to exports ratio to rise beyond the corresponding threshold, compared to 30% for non-HIPCs.

Paris Club creditors want to prevent risks of future debt crises, especially in countries that have benefited from the HIPC and MDRI initiatives. In this financing to LICs is provided in accordance with the countrys long-term repayment capacity.

Paris Club members are committed to using the IMF and World Bank Debt Sustainability Framework (DSF) for low-income countries as a reference to risk assessments.

However, all creditors, whether sovereign or private, also have an important role to play in this matter by adopting sustainable lending policies. Pari to ensure the protection of long-term debt sustainability in low-income countries.

Therefore the Paris Club invites all creditors to respect the minimum concessionality requirements set in the IMF and World Bank Debt sustainability preventing and limiting unsustainable borrowing.\

Creditors Litigating Against HIPCs

Total claims from litigating creditors (in 54 separate procedures against 12 HIPCs) are worth around USD 1,5 billion, of which USD 1,2 b 2007. These figures are likely to increase as a number of HIPC-eligible countries that have not yet reached the completion point have lar Cote dIvoire, Central African Republic and Sudan.

This phenomenon has significant negative consequences for targeted debtor countries. In particular, the IMF and World Bank have note burdens on the budgets and institutional resources of HIPCs. In addition, the failure of commercial creditors to commit to participation in of debt relief under the HIPC and MDRI initiatives: IMF and World Bank HIPC policy requires a minimum of 80% creditor participation to aggressive litigation could deprive the targeted countries of the full benefit of international initiatives and block their return to sustainable The Paris Club has expressed its concern and adopted several concrete measures to tackle aggressive litigation against HIPCs.

Through a press release dated 22 May 2007, the Paris Club has expressed its concern about the action of litigating creditors, as they fre creditors and thus divert resources from poverty reduction expenditures in the debtor country.

Paris Club creditors also recalled that they are committed to the full implementation of the HIPC initiative. They urged all official and com steps necessary to implement this initiative. In particular, consistent with the Paris Club principle of comparability of treatment and taking HIPCs, Paris Club creditors have confirmed that they are committed to avoid selling their claims on HIPCs to other creditors who do not and urged other creditors to follow suit. This call for enhanced cooperative action was reiterated in the Paris Club contribution to the Doh

During its July 2007 session, the Paris Club adopted several measures, aimed at increasing awareness of the problem of litigation and h Club creditors, thus reducing the risk of claims being sold to litigating creditors:

- The Paris Club has strengthened its advisory role to HIPCs on the terms of the debt relief they should expect from all creditors under Secretariat at the time when an agreement is reached with the Paris Club, with a document presenting precisely the rates of debt relief th addition to that, to support HIPCs engaged in negotiations with other creditors, the Secretariat analyses, upon request, debt treatment of comparability with Paris Club terms. -

The Paris Club provides new information on its website to raise public awareness of the problem of litigation against HIPCs and the im

- Other official creditors (beyond those traditionally associated) are invited to take part in Paris Club negotiations with HIPCs, provided principles to the negotiation.

Paris Club members have been supportive of a decision by the International Development Association in April 2008 to enhance the Deb heavily indebted poor countries to reduce their sovereign commercial external debt.

Furthermore, the Executive Board of the African Development Bank approved in April 2008 the establishment of a Legal Support Facility countries targeted by litigation.

Paris Club creditors also supported and welcomed the commitments from the EU in May 2008 and from the Commonwealth Finance Min onto other creditors.

The five key principles

case by case The Paris Club makes decisions on a case-by-case basis in order to tailor its action to each debtor countrys individual situation. This principle was consolidated by the Evian Approach. consensus Paris Club decisions cannot be taken without a consensus among the participating creditor countries. conditionality The Paris Club only negotiates debt restructurings with debtor countries that: - need debt relief. Debtor countries are expected to provide a precise description of their economic and financial situation, - have implemented and are committed to implementing reforms to restore their economic and financial situation, and - 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 (Stand-By, Extended Fund Facility, Poverty Reduction and Growth Facility, Policy Support Instrument). 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 (generally more than one year), 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. 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. comparability of treatment

A debtor country that signs an agreement with its Paris Club creditors should not accept from its non-Paris Club creditors terms of treatment of its debt less favorable to the debtor than those agreed with the Paris Club.

Historical development
Since 1956, the Paris Club has remained a central player in the resolution of developing and emerging countries debt problems. In 1956, the world economy was emerging from the aftermath of the Second World War. The Bretton Woods institutions were in the early stages of their existence, international capital flows were scarce, and exchange rates were fixed. Few African countries were independent and the world was divided along Cold War lines. Yet there was a strong spirit of international cooperation in the Western world and, when Argentina voiced the need to meet its sovereign creditors to prevent a default, France offered to host an exceptional three-day meeting in Paris that took place from 14 to 16 May 1956. Today, the Paris Club provides debt treatments to debtor countries in a totally different world. Most countries are active players in the world economy and are interdependent through goods and capital flows. Financial globalization has created new opportunities for developing and emerging countries but has brought with it new risks of crisis. Sovereign debt is a minor source of borrowing for emerging economies given the development of emerging bond markets. But the low-income countries generally do not have access to these markets and assistance from bilateral and multilateral donors remains vital for them. Non-Paris Club creditors are becoming an increasingly important source of financing for these countries. Yet despite the fact that Paris Club creditors now have to deal with far more complex and diverse debt situations than in 1956, their original principles still stand. . The Early Years (1956-1980) From 1956 to 1980, the Paris Clubs activity level was low. The number of agreements signed with debtor countries never exceeded four per year. The Paris Club took advantage of these early years to gradually standardize its negotiation process and agreements. Few countries were granted debt treatments. They were mainly located in Latin America (Argentina, Brazil, Chile and Peru) and in Asia (Indonesia, Pakistan, Turkey and Cambodia). The first African country to conclude a debt treatment agreement with the Paris Club was Zaire (now Democratic Republic of Congo) in 1976. Countries that had gained their independence in the 1960s were in a period of debt accumulation, whereas some older countries were already experiencing balance of payments problems. After 1976, some African debtor countries approached the Paris Club for one or more debt treatments (Sierra Leone, Togo, Sudan and Liberia), but at a relatively slow pace compared with the subsequent period. During these early years, Paris Club agreements were fairly simple. They were based on standard Classic terms which were the sole terms of treatment used by creditors from 1956 to 1987. Under Classic terms, debtor countries were granted a rescheduling of credits (whether ODA or non-ODA) at the appropriate market rate with a repayment profile negotiated on a case-by-case basis (generally a ten-year repayment period including a three-year grace period). The Paris Club offered non-concessional flow relief to support IMF adjustment programs. In many cases, several Paris Club debt treatments were required in fairly quick succession to help the debtor country to exit the cycle of rescheduling. Dealing with the Debt Crisis (1981-1996) 1981 marked a turning point in Paris Club activity. The number of agreements concluded per year rose to more than ten and even to 24 in 1989. This was the famous debt crisis of the 1980s, triggered by Mexico defaulting on its sovereign debt in 1982 and followed by a long period during which many countries negotiated multiple debt agreements with the Paris Club, mainly in sub-Saharan Africa and Latin America, but also in Asia (the Philippines), the Middle East (Egypt and Jordan) and Eastern Europe (Poland, Yugoslavia and Bulgaria). Following the collapse of the Soviet Union in 1992, Russia joined the list of countries that have concluded an agreement with the Paris Club. So by the 1990s, Paris Club activity had become truly international. From 1981 to 1987, creditors continued to apply the same rules despite the growing number of countries facing payment difficulties. Classic terms, designed for dealing with temporary liquidity problems, were systematically used for debt treatment. Amounts treated were generally small, corresponding to one or two years of installments due to creditors and to the implementation period for an IMF-supported program. Yet in the mid-1980s, growing concerns about the ability of poor countries to repay their debts led creditors to

consider new terms of treatment. In 1987, Paris Club creditors adopted Venice terms (non-concessional terms that provide debtor countries with longer deferral and repayment periods). In October 1988, Paris Club creditors agreed to implement Toronto terms, which introduced for the first time a partial cancellation of the debt of the poorest and most heavily indebted countries . Twenty poor countries were granted Toronto terms from 1988 to 1991 and a total of 26 agreements were signed on these terms during the period. The Toronto terms were designed for the poorest and most heavily indebted countries, while the Classic terms were to remain the treatment used for other debtors. The debt crisis also hit lower middle-income countries. So in September 1990, the Paris Club creditors decided to adopt new debt treatment rules for some of these countries facing high indebtedness and a stock of official bilateral debt totaling at least 150% of their private debt. These new treatment terms were called "Houston terms". They introduced three significant improvements compared with Classic terms. To date, 35 agreements have been concluded with 19 countries under Houston terms. Given the lasting impact of the debt crisis on the poorest and most heavily indebted countries, the Paris Club creditors agreed in December 1991 to raise the level of debt cancellation from 33.33%, as defined in the Toronto terms, to 50%. Thus were born London terms. A total of 23 countries were granted the London terms from 1991 to 1994, when these terms were replaced by Naples terms. The adoption of Naples terms in December 1994 made two substantial improvements to London terms. The level of debt cancellation was raised to at least 50% and a maximum of 67% of eligible non-ODA credits . Secondly, the Paris Club made the ground-breaking decision that stock treatments could be implemented on a case-by-case basis for countries with a satisfactory track record with both the Paris Club and the IMF, provided there was ample confidence in the ability of the debtor country to meet its obligations under the debt agreement. Eligibility for Naples terms is assessed on a case-by-case basis . The adoption of Naples Terms marked a major turning point in Paris Club history. For the first time ever, Paris Club creditors agreed to consider major levels of debt reduction extending beyond flow treatments to include stock treatments. This development reflected a growing understanding within both the official and private creditor community that the poorest countries debt burdens were unsustainable. Implementing the HIPC Initiative In 1996, the international financial community realized that the external debt situation of a number of mostly African low-income countries had become extremely difficult. This was the starting point of the Heavily Indebted Poor Countries (HIPC) Initiative. The Evian approach The HIPC Initiative demonstrated the need for creditors to take a more tailored approach when deciding on debt treatment for debtor countries. Hence in October 2003, Paris Club creditors adopted a new approach to non-HIPCs: the Evian Approach.

The debt of developing countries

External debt is a source of financing for developing countries Developing countries and countries in transition can raise funds from the international financial community and finance their development through a number of instruments, including attracting equity (notably foreign direct investment), receiving grants from donors, or borrowing from foreign lenders. According to the Word Bank, net flows of capital received by developing and emerging countries in 2007 reached $370 billion in the form of foreign direct investments, $140 billion in equity flows, $166 billion in new lending and $75 billion in grants. Among these four instruments, debt results directly in future obligations for the borrower (debt must be repaid). This makes it necessary for the borrower to make sure that it will, in the future, be in a position to repay its debt, notably through an efficient use of the loans, in order to generate income that will be used to repay the debt. This is why debt is often considered as a development tool. However, for the poorest and most indebted countries, the accumulated debt burden has become a drawback for development; this is why the international financial community designed the Heavily Indebted Poor Countries (HIPC) Initiative, and most Paris Club member governments decided to provide financing to these countries mostly through grants. The external debt of developing countries comprises several types of debts Each organisation compiling and publishing debt figures may have different ways to categorize and to measure debt. The debt owed by a country can be broken down into a number of different types (see types of debt for further details): by debtor (which may be a sovereign government, a public company or a private debtor), or by creditor (which may be a multilateral creditor, a government, a private creditor). Over time, the share of private debt (debt owed by private debtors) and the share of private claims (debt owed to private creditors) have increased, reflecting the increased role of the private sector in both industrialised and developing countries. As of 31 December 2007, the total debt of developing and emerging countries was estimated by the World Bank to be

$3,357 billion, out of which $2,558 billion of medium- and long-term debt, broken down as follows: 2007 Medium and long term debt outstanding Public and publicly guaranteed Official creditors Multilateral creditors Bilateral creditors Private creditors Private non guaranteed Public and publicly-guaranteed medium- and long-term debt can be broken down as follows: 2 558 1 335 646 365 281 688 1 226 48% 100% 52%

According to the World Bank, the total amount of the medium- and long-term debt of developing countries has increased as follows over the past ten years: USD Millions

Creditworthiness varies significantly from country to country The creditworthiness of a country is the assessment by potential lenders of the country's capacity to repay its external debt. Being creditworthy is a key to success for developing countries because they can borrow larger amounts to finance growth and development. In addition, a creditworthy debtor is in a position to borrow funds used to refinance its existing debt obligations Governments of debtor countries have a significant impact on the creditworthiness of all borrowers of developing countries, since a government default can have consequences for the capacity of other borrowers to repay their debt. A number of factors influence creditworthiness. Some are linked to economic factors, such as the capacity of the country to generate balance-of-payment receipts, and the volatility of these receipts. Others are financial factors, such as the debt repayment profile. Political factors also play a role in the creditworthiness of a debtor country, when its government considers the cost of paying debt to be too high. Creditworthiness usually takes a long time to build, as lenders tend to assess over time the capacity of the debtor to repay its debt before entering into large lending. In contrast, failure to fulfil debt obligations can rapidly damage creditworthiness. Under circumstances where debt restructuring cannot be avoided, countries that do not accumulatearrears and take preventive steps to reach a coordinated solution with their creditors, notably in the Paris Club, can restore their creditworthiness more rapidly afterwards. In contrast, debtors that declare a unilateral moratorium tend to lose access to new financing for some time.

Classification
The debt owed by a country can be divided into various categories. Each organisation compiling and publishing debt figuresmay have slightly different ways to categorize and to measure debt. The main categorizations used in the framework of the Paris Club are the following: External debt and domestic debt External debt is generally defined using a residency criterion: it is debt owed by public and private entities resident in a country to non-residents. This type of debt has a direct impact on the balance of payments of the debtor country. The domestic debt, on the contrary, is debt owed by resident entities to other resident entities in the country. However, for practical purposes, external debt is sometimes compiled according to the currency of the debt and without using a residency criterion (being then similar to foreign currency debt). Classification by categories of debtors: Private and public debt External debt may be owed by public sector entities or by private sector entities of the debtor country. In the first case, it is called public debt, in the second case, private debt. Debt owed by private sector entities but guaranteed by

public sector entities is often included in the public debt (which is sometimes called "public and publicly guaranteed debt"). Public debt may be owed by the government or by other public sector entities, including public enterprises. Classification by creditor: multilateral, bilateral and private debt Multilateral creditors Claims granted by international financial institutions (mainly the IMF, the World Bank or regional development banks) constitute multilateral debt. Official bilateral creditors Claims granted by official bilateral creditors i.e. States (governments or their appropriate institutions, especially export credit agencies) constitute bilateral debt. The Paris Club brings official bilateral creditors together. Although not all official bilateral creditors are members of the Paris Club, Paris Club creditors hold the majority of official bilateral claims worldwide. Other official bilateral creditors may participate in Paris Club sessions on an ad-hoc basis. Official bilateral claims result from two types of financing: - credits guaranteed by the Governments or their institutions. In most cases, these credits were commercial credits granted to finance imports by the debtor country; - direct loans from the Governments or their institutions to the government or other public entities of the debtor country. Government loans may be granted under "Official Development Assistance" (ODA) conditions, as defined by the OECD (low interest loans aimed at supporting the development of the debtor country). Private creditors All creditors not mentioned as multilateral or official bilateral creditors are considered private creditors. These include suppliers, commercial banks and bondholders.

Definition of debt treated

Among the different types of debt, Paris Club agreements generally concern only:

public debts, as the agreement is signed with the government of the debtor country unable to meet its external obligations. Debts owed by private entities and guaranteed by the public sector are considered to be part of the public debts. On the creditor side, the debts treated are credits and loans granted by Paris Club creditors governments or relevant institutions, as well as commercial credits guaranteed by them.

medium- and long-term debts. Short-term debts (debts with a maturity of one year or less) are usually excluded from the treatments, as their restructuring can significantly undermine the debtor countrys capacity to participate in international trade.

debts granted before the initial date set when the debtor country meets with the Paris Club, also known as the cut-off date.

Flow and stock treatments

Flow treatments aim to close the debtor countrys financing gap identified by the IMF in the framework of its programs. The gap is the result of external resources - exports, reserves, revenue from foreign assets, remittances, foreign direct investment (FDI), loans and grants - not covering external needs - imports, debt service, repatriation of dividends produced by FDI. Paris Club agreements usually coincide with the period of time covered by the IMF program, which demonstrates a financing gap that can only be covered by debt rescheduling. This period is called the "consolidation period". Only maturities owed to Paris Club creditors and falling due during this period are treated. However, in some cases, arrears accumulated as of the start of the consolidation period are also treated. Stock treatments

Some Paris Club treatments apply not only to the payments due over a given period of time, but to the entire stock of debt. The aim of agreements covering the stock of debt is to provide a country with a final Paris Club treatment called an exit treatment. Such agreements are used in two cases:

Under the HIPC initiative, the action taken by Paris Club creditors in accordance with this initiative takes the form of a stock treatment granted at completion point. In other cases, stock treatments may be granted, on a case-by-case basis, for countries that have a satisfactory track record with both the Paris Club and the IMF and where there is sufficient confidence in the debtor countrys ability to meet its obligations under the debt agreement. Rescheduling:

Standard terms of treatment

Paris Club treatments are defined individually, by consensus of all creditor countries. Most treatments fall under the following pre-defined categories, listed below by increased degree of concessionality: - "Classic terms" : standard treatment - "Houston terms" : for highly-indebted lower-middle-income countries - "Naples terms" : for highly-indebted poor countries - "Cologne terms" : for countries eligible to the HIPC initiative. Eligibility for the different terms is assessed on a case-by-case basis by Paris Club creditors, taking into account the track record of the debtor country with the Paris Club and the IMF and various criteria, notably per-capita income, level of indebtedness and of debt service. Any debtor country declared eligible for specific terms by Paris Club creditors may decline these terms in favour of a less concessional set of terms, notably if it considers them to have a negative impact for its creditworthiness. Other terms had been defined in previous Paris Club treatments. Though they are no longer used, a part of the outstanding debt owed by debtor countries was treated according to these terms: - "Toronto terms" (replaced by "Naples terms") - "London terms" (replaced by "Naples terms") - "Lyon terms" (replaced by "Cologne terms")

Debt swap
Paris Club agreements may contain a provision enabling creditors to voluntarily engage in debt swaps. These operations may take the form of debt-for-nature, debt-for-aid, debt-for-equity or other local currency debt swaps. These swaps usually take one of the following terms: - the debtor country directs the servicing of the debt to a fund that will be used to finance development projects in the country (debt-for-development swaps) - the sale of the debt by the creditor government to an investor who in turns sells the debt to the debtor government in return for shares in a local company or local currency to be used for projects in the country. In order to preserve comparability of treatment and solidarity among creditors, debt swap amounts for non-ODA claims are capped at a certain percentage of each individual Paris Club creditor's stock of claims. There are no restrictions regarding debt swaps on ODA claims. To ensure full transparency between creditors, debtors and creditors submit a report to the Paris Club Secretariat on the transactions conducted.

Early repayment operations

In order to adapt to a rapidly evolving macroeconomic context, a country might want to manage its debt in a dynamic fashion. Such dynamic management can involve changes in the structure of its debt: i.e. its time-structure (duration, etc.); its currency composition; and its exposure to market risk. Actually a Paris Club debt treatment already involves such debt restructuring as it gives the country a last opportunity to adapt its debt structure (e.g. its duration) to exceptional circumstances (e.g. a shortage in short-term financing due to structural problems). Conversely, for dynamic management purposes, a country might want to buy back its debt ahead of schedule. The

main reasons for doing this are usually: to reduce ones debt service; to reduce ones exposure to a given currency; or to develop ones domestic bond market or increase its liquidity, by swapping external debt for domestic debt. Most of the time, this dynamic management scheme helps to achieve beneficial outcomes for both creditor and debtor countries. The Paris Club has been implementing this option since 1997, allowing some debtor countries to prepay their debt. Early repayment is restricted to debtor countries that have graduated from the risk of a new Paris Club rescheduling. This assessment requires the consensus of all Paris Club creditors. To preserve solidarity between Paris Club creditors, the early repayment offer has to be made on the same terms to all Paris Club creditors. The terms of the early repayment operation also have to be agreed upon by consensus of all Paris Club creditors. Participation in the early repayment operation is then voluntary. Each Paris Club creditor may decide whether or not to participate. Early repayment operations can be realized under two frameworks: 1. 2. Prepayment at par: the debtor country offers to repay the debt at face value. Buyback at market value: the debtor country offers to repay the debt at market value. The market value is defined as the Net Present Value (NPV) of the remaining cash flows. The NPV is calculated by discounting the cash flows at a discount rate, which is the sum of a risk-free discount rate and a country-risk spread. The market value of the debt may be higher or lower than its face value.

Breakdown of eligible debt (in nominal value) covered by early repayment agreements in 2005 2007

There has been an increase in early repayment operations in the Paris Club in the last few years : Poland, Brazil, Russia, Algeria, the Former Yugoslav Republic of Macedonia, Peru, Gabon and Jordan offered early repayments of around USD 70 billion of debt in face value in 2005, 2006 and 2007. The last early repayment operations were concluded with the following countries: The former Yugoslav Republic of Macedonias offer to prepay at par its debt previously rescheduled under the Paris Club agreement concluded in 1995 was accepted on 24 January 2007. The debt eligible for the prepayment operation amounted to USD 104 million. All of Macedonias Paris Club creditors decided to participate in the operation. Perus offer to prepay at par its debt previously rescheduled under the 1993 and 1996 Paris Club agreements and not granted under official Development Assistance was accepted on 23 May 2007. A first partial prepayment operation had been accepted by Paris Club creditors in 2005. The debt eligible for this second prepayment operation amounted to around USD 2.5 billion. Almost all of Perus Paris Club creditors decided to participate in the operation. Gabons offer to buy back at market value its debt previously rescheduled under Paris Club agreements concluded in 1994, 1995, 2000 and 2004 and not granted under Official Development Assistance was accepted by Paris Club creditors on 18 July 2007. The debt eligible for this buyback operation amounted to around USD 2.2 billion. Almost all of Gabons Paris Club creditors decided to participate in the operation. Jordans offer to buyback at market value its debt previously rescheduled under the 1994, 1997, 1999 and 2002 Paris Club agreements and not granted under Official Development Assistance was accepted by Paris Club creditors on 18 October 2007. The debt eligible for this buyback operation amounted to approximately USD 2.5 billion. Almost all of Jordans Paris Club creditors decided to participate in the operation.