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Paris Club: Intergovernmental Relations in Debt Restructuring

10/02/2008
Working Paper
Debt and Global Finance

This paper describes the unique way negotiations within the Paris Club are carried out, with the debtor in essence as supplicant to the creditors who then announce their joint decision on relief, after which the debtor undertakes a series of bilateral renegotiations of each loan with each creditor following the guidelines of the Club's ‘Agreed Minute’.

The process has a high cost in administrative time of debtor country governments for each rescheduling, especially under the ‘short leash’ approach extensively used in the 1980s and 1990s which required numerous return visits to the Club to restructure each subsequent year or two of debt-servicing obligations. The point of the ‘short leash’ was (and is) political: to add to the pressure on the debtor government to make the policy changes that the IFIs demand as a condition for disbursement of the various tranches of their loans.