What is the Paris Club ?

Friday 4 March 2016, by CADTM

All the versions of this article: [English] [français]

After the Argentine President Juan Domingo Peron was overthrown by a military coup in 1955, the new regime was eager to re-establish the good-will of the creditors. They quickly requested membership to the IMF and the World Bank. This meant regularising their debt situation and meeting with their principal creditor countries. This meeting was held on 16 May 1956 in Paris at the invitation of the French Minister of the Economy and was the founding act of the ’Paris Club’.

Sixty years later, the Paris Club, along with the IMF and the World Bank, has become a strategic instrument of the developed countries for maintaining their grip on the world’s economy. The Club still meets in the premises of the French Ministry of the Economy at Bercy in Paris, where it has its headquarters; its aim is to renegotiate the debt of the developing countries having repayment difficulties. The original eleven members have now become twenty: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the UK, and the USA. Other creditor countries may occasionally participate.

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The 20 Paris Club countries

Between 1956 and 1980, only thirty agreements were signed by the club. Before 1976, the Club would not even hear the requests from countries whose debt situation was not considered to be sufficiently serious: only Argentina, Brazil, Cambodia, Chile, Indonesia, Peru, Pakistan and Zaire were received. After the debt crisis at the beginning of the 1980s the Club’s workload was significantly increased. Between 1981 and 2008, 373 agreements were made with 83 debtor countries, the sad record being held by Senegal, which appeared 14 times, Madagascar 12 times and DRC 11 times. In all, over $500 billion were restructured or cancelled

The plenary meetings, usually monthly, border on the ritualistic. [1] The delegation from the debtor country and those from the creditor countries sit around the great conference table in alphabetical order. The international multilateral institutions (IMF, UNCTAD, World Bank, regional development banks, etc.) may also be represented. The Club’s President, often the chief administrator of the French treasury – or a close collaborator, officiates. The head of the debtor country delegation, usually the finance minister or the head of the Central Bank, formally presents the country’s situation and the reasons it has requested the meeting. The authorities in the country have already been discussing the case for several months and have had to accept very strict conditions before being allowed to make their case: make a formal request to the Paris Club demonstrating that continuing debt repayments has become an impossibility under the present conditions and to conclude an agreement with the IMF that is supposed to guarantee that this does not happen again. Before going before the Paris Club the country has already conceded to these demands. This situation very much reduces the country’s leeway in the negotiations.

Then, the IMF gives the details of the reforms that are to be put into place in order to get the country out of its difficulties, before the World Bank and the UNCTAD complete the picture. There follows an interrogation. The outcome of these ’negotiations’ shows how all-powerful the creditors are: the debtor delegation is invited to leave the room while the rest of the assembly discusses their own positions and decides what to do about the culprit country. Once common ground has been found the President informs the debtor country of the proposals. If they are not satisfactory the ’negotiations’ may recommence, but the power of persuasion is immense: the fact that the debtor country has asked for a conciliatory gesture from the creditors and is at the negotiating table is already a clear sign of submission. Once the agreements are signed the debtor country’s last task is to tell the media how favourable they are and to humbly thank the creditors for their benevolence.

When a country goes before the Paris Club for the first time a cut-off date is decided. Officially, only debts taken on before such date may be subject to a new repayment calendar. This is to reassure the financial markets and creditors on the guarantees covering any new loans. Madagascar, Niger and Cote d’Ivoire had their cut off date set at 1st July 1983, which drastically reduced the amount of debt that may eventually be considered for renegotiation.

The Paris club recognises two classes of debt: Official Development Assistance (ODA) granted at below the market interest rates that supposedly encourages development; [2] and non-ODA debts (or commercial debts) which alone will be considered for easing. Generally, Paris Club debt relief is limited to the poorest and the most indebted countries. For the great majority of countries having payment difficulties the Paris Club grants only payment rescheduling facilities, which does no more than put the problems off to a later date.

The living conditions of the poorest populations is not the Paris Club’s problem as it considers itself to be no more than a debt recovery agency. It is run by the Finance Ministry, not the Foreign Affairs Ministry or the Ministry for Development and Cooperation. The Paris Club objective is to make the debtor countries repay as much as possible: “The Paris Club Creditors seek to recover the highest possible amount of their loans. So, an immediate payment of the highest possible amount is demanded. The remaining amounts are rescheduled so that future repayments are balanced and the risk of future default and renewed requests to the Paris Club minimised.” Is it a surprise that the Paris Club and the big banks are in collusion? Jean-Pierre Jouyet left the presidency of the Paris Club in July 2005 to take the post of non-executive President of Barclays. [3] Emmanuel Moulin, General Secretary of the Club took a new position at Citibank, the World’s biggest banking group, and there are other examples.

The Paris Club describes itself as informal, a ’non-institution’. It has no statutes or judicial existence. Technically, the agreements that are the outcomes of these negotiations are simple recommendations that become effective as and when a creditor country independently applies them to the bilateral agreements, which are the pertinent legal frameworks, with the debtor country. Nevertheless, in respect of the principle of solidarity the Club’s recommendations are systematically followed. A clever way of sharing responsibilities: in fact the Club has no responsibilities because its decisions are not binding in themselves even though members do apply them strictly. What is more, the Club’s role is fundamental because it forms a creditor countries’ united front to recover payment of bilateral debts. On the other hand, each debtor country is alone and isolated, [4] its situation being examined independently, considering IMF figures which are often excessively optimistic. [5]

Quick to insist on ’good governance’ elsewhere, the club does not feel concerned itself. Meeting agendas are never made public in advance; the subjects of internal discussions and the positions of the different countries are never announced; the meetings are held behind closed doors, without the presence of independent observers. Whilst the Club is judge and party the debtors are isolated before a united front of creditors. This implies that the decisions are weighed in favour of the financial interests of the rich countries.

It is interesting to note that the Paris Club capitalises the interests on Paris Club debts that are finally added to the balance of outstanding debt thus creating their own interest! [6] even if most South American Constitutions, and some European ones, such as the Italian Constitution, prohibit such practices. So, the Paris Club effectively presses Debtor Countries into violating their own constitutions!

Pressure is clearly used to discourage the forming of a “Debtors’ union”. The Paris Club website says “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 accumulate arrears 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.”

Finally, after the Paris Club the indebted State can then turn to negotiating its debt towards private creditors under conditions that are still more abominable surrounded by a nauseating odour of profit by any means.

When all is said and done the Paris Club is a serious institutional anomaly, held under the sly and discrete auspices of the all powerful creditors [7] and it should simply disappear.

Translation : Mike Krolikowski and Christine Pagnoulle.


[1See David Lawson, Le Club de Paris. Sortir de l’engrenage de la dette, L’Harmattan, 2004.

[2That’s only theory, most often ODA funds are earmarked to finance structural adjustments that inhibit real development. Rather, they maintain and even create poverty.

[3He only stayed a few months until the end of 2005, after which he took over the French Inspection Générale des Finances and then joined the Sarkozy government as secretary of State for European Affairs.

[4This is why Thomas Sankara (President of Burkina-Faso 1984-1987) had hoped to create, after his speech in Addis-Abeba, on 29 July 1987, The Addis-Abeba United Front Against Deb (thttp://clubdeparis.fr/?Un-front-uni-contre-la-dette (in French))

[5For example, in August 1997, an IMF and World Bank report on Burkina-Faso forecast 8% annual growth in exports for the 2000-2019 period. In June 2000, after a bad cotton harvest of 1999 the figures were revised downwards to 7.6% for the period 2000-2007 and down to 5% for the period 2008-2018. After the price of cotton fell 35% in 2001, the IMF report published in 2003 shows a 14% fall in cotton exports. See Damien Millet, L’Afrique sans dette, CADTM/Syllepse, p. 175 (in French).

[6This may be called “anatocism”.

[7This text is based on the article “Des créanciers discrets, unis et tout-puissants”, by the same authors, that appeared in Le Monde diplomatique June 2006.