PARIS CLUB - INTERNATIONAL RELATIONS

News: Paris Club likely to provide financial assurances to IMF on Sri Lanka debt: What is this grouping?

 

What's in the news?

       Reuters has reported that the Paris Club, an informal group of creditor nations, will provide financial assurances to the International Monetary Fund on Sri Lanka’s debt.

 

Key takeaways:

       An assurance from the Paris Club, as well as other bilateral creditors, is one of the conditions that Sri Lanka has to fulfil for the IMF to begin disbursing a $2.9 bn bailout package to the beleaguered nation that all but collapsed last year under a severe economic crisis.

 

Paris Club:

       The Paris Club is a group of mostly western creditor countries that grew from a 1956 meeting in which Argentina agreed to meet its public creditors in Paris.

       It is a forum where official creditors meet to solve payment difficulties faced by debtor countries.

 

Objective:

       To find sustainable debt-relief solutions for countries that are unable to repay their bilateral loans.

 

Members:

       Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, United States of America.

 

How has Paris Club been involved in debt agreements?

       Since its beginnings, the Paris Club has reached 478 agreements with 102 different debtor countries.

       Since 1956, the debt treated in the framework of Paris Club agreements amounts to $ 614 billion.

       It operates on the principles of consensus and solidarity. Any agreement reached with the debtor country will apply equally to all its Paris Club creditors.

 

Role of the Paris Club over time:

       The Paris group countries dominated bilateral lending in the last century, but their importance has receded over the last two decades or so with the emergence of China as the world’s biggest bilateral lender.

       In Sri Lanka’s case, for instance, China, Japan and India are the largest bilateral creditors. Sri Lanka’s debt to China is 52 percent of its bilateral debt, 19.5 percent to Japan, and 12 percent to India. With Japan a member of the Paris Club, Sri Lanka needed assurances from China and India as well.