Illegitimate and Odious Debt and The Paris Club

The Paris Club, now 50 years in existence, is a cartel of official creditors (19 permanent members, including Ireland) whose role is to maximize overall returns on their loans. The Paris Club - a "non-institution", as it conveniently likes to call itself, is a blatant example of non-democratic rules and processes.
In the Paris Club the creditors act as judge and jury in their own case while debtor countries who are most affected by their decisions, are only permitted to play a passive role in the process.

Paris Club representatives claim they are not a development agency and therefore cannot deal with issues other than mere debt recovery. YET around the table can be found the official representatives of those very governments who have solemnly pledged to contribute to the achievement of the Millennium Development Goals by 2015.

9th June 2006

Debt and Development Coalition Ireland signed the following EURODAD action on behalf of the members.

The Paris Club at 50: illegitimate and unsustainable.

For at least the past 30 years much of the developing world has been crushed under a mass of foreign debts that - amongst other injustices and distortions - has put a stranglehold on its growth and poverty-reducing opportunities. This continued crisis, contrary to creditor governments' overemphasized claims, has never been dealt with systematically. Rather, wealthy nations have imposed - through the IMF, World Bank and The Paris Club - a protracted state of unsustainability and emergency. As a consequence, a permanent exit from the debt trap has been consistently and willingly impeded, keeping debtor countries in a state of effective domination and dependence. This is clear from the number of negotiations that a large number of countries has had to endure over the years: we can count 14 visits for Senegal, 11 for Democratic Republic of Congo, 9 for Cote d'Ivoire, and 8 for Gabon. Moreover, one of the greatest concerns about these prolonged strings of restructurings is that loans that were often odious or illegitimate, get consolidated and relabelled and are subsequently extremely difficult to track down to their real origin.

The Paris Club is a cartel of official creditors whose role is to maximize overall returns on their loans. During its 5 decade-long tenure the Club has proven to be a highly efficient tool for the smooth restructuring and for the effective recuperation of loans extended through aid agencies and - most importantly - export credit agencies. By privileging creditors' interests it has done little to guarantee a fair and transparent setting or sustainable outcomes for debt crisis resolution.

This "non-institution", as it conveniently likes to call itself, is a blatant example of non-democratic rules and processes. It encompasses only creditors and its decisions are taken on the basis of unanimity, granting full veto power to the one member sticking to the least favourable terms. It bases its efforts merely on a capacity of payment derived from internal (and highly secretive) calculations. These are all clear indicators of an absolute absence of truly accountable, open and transparent processes. Moreover, the manifest arbitrariness of its concrete practice, which tries to hide geopolitically-driven decisions behind the seemingly "technical" country-by-country tailored approach, is entirely unacceptable and proves the lack of credibility characterizing this entity. For instance, the different treatment of countries like Nigeria (60% cancellation), Serbia and Montenegro (67%), Poland (50%) and Iraq (80%) - just in recent years - clearly indicate a level of political arbitrariness defying all common sense of justice and fairness.

In the Paris Club the creditors act as judge in their own case: the greater part of the negotiating process is concerned with decision-making amongst creditors alone. The delegation from the debtor country is only able to play a passive role in the process, accepting or declining the offer advanced by the creditors. Compared with domestic insolvency laws and procedures in Paris Club member countries, the Club is a medieval institution. Compared with systems governed by constitutional law, international debt management negotiations lack an impartial body to oversee the process, ensure both parties voices are heard, and reach a judgment to which the two parties are bound.

Paris Club representatives claim they are not a development agency and therefore cannot deal with issues other than mere debt recovery. Yet around the table at Bercy can be found the official representatives of those very governments who have solemnly pledged to contribute to the achievement of the Millennium Development Goals by 2015. Thus it must also be that when they make decisions on debt management, they must necessarily fully and comprehensively assess the consequences of their actions, and behave accordingly.

As it is today, the Paris Club does not have any legitimacy and has not fulfilled its stated mission. Civil society organizations from the South and the North demand a radical change of the current state of affairs in international debt management. Governments - and in particular those from creditor nations - must provide for comprehensive, fair and impartial based mechanisms for cases of unsustainable debt. To this end, we call on creditors to accept that they need to abandon their role as both party and ultimate judge, accepting a neutral instance to evaluate their requests against the debtors' situation and needs. The governments represented in the Paris Club must take the opportunity of the 50 years to end current practices and move decisively to a new framework.

Signatorie: Debt and Development Coalition Ireland