Paris Club wraps effort to cut debt of heavily indebted poor countries

By Susanna Moon

Chicago, May 29 - Paris Club said it will return to its core function as a club of creditors, aimed at the orderly resolution of sovereign debt crises, as it wraps the Heavily Indebted Poor Countries (HIPC) initiative.

The HIPC framework was launched in 1996 by the International Monetary Fund and World Bank, according to Paris Club, and enhanced in 1999 at the Cologne G7 summit to reduce the external debt burdens of the most heavily indebted poor countries to sustainable levels.

The club marked a track record of 429 negotiations with 90 countries, which will allow it to continue playing a pivotal role in the international financial system, by providing an effective forum for debt restructuring, according to a press release by Paris Club.

Out of 39 eligible countries, 35 of them have reached the completion point, restoring their financial soundness, debt sustainability and access to capital markets in some cases, the release noted.

Since 2003, alongside the HIPC initiative, the Paris Club has implemented the "Evian approach" with 15 countries, which allows for flexible, orderly, timely and predictable crisis resolutions.

This approach ensures that debt restructuring is granted only in exceptional circumstances of imminent default and is not considered by debtor countries as an alternative to more expensive sources of financing.

Also, Paris Club members have engaged in 13 early repayment operations since 1997, the release added.

In the future, the Paris Club said it will step up its efforts to respond effectively to the challenges of the global financial situation and to enhance its capacity to provide the most suitable debt treatment for creditors and debtors.

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