International press

At 50, is the Paris Club a colonial relic ?

3 July 2006 by Emad Mekay

In a recent statement on the 50th anniversary of the Paris Club, a powerful creditors’ cartel based in France, anti-debt groups described the club’s policies toward borrowing nations as “medieval”. But some say the word “colonial” is equally fitting.

Made up of 19 of the world’s richest nations, the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

was formed in 1956 as an informal group of creditor governments to manage their collective debt portfolio. It has since evolved into one of many foreign policy tools that one-time colonial powers, like Britain and France, have used to maintain their influence over the resources of developing countries.

The Club is one of several international financial institutions — almost all of them devised and run by former colonial powers — such as the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
(IMF) and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, that help industrialised nations promote an economic agenda that keeps many former colonies attached to their former occupiers.

The Paris Club’s chief tool in its mission to maximise returns has been to push for loan restructuring in bankrupt countries. Since 1983, the Club has covered some 504 billion dollars of debt originally given through bilateral, and wrongly labeled, “aid” agencies or through export credit agencies, to dozens of countries in Africa, Asia and Latin America.

The brunt of those programmes has been borne by sub-Saharan Africa and Latin America, but also by countries in Asia (the Philippines), the Middle East (Egypt and Jordan) and Central and Eastern Europe (Poland, Yugoslavia and Bulgaria).

The result of rescheduling debt has been the extension of repayment deadlines over a longer period combined with the introduction of penalty interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and in almost all cases the further implication of poor nations in debt.

Nigeria is a classic example of this vicious circle. In 1985, its external debt was 19 billion dollars. Although it has paid creditors more than 35 billion dollars while borrowing less than 15 billion, its outstanding debt at the end of 2004 grew to almost 36 billion dollars because the government ended up paying compound interest to the Club’s creditors.

Rescheduling has also come standard with IMF programmes laden with economic conditionalities such as privatisation of state-owned industries and market liberalisation, a formula that critics say has worsened the debt situation in poor nations.

The secretive Paris Club has come to so closely coordinate with the IMF and the World Bank that representatives of the two bodies routinely sit in when debt management decisions are taken in Paris. Two Paris Club chairmen, Jacques de Larosière and Michel Camdessus, have acted as managing directors of the IMF.

The Club’s official members are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Britain and the United States.

Wealthy nations have imposed — through the IMF, World Bank and the Paris Club — a protracted state of unsustainability and emergency,” said the Brussels-based anti-debt group Eurodad in a statement signed by dozens of independent groups.

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,” it added.

The “non-institution”, as it is sometimes called, and whose members meet 10 to 11 times a year, is also criticised as a flagrant example of non-democratic procedures. Its decisions are taken on the basis of unanimity. But it allows in only creditors, and debtors end up on the receiving end of dictates that they do not help shape.

AFRODAD, a platform of African NGOs, once described the Paris Club and its relations with indebted nations like this: “In a jury of foxes (the creditors), the chickens (the debtors) are always the guilty”.

Politics drives most of the Club’s debt rescheduling Debt rescheduling Modification of the terms of a debt, for example by modifying the due-dates or by postponing repayments of the principal and/or the interest. The aim is usually to give a little breathing space to a country in difficulty by extending the period of repayment and reducing the amount of each instalment or by granting a period of grace during which no repayments will be made. arrangements. One of the clearest examples of that in recent years is how the Club came to forgive 80 percent of Iraq’s debt under U.S. pressure. Similarly, it covered 67 percent of Serbia and Montenegro’s debt and half the debts of the pro-Washington government in Poland.

By contrast, countries hit by the devastating tsunami in 2004 have at best been given only a one-year moratorium, exposing them to the payment of additional interest at a time of national disaster.

These examples, says the Committee for the Abolition of Third World Debt (CADTM), a Paris-based group, “reflect first and foremost the geopolitical interests at stake and are especially questionable”.

Other civil society organisations said in their statement on the 50th anniversary of the club this shows “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,” they added.

The groups have called for the creation of an impartial body to oversee the process of international debt management talks and to guarantee that the voices of indebted nations and creditors are both heard.

These days, the Paris Club appears worried that new lenders like China and Brazil will woo its clients away and dilute the control of rich nations over developing ones. It has offered an open invitation for these nascent economic powers to sign on board.

As these new players from Asia and elsewhere begin to take more responsibility for the system ... they may begin to appreciate the importance of existing institutions,” Bank of Israel Governor Stanley Fischer, a former IMF official, told a forum the Club held to celebrate its golden anniversary.

The point was echoed by numerous officials who help run the current global economic system.

The international community needs to find ways to engage with emerging donors. It must convince them that financing to low-income countries should be shaped by coordinated international efforts, rather than independent national policies,” said Agustin Carstens, deputy managing director of the IMF.

Source : Ips News, June 20, 2006.



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