Debt and Development

From Monterrey to Doha and beyond

Benoit Coeuré – Co-Chairman of the Paris Club

Doha Conference on Financing for Development

Roundtable on Chapter V : External debt

December 1st 2008, Doha (Qatar)

Outline

1- Implementation of the Monterrey provisions on external debt

2- New challenges and Paris Club commitments in the context of Doha

1- Implementation of the Monterrey provisions on

external debt

What has been achieved since Monterrey ?

(1/6)

Significant progress has been made in the provision of debt relief under HIPC/MDRI

:

US$ 99,3 billion committed to the 41 eligible HIPCs (NPV end-2007)

US$ 57,5 billion already granted to 23 post-completion point HIPCs

What has been achieved since Monterrey ?

(2/6)Paris Club members have been major contributors to debt relief under HIPC

US $ 11,4 bn delivered to 23 post-CP HIPC as part of HIPC assistance

+ US $ 7,4 bn beyond HIPC assistance on a

bilateral basis =

US $ 18,8 bn granted to the 23 post-CP i.e. > 50% of the overall assistance

What has been achieved since Monterrey ?

(3/6)

Alleviation of debt burdens and enlarged fiscal space for poverty

eradication

• 90% cut in external debt stock for 33 post-DP• 63% cut in average debt service to exports

(from 16,6% in 2000 to 6,1% in 2007)• 36% increase in poverty-reducing expenditure

to Government revenue (from 34,7% in 1999 to 47,2% in 2007)

What has been achieved since Monterrey ?

(4/6)

Paris Club members have been major contributors to debt relief outside HIPC

too(Evian approach)

US $ 69,4 bn of debt treated for 10 countries since 2003

of whichUS $ 47,8 bn cancelled

Sustainable debt

Kenya (Jan 2004) Gabon (June 2004)* Georgia (July 2004)* Dominican Rep. (April

2004 + October 2005)* Moldavia (May 2006) Grenade (May 2006)* Djibouti (October 2008)*

Unsustainable debt

Iraq (November 2004)29,7 Bn $ cancelled

Kirghiz Republic (March 2005)124 M $ cancelled

Nigeria (October 2005)18 Bn $ cancelled

Debt relief has been granted to 10 middle-income countries over the past 5 years within the Evian

approach

* those agreements included a “goodwill clause” indicating the Paris Club’s willingness to examine further debt restructuring options should the macroeconomic and debt sustainability outlook deteriorate

Following Monterrey recommendations, Paris Club adapted debt relief in response

to major exogenous shocks :

“natural catastrophes” : 3 year deferral of all payments on debt service for Honduras and Nicaragua hit by Hurricane Mitch (1998), 1 year deferral for Indonesia and Sri Lanka hit by Indian Ocean Tsunami (2004)

“severe terms of trade shocks” : 3 year deferral of all payments on bilateral debt service beyond usual terms of treatment for Togo (June 2008), one of the 5 countries most severely affected by rocketing food and petroleum prices

“conflict” : 3-year deferral of all payments for Liberia (April 2008)

What has been achieved since Monterrey ?

(5/6)

What has been achieved since Monterrey ?

(6/6)Monterrey : “debtors and creditors must share

the responsibility of preventing unsustainable debt situations”

Paris Club members use the Debt Sustainability Framework

to make sure new lending does not exceed a country’s repayment capacity

+Paris Club members support the OECD Principles and

Guidelines on sustainable export credit lending (Jan. 2008)

2- New challenges and Paris Club commitments in the context of

Doha

New challenges ahead and Paris Club commitments

Full implementation of debt relief efforts (I)

Long-term debt sustainability (II)

Creditors’ coordination (III)

Paris Club submission to Doha on external debt released in mid-September

- general guidelines for all creditors on above listed topics- further immediate steps taken by the Paris Club along those

lines

Full implementation of debt relief efforts

by all creditors is critical (1/2)

Participation of non-Paris Club creditors to HIPC still fall short of expectations : 40% for bilateral creditors, 33% for commercial creditors

Uneven participation harms efficiency of debt relief at the expense both of debtor countries and of creditors who “play fair”

Litigation is another form of free-rider behavior that needs to be addressed by the whole “creditors’ community”: 50 litigators, 12 HIPCs targeted, claims worth 1,5 bn $, court

awards 1,2 bn $ at end-2007 countermeasures are in place but need to be enhanced

Full implementation of debt relief efforts

by all creditors is critical (2/2)

Paris Club commitments

allow participation of non-Paris Club creditors to Paris Club debt restructuring negotiations on the basis of flexible arrangements

call on all creditors to refrain from selling claims to non-cooperative litigating creditors

Debt sustainability remains a challenge, even after debt relief

(1/3)

Source : 2008 HIPC Status of implementation

• What does it take to lower risks ?– economic diversification– building debt monitoring capacity– increased transparency on debt flows

by all creditors and on the debtor’s side...

– sustainable lending practices by all creditors...

– innovative countercyclical lending instruments (PTCC)

Debt sustainability remains a challenge, even after debt relief

(2/3)

Paris Club commitments

respect the minimum concessionality requirements to make sure that new lending is delivered in accordance with the debtor’s repayment capacity

call on all major creditors to use the DSF as a benchmark to assess risks arising from new lending flows and take appropriate action in this regard

welcome changes to the DSF analytical underpinning if needed to adapt the tool to rapidly evolving financing patterns in low-income countries

Debt sustainability remains a challenge, even after debt relief (3/3)

Build confidence through inter-creditor coordination (1/2)

Paris Club commitments

strengthen outreach policy to get emerging lenders involved in a permanent dialogue on a broad set of issues related to debt 2 outreach meetings in Paris in 2008 with 11 non-Paris

Club sovereign creditors

Paris Club stands ready to “learn from alternative approaches and revisit its own principles and methods, where appropriate.”

Paris Club commitments

call on all major creditors to set up a new information sharing framework to exchange data on stocks of claims and new lending flows

release of aggregate amounts of claims held by Paris Club creditors on foreign countries ↔ done on Nov. 26th, posted on the Paris Club websiteTotal amount of Paris Club claims ≈ 330,2 billion $, of which :

≈ 172,5 Bn $ of Official Development Assistance claims ≈ 157,7 Bn $ of commercial claims

Build confidence through inter-creditor coordination :

debt transparency (2/2)