What is the Paris Club?

Mary McMahon
Mary McMahon

The Paris Club is an informal association of creditors that meets every six weeks in Paris to discuss global debt issues, with a focus on debt relief for developing countries. The origins of this organization date to the 1950s, when representatives of Argentina's government agreed to meet with creditors in Paris to discuss approaches for resolving Argentina's debt issues. This organization works cooperatively with agencies like the International Monetary Fund to achieve solutions to debt and credit challenges all over the world.

The Paris Club is a group of creditors who meet in France's capital city every six weeks to discuss issues related to global debt.
The Paris Club is a group of creditors who meet in France's capital city every six weeks to discuss issues related to global debt.

The members of the Paris Club include most European nations, Australia, Russia, and the United States. There are 19 regular members, and creditors from other nations are affiliated with the organization, but are not formal members. At meetings, the Paris Club discusses nations of particular concern who have applied for relief or been referred by the IMF and talks about ways to rework the debt of these nations to make it possible for them to pay it off. A number of developing nations are heavily indebted and cannot make economic progress while they service their loans, making debt relief important for their stability.

In some cases, members of the Paris Club agree to completely forgive debt, often as part of a plan negotiated with other aid and funding agencies. In 2010, for example, all of Liberia's debt owed to creditors in the Paris Club was forgiven. In other cases, partial debt forgiveness, changes to interest rates, temporary suspension of interest payments, and other relief measures are available. These are carefully discussed by the members, as they do not want to compromise their own financial stability by giving up on collecting debts, but they also want to contribute to global economic stability and peace by preventing developing nations from entering economic crises.

Members of the Paris Club generally break up debtors into a number of categories, on the basis of factors like the total amount of debt being carried, their degree of economic growth, and their historic political volatility. This is used to create a triage approach to make sure that the neediest countries get aid first. Cooperation with international aid organizations can help the Paris Club's efforts go further, by creating a supportive framework for countries trying to emerge from significant foreign debt.

Ideally, the Paris Club aims to be able to collect all debts owed. Being flexible about repayment plans, interest, and other matters increases the chance of being repaid, although it may take longer for countries to fully pay back their debts. One concern is the risk that countries will take on more debt to pay off debt, or will incur debt trying to keep their governments functional while managing loans.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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If a member of the Paris Club gives someone a loan from his own money on behalf of the Paris Club, is it considered a loan from the Paris Club or a state?

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