Sources:
Bloomberg.com: Argentina's Paris Club Debt to be Resolved by Early 2011, Lorenzino Says
Lanacion.com.ar: El Club de París quiere que la Argentina pague en el corto plazo
Lanacion.com.ar: La Argentina y el Club de París
Noticias.terra.com.ar: El FMI ve como una "cosa buena" el inicio de negociaciones de la Argentina y el Club de París
WSJ.com: UPDATE: Argentina Rules Out Quick Paris Club Repayment –Minister
Argentine President Christina Fernández de Kirchner announced earlier this week that Argentina would begin negotiations to pay off its debts to the Paris Club, a group of international creditors that includes the U.S., Japan, and Germany. Argentina has been in default with the Paris Club since its economy collapsed in 2001.
The Paris Club debt totals about $7.7 billion. The Argentine Government originally announced plans to pay the debt with foreign currency reserves in late 2008, but when Lehman Brothers failed and the global financial crisis ensued, the Government changed course and decided to hold on to those reserves through the lean times. Now that the country is back on track economically (its economy is projected to grow by around 9% this year), the Government has decided that it is financially capable of making the debt payments.
Normally the Paris Club will only negotiate debt repayment plans with the participation of the International Monetary Fund and its team of auditors. However, most Argentine politicians say the 2001 collapse was a direct result of the changes the International Monetary Fund required Argentina to make to qualify for loans, which has resulted in poor relations between the two over the last decade. This inspired Argentina to successfully insist that any negotiations with the Paris Club not include the IMF. This is a huge political victory for Argentina, where politicians claim victory in this “David versus Goliath” clash. The IMF has even made public statements saying that its exclusion is a “good thing.”
Though the IMF will not participate in the negotiations, the meetings will surely still be contentious. The Paris Club creditors want Argentina to pay the debt off as fast as possible to avoid another change of course by the Argentine Government. This fear has escalated with the recent passing of former President Néstor Kirchner who was widely expected to run for (and easily win) the presidency in 2011; with his death the race is now wide open.
Argentina, on the other hand, disagrees with any proposed payment schedule that might interfere with its growth. The Argentine Government has already made it clear that it will not pay the debt in one lump sum or in less than one year, but it is also anxious to receive the benefits that come with removing the stigma that comes with defaulting on national debt. The Government hopes that paying the debt will increase the amount of foreign capital flowing into the country, which would help build needed infrastructure and fund further economic expansion.
Discussion:
1) Some government critics have suggested that Argentina wants to keep the IMF out of the negotiations process because the Government fears that the IMF auditors will find flaws in the Government’s accounting that will expose an economic situation less favorable than the picture the Government currently projects. This is surely a situation the Paris Club recognizes, and yet it has agreed to negotiations without the IMF. Why?
Showing posts with label Paris Club. Show all posts
Showing posts with label Paris Club. Show all posts
Monday, November 22, 2010
Wednesday, September 22, 2010
The Paris Club’s Cancellation of $1.26 Billion for Liberia Helps Combat National Debt
Sources:
The Wall Street Journal: Paris Club Agrees To 100% Debt Relief For Liberia
The Wall Street Journal: Liberia Cuts Foreign Debt By $1.2 Billion
BBC News: Liberia Hails $1.2bn Debt Pardon By Paris Club
The Paris Club Website
The Paris Club announced this week that it would help Liberia with its debt, agreeing to forgive $1.26 billion of the money the West African country owes to creditors within the organization. This comes as an enormous help to the Liberian government, which has been trying in recent years to get national debt under control. At the end of June 2007 the country owed around $4.9 billion to creditors. This amount of debt was eight times Liberia’s gross domestic product, making it the highest debt-to-GDP ratio among all developing countries according to the World Bank. Much of Liberia’s debt is the aftermath of a fourteen-year span of civil wars from 1989 to 2003.
The Paris Club is an organization of nineteen creditor countries that is dedicated to helping debtor countries establish and secure their economies. Several creditor countries formed the Paris Club in 1956, when Argentina decided to meet its public creditors in Paris to try and find a solution to their national debt. Since its establishment, the Paris Club has worked with 87 debtor countries to relieve $543 billion of debt.
Augustine Ngafuan, Liberia’s Finance Minister, reported that a large portion of the country’s budget had been allocated to paying off its debt. This $1.26 billon relief should free up funds for the country to use on social and developmental programs. The Paris Club stated that the debt cancellation was due to Liberia’s continued dedication to reducing the country’s poverty and the implementation of an economic strategy for sustainable growth. Ngafuan indicated that after the debt relief, Liberia would not borrow money again because the country is able to operate on a balanced budget and has not borrowed money from creditor countries since 2006.
This is not the first time Liberia has been able to cut its debt dramatically. In April of 2009, the country paid off $1.2 billion in debt by reaching a deal with commercial creditors. Commercial creditors accepted to receiving three cents for every dollar they were owed by the African country. This recent debt relief by the Paris Club should be another step in the right direction for Liberia by helping it further its economic and social development.
Discussion:
1.Should the Paris Club have agreed to relieve $1.26 billion of Liberia’s debt? Why do these creditor countries agree to forgive developing countries debt?
2.Should more developed countries be taking steps like debt forgiveness to help less developed countries like Liberian build sustainable economies? What are the advantages and disadvantages of this?
The Wall Street Journal: Paris Club Agrees To 100% Debt Relief For Liberia
The Wall Street Journal: Liberia Cuts Foreign Debt By $1.2 Billion
BBC News: Liberia Hails $1.2bn Debt Pardon By Paris Club
The Paris Club Website
The Paris Club announced this week that it would help Liberia with its debt, agreeing to forgive $1.26 billion of the money the West African country owes to creditors within the organization. This comes as an enormous help to the Liberian government, which has been trying in recent years to get national debt under control. At the end of June 2007 the country owed around $4.9 billion to creditors. This amount of debt was eight times Liberia’s gross domestic product, making it the highest debt-to-GDP ratio among all developing countries according to the World Bank. Much of Liberia’s debt is the aftermath of a fourteen-year span of civil wars from 1989 to 2003.
The Paris Club is an organization of nineteen creditor countries that is dedicated to helping debtor countries establish and secure their economies. Several creditor countries formed the Paris Club in 1956, when Argentina decided to meet its public creditors in Paris to try and find a solution to their national debt. Since its establishment, the Paris Club has worked with 87 debtor countries to relieve $543 billion of debt.
Augustine Ngafuan, Liberia’s Finance Minister, reported that a large portion of the country’s budget had been allocated to paying off its debt. This $1.26 billon relief should free up funds for the country to use on social and developmental programs. The Paris Club stated that the debt cancellation was due to Liberia’s continued dedication to reducing the country’s poverty and the implementation of an economic strategy for sustainable growth. Ngafuan indicated that after the debt relief, Liberia would not borrow money again because the country is able to operate on a balanced budget and has not borrowed money from creditor countries since 2006.
This is not the first time Liberia has been able to cut its debt dramatically. In April of 2009, the country paid off $1.2 billion in debt by reaching a deal with commercial creditors. Commercial creditors accepted to receiving three cents for every dollar they were owed by the African country. This recent debt relief by the Paris Club should be another step in the right direction for Liberia by helping it further its economic and social development.
Discussion:
1.Should the Paris Club have agreed to relieve $1.26 billion of Liberia’s debt? Why do these creditor countries agree to forgive developing countries debt?
2.Should more developed countries be taking steps like debt forgiveness to help less developed countries like Liberian build sustainable economies? What are the advantages and disadvantages of this?
Subscribe to:
Posts (Atom)