Paris Club: what it is, who makes it and why it’s important to Argentina

The Paris Clubentity Key in the history of Argentina’s debtas an “informal group of creditors”, among whom are many of the most powerful countries on the planet that also constitute a board of directors International Monetary Fund (IMF). Failure to fulfill the obligations prescribed with this body means Falling into default.

Given its financial weight, the loans granted, and its political influence, The Paris Club is one of the most relevant international institutions. Unlike the International Monetary Fund, it is not a multilateral organization and its main function is to renegotiate in a joint and coordinated manner the external debt of countries facing repayment difficulties.

All countries 22 who currently consist of Paris Club As permanent members are Germany, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Ireland, Israel, Italy, Japan, the Netherlands, Norway, South Korea, Spain, the United Kingdom, Russia, Sweden and the United States. And Switzerland which They represent about 60% of the global GDP. For certain discussions or negotiations, other countries may participate as guests, including Argentina.

The Six Principles of the Paris Club

1. Solidarity: Member countries act as a group when negotiating with a debtor country.
2. Unanimity: Decisions cannot be taken without the unanimity of the member states.
3. Distribution of information: Member states share the same information and data that are treated confidentially.
4. Case by case: Decisions are made on a case by case basis, analyzing the individual situation of each debtor country.
5. Conditionality: Debt renegotiation agreements have certain conditions, for example, that there be a previous reform program with the IMF.
6. Comparability of Agreement: A country that has signed an agreement with the Paris Club cannot enter into another agreement less favorable than that agreement.

History of Paris Club and Argentina

The founding reason for the Paris Clubwhich today depends on the French Treasury, Argentina’s debt was renegotiated. In 1956, a group of the country’s creditors, which included citizens, government companies, and export loan agencies, set up a joint table to be able to discuss with the Argentine state how it would repay its $700 million debt obligations.

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The debt with this consortium has gone through various negotiating situations, increasing over the years and thus reaching nearly $1800 million in 2001, when the country stumbled in the midst of a financial, social and political crisis.

Only in May 2014, the then Minister of Economy Axel Kisilo Signing the agreement with the Paris Club. It acknowledged a debt of more than $9000 million, without capital reduction or punitive interest, and the state agreed to pay it in five annual installments, for a period of two years.

The credit should have been canceled in May 2020, but with the coronavirus pandemic declared and private creditors negotiating, Argentina warned it would benefit from a one-year extension for payment. The last installment is $2.4 billion.

Subsequently, Palacio de Hacienda sent a proposal to amend the 2014 terms, predicting that he intended to discuss an extension of maturities and a “significant reduction” in the interest rate.

I also read: After several months of negotiations, the government pays the Paris Club

Argentina has repaid nearly $190 million to Paris Club February 25, as part of the agreement reached in the middle of last year, according to which He had already made another payment of US$226 million in Julyboth on account of the total debt capital of $2.4 billion that the country had to face on July 31, 2021.

And finally, the Minister of Economy, Martin Guzmanwhich was achieved in the last week of last March, to extend the understanding with Paris Clubthus avoiding default.

More than half of this debt is concentrated in two countries: Germany (37%) and Japan (22%). They are followed as creditors by the Netherlands (8%), Spain (6.7%), Italy (6.3%), the United States (6.3%), Switzerland (5.3%), France (3.6%), Canada (2.2%) and just over 2% distributed by the rest the world.