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The Role of Paris Club in Managing Debt Problems

The world of economics and finance is full of mysteries. While many are genuine and arise from the complexity of human behavior,some appear artificially contrived by groups of players who find it convenient or advantageous to camouflage their activities from others. The ParisClub is a mystery of the second category, but less by design than by circumstance. From 1978 to 1984,in a wave of debt crises that shattered confidence in the international financial system, twenty-nine countries appeared before the ParisClub to negotiate fifty-six debt-rescheduling agreements. Roughly $27 billion of debt-service obligations were deferred in these negotiations. Of necessity,the Paris Club assumed a more prominent role in the world of international finance, and important steps were taken to modernize its procedures.

Profiting from a greater willingness among the creditor countries to discuss the Paris Club in public,this essay begins with a general introduction in Section 1. In Sections 2 and 3 it reviews the basic principles and procedures of rescheduling negotiations in the ParisClub as they existed and were modified in the 1978-84 period, and in Section 4 it discusses the North-South dimension of debt.

. . . the Paris Club is currently wrestling with two problems that are examined in some detail in Section 5.

Finally, Section 6 looks briefly at the role of the Paris Club in the Summit strategy for managing debt problems that was adopted in 1983.

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