The analysis article below, posted by the Inter Press Service, is based on statements made by

several organizations on the occasion of the 50th anniversary of the Paris Club. The latter is defined
as a creditors' cartel of nineteen industrialized-country governments established to collectively
manage debts owed to them by developing countries. The analysis notes that the Paris Club's debt
rescheduling arrangements, which have forced indebted countries to abide by structural adjustment
conditions designed by the IMF and World Bank, have frequently resulted in increased long-term
dependency and indebtedness.

Peter Bakvis

Global Unions - Washington Office

1925 K Street NW, suite 425
Washington, DC 20006
Phone: 202-463-8572
Fax: 202-463-8564
E-mail: pbakvis@earthlink.net
__________________________________________________________

At 50, Is the Paris Club a Colonial Relic?

Analysis by Emad Mekay

WASHINGTON, Jun 20 (IPS) - In a recent statement on the 50th anniversary

of the Paris Club, a powerful creditors' cartel based in France, anti-
debt groups described the club's policies toward borrowing nations as
"medieval". But some say the word "colonial" is equally fitting.

Made up of 19 of the world's richest nations, the Paris Club was formed
in 1956 as an informal group of creditor governments to manage their
collective debt portfolio. It has since evolved into one of many foreign
policy tools that one-time colonial powers, like Britain and France, have
used to maintain their influence over the resources of developing
countries.

The Club is one of several international financial institutions -- almost

all of them devised and run by former colonial powers -- such as the
International Monetary Fund (IMF) and the World Bank, that help
industrialised nations promote an economic agenda that keeps many former
colonies attached to their former occupiers.

The Paris Club's chief tool in its mission to maximise returns has been
to push for loan restructuring in bankrupt countries. Since 1983, the
Club has covered some 504 billion dollars of debt originally given
through bilateral, and wrongly labelled, "aid" agencies or through export
credit agencies, to dozens of countries in Africa, Asia and Latin
America.

The brunt of those programmes has been borne by sub-Saharan Africa and
Latin America, but also by countries in Asia (the Philippines), the
Middle East (Egypt and Jordan) and Central and Eastern Europe (Poland,
Yugoslavia and Bulgaria). The result of rescheduling debt has been the
extension of repayment deadlines over a longer period combined with the
introduction of penalty interest and in almost all cases the further
implication of poor nations in debt.

Nigeria is a classic example of this vicious circle. In 1985, its

external debt was 19 billion dollars. Although it has paid creditors more
than 35 billion dollars while borrowing less than 15 billion, its
outstanding debt at the end of 2004 grew to almost 36 billion dollars
because the government ended up paying compound interest to the Club's
creditors.

Rescheduling has also come standard with IMF programmes laden with
economic conditionalities such as privatisation of state-owned industries
and market liberalisation, a formula that critics say has worsened the
debt situation in poor nations. The secretive Paris Club has come to so
closely coordinate with the IMF and the World Bank that representatives
of the two bodies routinely sit in when debt management decisions are
taken in Paris. Two Paris Club chairmen, Jacques de Larosire and Michel
Camdessus, have acted as managing directors of the IMF.

The Club's official members are Australia, Austria, Belgium, Canada,

Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Britain and the
United States.

"Wealthy nations have imposed -- through the IMF, World Bank and the
Paris Club -- a protracted state of unsustainability and emergency," said
the Brussels-based anti-debt group Eurodad in a statement signed by
dozens of independent groups. "As a consequence, a permanent exit from
the debt trap has been consistently and willingly impeded, keeping debtor
countries in a state of effective domination and dependence," it added.

The "non-institution", as it is sometimes called, and whose members meet

10 to 11 times a year, is also criticised as a flagrant example of non-
democratic procedures. Its decisions are taken on the basis of unanimity.
But it allows in only creditors, and debtors end up on the receiving end
of dictates that they do not help shape. AFRODAD, a platform of African
NGOs, once described the Paris Club and its relations with indebted
nations like this: "In a jury of foxes (the creditors), the chickens (the
debtors) are always the guilty".

Politics drives most of the Club's debt rescheduling arrangements. One of

the clearest examples of that in recent years is how the Club came to
forgive 80 percent of Iraq's debt under U.S. pressure. Similarly, it
covered 67 percent of Serbia and Montenegro's debt and half the debts of
the pro-Washington government in Poland.

By contrast, countries hit by the devastating tsunami in 2004 have at

best been given only a one-year moratorium, exposing them to the payment
of additional interest at a time of national disaster. These examples,
says the Committee for the Abolition of Third World Debt (CADTM), a
Paris-based group, "reflect first and foremost the geopolitical interests
at stake and are especially questionable".

Other civil society organisations said in their statement on the 50th

anniversary of the club this shows "a level of political arbitrariness
defying all common sense of justice and fairness. In the Paris Club the
creditors act as judge in their own case". The groups have called for the
creation of an impartial body to oversee the process of international
debt management talks and to guarantee that the voices of indebted
nations and creditors are both heard.
These days, the Paris Club appears worried that new lenders like China
and Brazil will woo its clients away and dilute the control of rich
nations over developing ones. It has offered an open invitation for these
nascent economic powers to sign on board. "As these new players from Asia
and elsewhere begin to take more responsibility for the system... they
may begin to appreciate the importance of existing institutions," Bank of
Israel Governor Stanley Fischer, a former IMF official, told a forum the
Club held to celebrate its golden anniversary.

The point was echoed by numerous officials who help run the current
global economic system. "The international community needs to find ways
to engage with emerging donors. It must convince them that financing to
low-income countries should be shaped by coordinated international
efforts, rather than independent national policies," said Agustin
Carstens, deputy managing director of the IMF.
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