Chapter

II Official Multilateral Debt Renegotiations: Framework and Recent Experience

Author(s):
International Monetary Fund
Published Date:
January 1986
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Framework

Official multilateral debt renegotiations deal with the rescheduling of debt service payments on loans extended by, or guaranteed by, the governments or the official agencies of the participating creditor countries. They are normally, though not exclusively, undertaken under the aegis of the Paris Club. The Club has neither a fixed membership nor an institutional structure; rather it represents a set of practices and procedures that have evolved since the first such ad hoc meeting was convened for Argentina in 1956. Meetings are open to all official creditors that accept those practices and procedures.

The rescheduling exercise is initiated by the debtor country sending a formal request for a meeting to the Chairman of the Paris Club (who, by tradition, is an official of the French Treasury). The debtor supplies a breakdown by creditor of external debt service payments due, on the basis of which the Chairman, in consultation with the debtor, sends invitations for a meeting to individual creditor countries. The Fund, the World Bank, the United Nations Conference on Trade and Development and, where relevant, the regional development bank concerned are invited to make presentations at the meetings. Official creditors meet with the debtor to negotiate an agreement (the Agreed Minute) which is then signed ad referendum by all creditor countries attending the meeting unless the amounts owed to them that would have been covered by the rescheduling agreement are less than a prescribed amount (the “de minimis” level), in which case they do not reschedule but may attend as observers.

The Agreed Minute sets out the broad terms of rescheduling that the participants recommend to their respective governments be incorporated in the subsequent bilateral agreements between the debtor and each creditor country. These bilateral agreements form the legal basis for the debt rescheduling and establish the interest rates on the debt rescheduled. The date by which such agreements are to be signed is specified in the Minute.

Official creditors require two preconditions for the initiation of a debt renegotiation. They must be convinced, first, that the debtor country will be unable to meet its external payments obligations unless it receives debt relief and, second, that the debtor country will take the steps necessary to eliminate the causes of its payments difficulties and to achieve a durable improvement in its external payments position. For countries that are Fund members, creditors rely on the Fund to help the debtor country design appropriate adjustment measures and have therefore required that an upper credit tranche arrangement with the Fund be in place prior to the initiation of debt renegotiations. Creditor governments, both in the Paris Club and, particularly, in their export credit activities, have also attached increasing importance to the involvement of the World Bank and the regional development banks. This reflects the key contribution these institutions can make both by helping debtor countries design structural and sectoral adjustment programs and by assessing investment plans and projects, as well as the growing role they are expected to play in financing adjustment efforts.

An exception to the requirement that there be an upper credit tranche arrangement with the Fund throughout the consolidation period has been made recently in connection with the serial rescheduling agreements reached with certain debtor countries. In those cases it was agreed that, provided the debtor had already achieved significant adjustment with the support of upper credit tranche arrangements, some or all of the stages of the serial rescheduling would be conditional on the satisfactory implementation of an economic program within the framework of enhanced surveillance. This latter procedure has been developed by the Fund to assist in the restoration of normal market relations between creditors and debtor countries.

Frequency of Reschedulings

Since the onset of widespread debt-servicing difficulties in 1982, the number and scale of debt restructurings with official creditors has reached record levels. While during the seven-year period ending in 1982 official creditors concluded an average of about four agreements a year for a total amount of approximately US$12 billion, in the following two years about 15 rescheduling agreements were concluded annually for a total debt relief of about US$13 billion. This upward trend continued in 1985 when official creditors signed 21 rescheduling agreements with 20 debtor countries for an estimated US$18 billion of debt relief (Chart 1). The reschedulings in 1985 involved seven countries that had not rescheduled in recent years. The reschedulings of the other 13 countries represented at least the second approach to official creditors since 1976 (Table 1). The countries rescheduling in 1985 included 11 from Africa, 7 from the Western Hemisphere, and 2 from Europe. Several reschedulings were initiated by middle-income debtors.

Chart 1.Official Multilateral Debt Reschedulings, 1976–85

Sources: Agreed Minutes of debt reschedulings and Fund staff estimates.

Table 1Official Multilateral Debt Reschedulings, 1976–June 19861
Debtor

Country2
Date of

Agreement
ForumNumber of

Participating

Creditors
Amount

Rescheduled

(Estimate, in

millions of

U.S. dollars)
1976
Zaïre IJune 16Paris Club11270
1977
Zaïre IIJuly 7Paris Club11170
Sierra Leone ISeptember 15Paris Club639
Zaïre IIIDecember 1Paris Club1040
1978
Turkey IMay 20OECD141,300
Gabon IJune 20Special task force563
Peru INovember 3Paris Club14420
1979
Togo IJune 15Paris Club9260
Turkey IIJuly 25OECD171,200
Sudan INovember 13Paris Club11487
Zaïre IVDecember 11Paris Club141,040
1980
Sierra Leone IIFebruary 8Paris Club737
Turkey IIIJuly 23OECD173,000
Liberia IDecember 19Paris Club835
1981
Togo IIFebruary 20Paris Club11232
Poland IApril 27Creditor Group152,000
Madagascar IApril 30Paris Club11140
Central African Republic IJune 12Paris Club672
Zaïre VJuly 9Paris Club12500
Senegal IOctober 12Paris Club1375
Uganda INovember 18Paris Club630
Liberia IIDecember 16Paris Club825
1982
Sudan IIMarch 18Paris Club13203
Madagascar IIJuly 13Paris Club11107
Romania IJuly 28Paris Club15234
Malawi ISeptember 22Paris Club625
Senegal IINovember 29Paris Club1274
Uganda IIDecember 1Paris Club419
1983
Costa Rica IJanuary 11Paris Club10136
Sudan IIIFebruary 4Paris Club15518
Togo IIIApril 12Paris Club11300
Zambia IMay 16Paris Club12375
Romania IIMay 18Paris Club11736
Mexico IJune 22Creditor Group151,199
Central African Republic IIJuly 8Paris Club513
Peru IIJuly 26Paris Club20466
Ecuador IJuly 28Paris Club13142
Morocco IOctober 25Paris Club121,152
Malawi IIOctober 27Paris Club526
Niger INovember 14Paris Club536
Brazil INovember 23Paris Club162,695
Zaïre VIDecember 20Paris Club131,497
Senegal IIIDecember 21Paris Club1172
Liberia IIIDecember 22Paris Club817
1984
Sierra Leone IIIFebruary 8Paris Club1125
Madagascar IIIMarch 23Paris Club1389
Sudan IVMay 3Paris Club15249
Côte d’Ivoire IMay 4Paris Club12356
Yugoslavia IMay 22Creditor Group15500
Peru IIIJune 5Paris Club18704
Togo IVJune 6Paris Club1175
Jamaica IJuly 16Paris Club10105
Zambia IIJuly 20Paris Club13253
People’s Republic of Mozambique IOctober 25Paris Club12404
Niger IINovember 30Paris Club526
Liberia IVDecember 17Paris Club717
Philippines IDecember 20Paris Club15757
1985
Argentina IJanuary 16Paris Club162,040
Senegal IVJanuary 18Paris Club11122
Somalia IMarch 6Paris Club5127
Costa Rica IIApril 22Paris Club10166
Ecuador IIApril 24Paris Club13450
Mauritania IApril 27Paris Club874
Dominican Republic IMay 21Paris Club7290
Madagascar IVMay 22Paris Club13128
Yugoslavia II3May 24Creditor Group16812
Togo VJune 24Paris Club827
Côte d’Ivoire IIJune 25Paris Club12213
Poland IIJuly 15Creditor Group1710,300
Chile IJuly 17Creditor Group7146
Jamaica IIJuly 19Paris Club662
Equatorial Guinea IJuly 22Paris Club338
Morocco IISeptember 17Paris Club111,124
Zaïre VIISeptember 18Paris Club11408
Panama ISeptember 19Paris Club719
Poland IIINovember 19Creditor Group171,400
Niger IIINovember 21Paris Club438
Central African Republic IIINovember 22Paris Club714
1986
Zambia IIIMarch 4Paris Club13371
Guinea IApril 18Paris Club12196
Yugoslavia IIIMay 13Creditor Group16401
Zaïre VIIIMay 15Paris Club11429
Mauritania IIMay 16Paris Club827
Côte d’Ivoire IIIJune 27Paris Club12370
Sources: Agreed Minutes of debt reschedulings and Fund staff estimates.

During the first half of 1986, the number of rescheduling agreements and the amount of debt relief involved dropped to levels closer to those of 1983-84, partly reflecting the exceptionally large number of agreements signed in 1985 and the increase in the average length of the consolidation periods registered in those recent agreements. The number of Paris Club reschedulings also depends on the efforts of debtor countries in framing and undertaking the adjustment programs which official creditors require as a precondition for considering a rescheduling request.

Cutoff Date

Increased recognition among debtors and official creditors of the link between Paris Club reschedulings and the cover policies of export credit agencies has resulted in a major change in the provisions regarding the cutoff date in recent reschedulings. First and foremost, all official rescheduling agreements for countries seeking successive reschedulings maintained the cutoff date set in the previous agreement (with the exception of one retrospective rescheduling that covered three years of past due obligations). For export credit agencies and their authorities, confidence that new credits will be serviced on a timely basis is the key factor in decisions on new export credits and cover. Strict adherence in Paris Club rescheduling agreements to the principle of maintaining the original cutoff date during a series of reschedulings can, therefore, be an important incentive to the maintenance, or eventual resumption, of new credit flows by providing a measure of assurance that credits contracted after the cutoff date will not become subject to future reschedulings.

To reinforce this element of assurance and underscore creditors’ intentions in this regard, recent rescheduling agreements incorporating a reference to creditors’ willingness to consider future debt relief (the goodwill clause) have in some cases explicitly indicated that further rescheduling would be granted on the basis of the same cutoff date as that of the rescheduling then being undertaken. This condition, which was first introduced in a rescheduling in 1984, appeared in about half of the agreements containing a goodwill clause in 1985, and in all such agreements since the beginning of 1986. It is hoped that this provision, by further reducing actual and perceived risks, will facilitate the resumption of new export credits and cover.

Debtors and official creditors also sought to prevent the abrupt halt in new lending that may occur in the months immediately prior to a Paris Club rescheduling as export credit agencies attempt to avoid having their new credits caught up in the upcoming agreement and in future reschedulings. To help preserve the flow of export credits in this situation, the cutoff date was set well before the beginning of the consolidation period in recent agreements for countries seeking a first rescheduling.

These two recent developments—the adherence to the principle of an unchanged cutoff date for successive reschedulings and the efforts to avoid abrupt disruptions in new lending to countries seeking a rescheduling for the first time—are reflected in the evolution of the average cutoff interval for these two groups of debtor countries (Chart 2). (The cutoff interval is the number of months between the cutoff date and the beginning of the consolidation period.) In 1982-83, the cutoff interval was quite short for countries with recent reschedulings, as the cutoff date was shifted closer to the beginning of the new consolidation period in an increasing number of cases. However, as mentioned before, this practice was soon found to have an adverse impact on new credit flows and was reversed after early 1984. As a result, the average cutoff interval in such cases increased from 6 months in 1983 to 10 months in 1984 and further to 23 months in 1985. For countries that had not had a previous rescheduling in recent years, the change in policy regarding the setting of the cutoff date is also directly reflected in the evolution of the average cutoff interval. In 1981 the cutoff date coincided with the beginning of the consolidation period in three out of the four agreements for countries in this group, and the average cutoff interval was only one month. In 1982-83, the cutoff interval increased to three months and by 1984-85 it averaged seven months, thus minimizing the disruptive impact of a potential rescheduling on new lending just before the rescheduling was to take place.

Chart 2.Official Multilateral Debt Reschedulings: Average Cutoff Interval, 1981–851

Sources: Agreed Minutes of debt reschedulings and Fund staff estimates.

1Defined as the average number of months between the cutoff date and the beginning of the consolidation period. (See glossary in the Appendix for explanations of technical terms.)

2 Defined here as countries with a rescheduling in the preceding three years.

3 Defined as countries with no rescheduling in the previous three years.

Coverage of Debt Consolidation

Typically, official debt reschedulings cover both principal and interest payments on medium-term and long-term loans falling due during the consolidation period. Creditors have also demonstrated their willingness to reschedule, where necessary, payments already in arrears (which are those falling due before the beginning of the consolidation period), especially for countries undertaking a rescheduling with official creditors for the first time. In each Agreed Minute a de minimis level is specified; creditors for which debt service, both in arrears and current, covered by the Agreed Minute is below the de minimis level are excluded from the rescheduling, and payments are to be made on the due date. The de minimis level is traditionally set at SDR 250,000, SDR 500,000, or SDR 1 million, depending on the size of the debtor’s economy and its debt service obligations.

Debtors and creditors attach the highest priority to avoiding the rescheduling of service on short-term debt (with an original maturity of one year or less), since such exclusion permits in most cases the maintenance of crucial short-term trade credits and cover by export credit agencies. During the last ten years, obligations on short-term debt falling due during the consolidation period were rescheduled in only two very exceptional cases, both in 1983. Short-term debt in arrears has been rescheduled somewhat more often, particularly immediately after the emergence of widespread debt service difficulties. Since 1975, arrears on short-term debt have been rescheduled in 12 out of the 43 agreements involving rescheduling of arrears, and half of these 12 cases occurred in 1983. In the 18 months through June 1986 there was only one case in which arrears on short-term debt were rescheduled.

In the past, creditors excluded, practically without exception, the rescheduling of late interest charges (that is, interest charged on obligations in arrears); since 1984 such charges have been rescheduled on three exceptional occasions. In these cases substantial arrears had been outstanding for a long time, and the late interest accrued was large relative to the country’s payment capacity.

Before mid-1982, official creditors had generally excluded from a consolidation all principal and interest due under previous rescheduling agreements. However, reflecting the acute debt-servicing difficulties faced by many countries, during 1983-84 previously rescheduled debt was rescheduled in half of the 17 agreements where the country had obligations due under previous reschedulings. Since the beginning of 1985, the rescheduling of previously rescheduled debt has been more exceptional. During the 18 months to June 1986, such debt was rescheduled in only 5 of the 19 cases where there was a previous rescheduling. Moreover, in four of the five cases, service on the immediately preceding rescheduling agreement was excluded, whereas such an exclusion only occurred once in the eight agreements covering previously rescheduled debt during 1983–84.

It has been a standard practice for Paris Club rescheduling agreements to cover debts of both the public and private sectors in the debtor country, except where the debtor country belongs to a currency union and there is no problem of foreign exchange transfer. This practice developed to preserve equity among creditors, since the various Paris Club creditors typically register different relative exposures vis-à-vis the public and private sectors of any given debtor country and the exclusion of private sector debt from the rescheduling agreement would normally give rise to inequitable burden sharing. This tradition was broken in 1985 when, at the request of the debtor country, private sector debt was excluded from three rescheduling agreements.

This change in practice regarding the rescheduling of private sector debt arose for two main reasons. On operational grounds, the exclusion of private sector debt from a rescheduling can simplify considerably the rescheduling process. In particular, it is often difficult in practice to identify eligible private sector debt and to determine when it is subject to commercial default, which is not covered by Paris Club reschedulings. On policy grounds, the exclusion of private sector debt from the rescheduling can contribute to the maintenance or earlier re-establishment of the creditworthiness of the private sector, as many export credit authorities are willing to maintain cover for the private sector if such debt is excluded from the rescheduling and is being serviced on a current basis. To prevent difficulties for the private sector in transferring debt service payments to official creditors when private sector debt has been excluded from the rescheduling, official creditors have introduced a new clause in the relevant Agreed Minutes whereby the debtor government agrees to guarantee the immediate and unrestricted transfer of foreign exchange when the private sector debtor pays the local currency counterpart for servicing debt owed to Paris Club creditors.

In spite of the advantages of excluding private sector debt from reschedulings in selected cases, a generalized exclusion of private sector debt is not currently being considered by official creditors since it can result in several complications. First, private sector debt service may be relatively large compared with the country’s total payment capacity, and its exclusion may result in a significant unfinanced gap in the balance of payments. Second, the inclusion of private debt in Paris Club reschedulings has, in some cases, given private debtors preferential access to foreign exchange (through, for example, a preferential rate) when the debtor government had established a more general scheme granting such preferences to deferred debts. This, in turn, has benefited official creditors by reducing the commercial risk. (Paris Club creditors will not, however, accept deferral terms declared unilaterally by the debtor country; the terms of any official rescheduling must be negotiated multilaterally.) Finally, as mentioned above, the exclusion of private debt from Paris Club agreements might lead to inequities among creditors and in the burden sharing of debt relief. For these reasons, creditors prefer to address this issue on a case-by-case basis.

A notable development regarding the coverage of debt in recent rescheduling agreements is the increase in the number of Paris Club reschedulings that exclude interest payments from the consolidation. Since 1984, such an exclusion was made in six cases involving five different countries, compared with only two cases in the preceding five-year period. This exclusion was common to all three cases of serial reschedulings where extended consolidation periods were agreed upon to facilitate the return to normal market access (see Section III). The remaining two cases where interest payments were excluded from the consolidation involved countries where debt service payments to official creditors were small relative to what was owed to other creditors and interest payments were excluded to create a positive impact on the procurement of new export credits by maintaining, to the extent possible, a normal payments relationship.

In addition to the types of exclusions discussed in the preceding paragraphs, Paris Club agreements always exclude debts contracted by binational entities or guaranteed by a third party, such as a nonresident corporation or a government other than that of the debtor or creditor. Apart from these, Paris Club principles do not permit the exclusion of any other type of bilateral debt from the rescheduling agreement. In the past, some debtor countries have requested other exclusions but, primarily for reasons of precedent and equity among creditors, official creditors have always refused to accede to such requests. In particular, creditors have reaffirmed that secured debts, debts repayable in commodities, and debts covered by special payments mechanisms are subject to the provisions of the Agreed Minute and that no distinction is to be made between buyers’ and suppliers’ credits. Creditors also refused requests by debtors to set the de minimis amount at an exceptionally high level to limit the number of creditors participating in the rescheduling.

Consolidation Period

Until recently, consolidation periods in official reschedulings were often set to coincide with the calendar year or some other convenient 12-month period; consolidation periods of under 12 months were rare, while for a number of cases the period was longer. As a result, it was not uncommon for the consolidation period to end before the expiration of the country’s arrangement with the Fund. Since official creditors do not consider a subsequent rescheduling request until a new Fund arrangement is in place, debtors often incurred arrears during this interval, which posed problems both for creditors and for the debtor under its Fund arrangement. To avoid this situation, consolidation periods now generally cover a period through the end of a Fund arrangement. The change to this practice resulted in a lengthening of the average consolidation period to 15 months in 1985. This was, however, a transitional phenomenon, and the average length of consolidation periods can be expected to decline again once this realignment has taken place.

In multiyear reschedulings tailored to facilitate the resumption of normal access to financial markets and export credits (see Section III below), the consolidation period is substantially longer and set in accordance with the expected time needed for the debtor country to re-establish market access and to resume regular debt service payments. Official creditors also provided long effective consolidation periods to countries seeking successive rescheduling agreements. Overall, since 1975, 23 countries undertook more than one debt renegotiation and the cumulative consolidation period for those countries ranged from two to more than seven years. The sharp increase since 1983 in the number of cases involving successive reschedulings brought to 15 the total number of countries with three or more reschedulings during the past ten years. For each of these 15 countries, the cumulative consolidation period amounted to at least three years, and for 10 of them it was four years or more. In eight of the cases in which the debtor country had obtained three or more reschedulings, the final dates of successive rescheduling agreements coincided with the starting dates of the agreements that followed, in effect resulting in uninterrupted consolidation periods of three years or more (Chart 3). Moreover, 6 agreements among these 15 included the rescheduling of arrears and, as a result, these reschedulings provided even longer effective consolidations.

Chart 3.Official Multilateral Debt Reschedulings: Consolidation Period of Successive Agreements, 1976–June 19861

Source: Agreed Minutes of debt reschedulings.

1Numbers indicate the start of successive consolidation periods. In some cases the number of consolidation periods exceeds the number of rescheduling agreements, owing to conditional future consolidations becoming effective. Representation of dates is approximate.

2 For rescheduling agreements 2 and 3, consolidation period overlaps with previous consolidations.

Amounts and Terms

Paris Club agreements do not normally provide for the rescheduling of the full amount of payments falling due during the consolidation period. First, as noted in the previous section, certain debts are not covered by the consolidation. For covered debt service, a large portion is usually rescheduled on a medium-term basis according to the repayment terms specified in the Agreed Minute and the remaining covered debt service payments are either made according to the terms of the original contract or else they are granted a short deferral.

The percentage of debt service rescheduled and the repayment terms have traditionally tended to vary with the types of debt service concerned. This tendency has become more pronounced since the onset of debt-servicing difficulties in mid-1982 and the subsequent large accumulation of arrears. Creditors have, for example, sought to apply more stringent terms to arrears in order to give debtor countries an incentive to undertake prompt remedial action. The terms granted have also varied widely among debtor countries, depending on the perceived gravity of their payments difficulties.

It is useful to distinguish three different segments of the repayment structure for debt service covered by agreements: (1) the formally rescheduled portion (which consists of the consolidated debt service payments); (2) a deferred portion, which includes that part of the unconsolidated obligations for which payment is postponed until after the end of the consolidation period; and (3) a downpayment to be paid during the consolidation period. The formally rescheduled portion plus the deferred portion constitute the amount effectively rescheduled, since it is payable after the end of the consolidation period.6

In recent years the percentage formally rescheduled for current maturities has not changed significantly, averaging about 85 percent (Table 2), and current maturities have typically been rescheduled over seven to ten years, with three to five years’ grace. When arrears were rescheduled they normally had to be repaid somewhat earlier than rescheduled current maturities. Moreover, particularly stringent terms were applied in the one case during 1985 where arrears on short-term debt were rescheduled; these were made repayable within four years with one year’s grace.

Table 2Official Multilateral Debt Reschedulings, 1976–June 1985: Average Repayment Terms for Current Maturities
Number

of

Agreements
Postponement of Unconsolidated

Maturities
Formally Rescheduled Portion
Down-

payment
Proportion

of total

repayments
Average

grace

period
Average

maturity
Proportion

of total

repayments
Average

grace

period
Average

maturity
(In percent)(In months)(In percent)(In years)
1976115.012.024.085.01.07.5
1977311.36.36.030.082.52.38.6
1978335.02.53.03.062.52.06.5
1979410.64.44.016.085.03.18.6
198031.78.34.036.090.04.08.8
198186.15.810.031.088.14.08.6
198266.28.010.830.085.83.98.1
19831610.97.29.023.681.94.18.6
19841310.74.38.127.085.04.89.6
1985218.54.46.432.087.14.39.1
Averages
1976–8510.16.67.325.383.33.48.4
Of which:
1976–8210.17.27.124.382.72.98.1
1983–8410.85.88.625.383.54.59.1
19858.54.46.432.087.14.39.1
Source: Agreed Minutes of debt reschedulings.Note: This table covers medium-term and long-term debt only and excludes debt service not covered by the rescheduling agreement. All reschedulings carry equal weight in their relevant periods. Grace periods and maturities are measured from the end of the consolidation period. (See Glossary in the Appendix for definition of terms.)

The average repayment pattern for current maturities was somewhat more backloaded in 1985 than in previous years (Chart 4). This trend was also noticeable in the average repayment terms for arrears during 1985, which showed a noticeable shift away from the earlier tendency to require large repayments during the first two years after the agreement. As regards repayment terms on previously rescheduled debt, in the recent period current maturities of this debt have been accorded terms similar to those for current maturities of previously unrescheduled debt.

Chart 4.Official Multilateral Debt Reschedulings: Average Repayment Schedule, by Type of Obligation

(In percent of total debt service covered by agreement)

Sources: Agreed Minutes of debt reschedulings and Fund staff estimates.

Differences in amounts covered by agreements and repayment terms across debtor country groups have become particularly marked since 1985 (Chart 5). By and large, the recent agreements fall into two very distinct groups. The first group (group A in the chart) consists of reschedulings for countries with a record of adjustment and considered to be on the way to restoring normal access to credit markets, as well as reschedulings for countries where export credit agencies had been increasing their exposure and the amount of debt service owed to official creditors was small relative to that owed to other creditors. For this group of countries the debt relief provided by official creditors was quite limited. The remaining agreements were for countries that required and obtained more comprehensive debt reschedulings (group B).

Chart 5.Official Multilateral Debt Reschedulings: Average Repayment Schedule by Debtor Group, 1985–June 1986

(In percent of total debt service covered by agreement)

Sources: Agreed Minutes of debt reschedulings and Fund staff estimates.

1 Group A includes the following: Ecuador (1985), Yugoslavia (1985), Chile (1985), Panama (1985), Yugoslavia (1986), and Côte d’Ivoire (1986). Group B includes all other reschedulings during the period.

2 For purposes of this graph, repayment dates for the second and subsequent stages of multiyear reschedulings have been adjusted to take into account the later start of their respective consolidation periods.

None of the countries in group A requested the rescheduling of interest. Moreover, on average, only 74 percent of principal was rescheduled for these countries. Since none of these agreements provided for deferral of nonrescheduled amounts, fully 26 percent of principal, as well as all interest accruing, had to be paid during the consolidation period.7 Grace periods and maturities were also somewhat shorter than for the other group of countries.

For group B countries, on average fully 92 percent of current principal and interest on debts covered by the agreement was rescheduled. Furthermore, since half the nonrescheduled portion was deferred beyond the consolidation period, the downpayment was only 4 percent, so the average effective rescheduling for debt service covered by the agreements was 96 percent. In ten agreements the effective rescheduling was 100 percent. These numbers, however, overstate somewhat the relief provided by the rescheduling, since they refer only to covered debt service. As noted above, loans contracted after the cutoff date are excluded and, during this recent period, all or part of previously rescheduled debt was generally excluded as well. As a result of these exclusions, fully 28 percent of medium-term and long-term debt service was not covered by the agreements for those group B countries that had previous reschedulings. Exclusion of previously rescheduled debt accounted for most of this difference.

Implementation of Agreed Minute

While the Agreed Minute specifies the general terms of the debt restructuring, bilateral agreements between the debtor country and each creditor country provide the legal basis for the reschedulings.8 In the past, two main difficulties encountered in the implementation of the Agreed Minute were delays in the conclusion of bilateral agreements and the failure of the debtor government to establish adequate mechanisms for the implementation of the rescheduling of private sector debts.

Under the provisions of the Agreed Minute, the debtor country is expected to conclude the implementing bilateral agreements with individual creditor countries without undue delay and, in any event, by a specified date (the bilateral deadline). Official creditors will normally not meet to consider a subsequent rescheduling request until the bilateral agreements from the previous rescheduling have been concluded.

However, debtor countries have often failed to meet the bilateral deadline, partly due to administrative or technical problems that have arisen in the compilation and verification of the relevant data and claims. These delays have been substantial in some cases. Since interest rates are not determined until bilateral agreements are concluded, the debtor typically does not begin to make moratorium interest payments until then. As a result, there is a bunching of payments which would otherwise have been spread over the consolidation period.

This bunching of payments has created problems for some countries facing a severe foreign exchange constraint when obligations on the debt rescheduled accumulated to a point where the debtor was unable to make payments following the signature of the bilateral agreements. Therefore, to facilitate the implementation of the Agreed Minute, certain debtor countries have agreed to establish a special account with a central bank of one of the creditor countries into which monthly deposits are made. The total amount to be deposited is calculated to approximate the amounts payable to all participating creditors during the consolidation period. Such special accounts were opened for five countries in 1985 and for three countries during the first half of 1986. Regular servicing of a special account can help restore creditor confidence.

In the past, there have also been problems in the implementation of the Agreed Minute with respect to private sector debts that are not guaranteed by debtor governments. Where official creditors provided cover for commercial risk on loans to private borrowers, they retain that risk under the terms of the original insurance contract. However, since the object of the debt rescheduling is to provide balance of payments relief to the debtor government, creditors insist that the rescheduling agreement not result in an extension of the commercial risk beyond the original due date of each payment. For private debt determined to be in commercial default, the guarantee is executed, the export credit agency pays the bank or exporter, and the debt is not subject to rescheduling. Otherwise, it is expected that private debtors will be permitted to pay the local currency counterpart of their debt service obligations that have fallen due. Thereafter, the official creditors’ claim is on the debtor government under the rescheduling agreement. Since 1985, creditors have incorporated in the Agreed Minutes for countries where private debt is rescheduled a clause whereby the debtor government undertakes to establish the necessary mechanisms to ensure that private debtors can make such local currency payments into the central bank or other appropriate institution on the due dates.

As an illustration, consider the case where total debt service covered by the agreement amounts to US$100 million, and where creditors agree to reschedule 85 percent of it, with the remainder to be paid as follows: 5 percent before the end of the consolidation period and 10 percent in four equal semiannual installments starting the day after the end of the consolidation period. In this case, the amount formally rescheduled is US$85 million, the downpayment is US$5 million, and the deferred portion is US$10 million, to be paid at the rate of US$2.5 million semiannually starting the day after the end of the consolidation period. The percentage of debt service effectively rescheduled is 95 percent.

In the case of multiyear reschedulings, the average of the rescheduling percentages applicable to each separate tranche is used for purposes of these calculations.

Some creditor countries require that the debtor country conclude, in addition to a framework bilateral agreement, individual agreements implementing that framework bilateral agreement with various national lending agencies involved in the rescheduling.

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