I Recent Trends

International Monetary Fund
Published Date:
January 1987
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This paper describes developments in multilateral official debt renegotiations over the 18 months through December 1987.1 The most important new departure in multilateral official debt renegotiations was the adaptation of policies by Paris Club creditors in response to the protracted problems of the poorest and most heavily indebted countries at the same time that other initiatives were launched for low-income countries, including the proposal for enhancement of the Fund’s structural adjustment facility. Persistent debt-servicing problems have manifested themselves in recent years in the large number of low-income countries that have been seeking debt relief year after year from official creditors. These countries at the same time frequently even had difficulty in adhering to the already stretched out payments schedule of previous debt relief agreements. The result was often a need for more comprehensive debt relief in subsequent rescheduling agreements. Repeat reschedulings by low-income heavily indebted countries were a major contributor to the rapid pace of official multilateral reschedulings continuing unabated in the period under review (Table 1).

Table 1Official Multilateral Debt Reschedulings, 1976–871

Date of

ForumNumber of




(Estimate, in

millions of

U.S. dollars)
Zaïre IJune 16Paris Club11270
Zaïre IIJuly 7Paris Club11170
Sierra Leone ISeptember 15Paris Club639
Zaïre IIIDecember 1Paris Club1040
Turkey IMay 20OECD141,300
Gabon IJune 20Special task force563
Peru INovember 3Paris Club14420
Togo IJune 15Paris Club9260
Turkey IIJuly 25OECD171,200
Sudan INovember 13Paris Club11487
Zaïre IVDecember 11Paris Club141,040
Sierra Leone IIFebruary 8Paris Club737
Turkey IIIJuly 23OECD173,000
Liberia IDecember 19Paris Club835
Togo IIFebruary 20Paris Club11232
Poland IApril 27Creditor Group152,110
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
Sudan IIMarch 18Paris Club13203
Madagascar IIJuly 13Paris Club11107
Romania IJuly 28Paris Club15234
Malawi ISeptember 22Paris Club625
Senegal IINovember 29Paris Club1274
Uganda IIDecember 1Paris Club419
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 Club162,337
Zaïre VIDecember 20Paris Club131,497
Senegal IIIDecember 21Paris Club1172
Liberia IIIDecember 22Paris Club817
Sierra Leone IIIFebruary 8Paris Club1125
Madagascar IIIMarch 23Paris Club1389
Sudan IVMay 3Paris Club15249
Côte d’Ivoire IMay 4Paris Club12230
Yugoslavia IMay 22Creditor Group15500
Peru IIIJune 5Paris Club18704
Togo IVJune 6Paris Club1175
Jamaica IJuly 16Paris Club10105
Zambia IIJuly 20Paris Club13253
Mozambique, People’s Republic of IOctober 25Paris Club12283
Niger IINovember 30Paris Club526
Liberia IVDecember 17Paris Club717
Philippines IDecember 20Paris Club15757
Argentina IJanuary 16Paris Club162,040
Senegal IVJanuary 18Paris Club11122
Somalia IMarch 6Paris Club5127
Costa Rica IIApril 22Paris Club10166
Ecuador II3April 24Paris Club13450
Mauritania IApril 27Paris Club874
Dominican Republic IMay 21Paris Club7290
Madagascar IVMay 22Paris Club13128
Yugoslavia IIMay 24Creditor Group16812
Togo VJune 24Paris Club827
Côte d’Ivoire IIJune 25Paris Club12213
Poland IIJuly 15Creditor Group1710,930
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
Zambia IIIMarch 4Paris Club13371
Guinea IApril 18Paris Club12196
Yugoslavia III4May 13Creditor Group16901
Zaïre VIIIMay 15Paris Club11429
Mauritania IIMay 16Paris Club827
Côte d’Ivoire IIPJune 27Paris Club12370
Bolivia IJuly 17Paris Club12449
Congo IJuly 18Paris Club10756
Mexico II5September 17Paris Club141,912
Tanzania ISeptember 18Paris Club161,046
Gambia, The ISeptember 19Paris Club717
Madagascar VOctober 23Paris Club12212
Sierra Leone IVNovember 19Paris Club1086
Niger IVNovember 20Paris Club434
Senegal VNovember 21Paris Club1065
Nigeria IDecember 16Paris Club196,251
Brazil II6January 21Paris Club144,178
Gabon IIJanuary 21Paris Club12387
Philippines IIJanuary 22Paris Club14862
Jamaica IIIMarch 5Paris Club9124
Morocco IIIMarch 6Paris Club111,008
Chile IIApril 2Paris Club7157
Zaïre IXMay 18Paris Club13671
Argentina IIMay 20Paris Club141,260
Egypt IMay 22Paris Club185,586
Mauritania IIIJune 15Paris Club990
Mozambique IIJune 16Paris Club14361
Uganda IIIJune 19Paris Club51707
Somalia IIJuly 22Paris Club6153
Guinea-Bissau IOctober 27Paris Club625
Poland IVOctober 30Paris Club179,027
Senegal VINovember 17Paris Club779
Côte d’Ivoire IVDecember 18Paris Club13567
Sources: Agreed Minutes of debt reschedulings; and Fund staff estimates.

As described in more detail in Section II, official creditors meeting in the framework of the Paris Club agreed in mid-1987 to consider, on a case-by-case basis, stretching maturities to between 15 and 20 years, with a corresponding lengthening of the grace period up to 10 years, for those heavily indebted low-income countries pursuing adequate adjustment efforts.2 A maturity of 10 years with 5 years’ grace remains the maximum for all other debtor countries. Official creditors have generally preserved concessional interest rates in the restructuring of official development assistance (ODA) loans; moreover, for the poorest debtors, some creditors have converted such loans into grants. The question of interest concessions on other categories of debts rescheduled by the Paris Club was raised, inter alia, by the Venice summit but no consensus exists among creditors for changing the current practice. Earlier in 1987, Paris Club creditors decided to condition, on an exceptional and case-by-case basis, rescheduling agreements on debtor countries’ adjustment efforts supported by the Fund with arrangements under the structural adjustment facility. In 1987, three Paris Club rescheduling agreements were linked solely to arrangements under the structural adjustment facility.

Following a peak of 21 agreements concluded with Fund members in 1985 for a total of $19 billion in debt relief, both the number of reschedulings and the amounts of relief declined in 1986 to 16 and $13 billion. Although the number of rescheduling agreements concluded in 1987 rose only marginally to 17, debt relief is estimated to have amounted to an unprecedented $25 billion. A larger number of reschedulings might have been expected in 1987 in view of the expiration of the consolidation periods of the many earlier agreements. Only in a few isolated instances did the absence of a further Paris Club rescheduling signal firm progress toward a viable balance of payments position. In most cases of recently expired consolidation periods, the lack of a further Paris Club consolidation reflected difficulties and delays in framing adjustment programs that could form the basis for the provision of further debt relief.

The financing of Fund-supported adjustment programs at the same time became increasingly dependent on debt relief from official (and other) creditors: about 80 percent of the stand-by arrangements and two thirds of the arrangements under the structural adjustment facility concluded in 1986 and 1987 were in support of adjustment programs where ex ante financing gaps were closed partly through multilateral official debt reschedulings. By contrast, in the period 1976–82, only about one fifth of Fund-supported adjustment programs required exceptional financing in the form of a Paris Club rescheduling.

The trend in recent years toward more comprehensive consolidations of service on debt covered by the Agreed Minute continued; however, significant parts of debt service were generally or frequently excluded (e.g., on short-term debt, post-cutoff date debt, previously rescheduled debt, etc.). Beginning with the second half of 1986, only a few agreements were concluded that consolidated significantly less than 100 percent of principal and interest on covered debt service. As a result, the traditional practice of providing for a short deferral of nonconsolidated debt service was generally discontinued. Also, there was a continued need to reconsolidate previously rescheduled debts, and the treatment of previously rescheduled debts in the rescheduling became increasingly important, particularly when there had been several prior consolidations; also instances of consolidation of late interest increased sharply. The move toward more comprehensive consolidations did not reflect a general decision on the part of official creditors to provide more debt relief but rather the increasingly difficult external situation of a number of debtor countries.

Notable developments were the absence of any new rescheduling agreements with extended consolidation periods and the difficulties encountered with the implementation of those concluded in 1985 and 1986 with Ecuador and Côte d’Ivoire and Yugoslavia. Owing partly to unfavorable external developments, the hoped for early return to normal market access did not materialize in any of the three cases. Indeed, all three have since experienced an unexpected and sharp deterioration in their balance of payments positions and, in retrospect, the predetermined declining percentages of rescheduling for the later years of the consolidation periods resulted in inadequate amounts of debt relief. New and more comprehensive official reschedulings were agreed for Côte d’Ivoire in December 1987 and for Ecuador in January 1988.

Creditors and debtors continued to pay increased attention to the impact of Paris Club reschedulings, and the terms of these reschedulings, on new credit flows to debtor countries. Export credit agencies and their authorities regard the fixing of a firm cutoff date essential to the restoration or maintenance of official export credits and cover, as it gives a measure of assurance that new loans will not be caught up in future reschedulings.3 To preserve established cutoff dates and thereby facilitate new credits, Paris Club creditors were prepared to be flexible in other respects, such as including where necessary previously rescheduled debt in a new consolidation. In none of the 43 agreements concluded since May 1984 with countries that had previous reschedulings in recent years was the cutoff date changed and, as a result, export credit agencies were generally able to stay on cover in a number of important recent instances.

By regularly excluding short-term debt from reschedulings, debtors and creditors have also frequently succeeded in protecting the flow of short-term trade financing, which is often vital to the financing of a Fund-supported program. In recent years, this policy was adhered to even more strictly and no rescheduling included current debt service on short-term debt.

Many export credit agencies will maintain cover for private sector buyers, even when public sector debt has been rescheduled, provided private sector debt continues to be serviced on a current basis. Therefore, in addition to subordinating old loans to new loans through the strict maintenance of the cutoff date and excluding short-term credits altogether, official creditors have continued their quite recent policy of excluding debts of the private sector from reschedulings, if the debtor country so requests. The increased number of requests, however, to exclude private sector debt from rescheduling probably has reflected other considerations as well; in some cases debtor country governments were hesitant to assume the administrative burden of establishing and maintaining counterpart deposit schemes for private debt service payments. Official creditors too found it convenient to exclude these frequently very small but numerous private sector claims from the rescheduling.

In view of the extremely difficult circumstances of a number of debtors, official creditors did not insist that stricter terms apply to the rescheduling of arrears where arrears were very large, and it was not realistic to expect stricter terms on arrears to be met. Although it had been common practice to reschedule only a limited portion of arrears and for a short period, a strong outward shift occurred in the repayment schedule for arrears in 1986 and 1987 compared with earlier years. This resulted in the average repayment pattern for arrears approaching quite closely that provided for current maturities.

Questions regarding comparability of treatment among various creditor groups have retained their importance. Paris Club creditors and commercial banks continued to follow carefully each other’s efforts, through either rescheduling or new money, in supporting debtor countries’ adjustment efforts, and each sought to ensure comparable action by the other. The assessment of burden sharing among creditors is, however, becoming more difficult with the introduction of the menu approach in banks’ financing packages and the emergence of new financing techniques. So as not to delay the resolution of debt-servicing problems, Paris Club creditors, in a number of large and complex restructuring cases, agreed to proceed with a conditional restructuring on the basis of an arrangement approved only “in principle” by the Fund’s Executive Board, pending the completion of the financing package with the commercial banks. In these instances official creditors conditioned the effectiveness of their rescheduling on the coming into effect of the Fund arrangement.

Paris Club creditors have not sought strict comparability on a case-by-case basis where the debt service due to one creditor group was relatively small; as a result, official creditors continued to make greater efforts for certain low-income countries. Banks, however, have tended to insist in their financial packages on linkages to action by official creditors, even in cases where potential debt relief from a Paris Club rescheduling was minor. Official creditors have noted that, in assessing comparable action, account should also be taken of the increased willingness of export credit agencies to respond in a timely manner to countries undertaking adjustment efforts. In this regard, official creditors have also at times pointed to their aid efforts and to their contributions to multilateral organizations whose lending is supporting the adjustment efforts.

Comparable action by official creditors not participating in the Paris Club remains a concern among Paris Club creditors. In 1986 and 1987, Paris Club creditors specified in all agreements that included “goodwill clauses” the requirement that the debtor country submit to the Chairman of the Paris Club a written report on the reschedulings concluded with other creditors.

Official multilateral debt renegotiations that took place in previous years are described in the following earlier studies: Bahram Nowzad and Richard C. Williams, External Indebtedness of Developing Countries, IMF Occasional Paper, No. 3 (Washington: International Monetary Fund, May 1981); Eduard Brau and Richard C. Williams, Recent Multilateral Debt Restructurings with Official and Bank Creditors, IMF Occasional Paper, No. 25 (Washington: International Monetary Fund, December 1983); K. Burke Dillon, C. Maxwell Watson, G. Russell Kincaid, and Chanpen Puckahtikom, Recent Developments in External Debt Restructuring, IMF Occasional Paper, No. 40 (Washington: International Monetary Fund, October 1985); and K. Burke Dillon and Gumersindo Oliveros, Recent Experience with Multilateral Official Debt Rescheduling, World Economic and Financial Surveys (Washington: International Monetary Fund, February 1987). References in this paper to official multilateral reschedulings exclude renegotiations conducted under the auspices of aid consortia as well as reschedulings that involved non-Fund members. Reschedulings with Poland signed prior to its date of membership in the Fund (June 12, 1986) are included.

For a description of the framework of the Paris Club and its Agreed Minutes see Appendix I. For a definition of terms used in this paper, see the Glossary in Appendix II.

As reported in K. Burke Dillon and Luis Duran-Downing with Miranda Xafa, Officially Supported Export Credits: Developments and Prospects, World Economic and Financial Surveys (Washington: International Monetary Fund, February 1988). The cutoff date is the date before which loans must have been contracted in order for their debt service to be covered by the rescheduling.

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