Chapter

Appendix II Glossary of Selected Terms in Multilateral Official Debt Reschedulings

Author(s):
International Monetary Fund
Published Date:
January 1994
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Agreed Minute

—The terms agreed upon in the multilateral rescheduling meeting are embodied in an Agreed Minute. The Minute normally specifies the coverage of debt-service payments to be consolidated, the cutoff date, the consolidation period, the proportion of payments to be rescheduled, the provisions regarding the down payment, and the repayment scheduled for both the rescheduled and deferred debt. Delegates to the meeting undertake to recommend to their governments the incorporation of these terms in the bilateral agreements that implement the rescheduling.

Arrears

—unpaid amounts that fell due before the beginning of the consolidation period.

Bilateral agreements

—Agreements reached bilaterally between the debtor country and agencies in each of the participating creditor countries; these establish the legal basis of the debt restructuring set forth in the Agreed Minute. Bilateral agreements specify the interest rate on amounts deferred or rescheduled (moratorium interest), which is agreed bilaterally between the debtor and each creditor.

Bilateral deadline

—the date by which all bilateral agreements must be concluded. The period for concluding bilateral agreements is now generally six to seven months from the date of the Agreed Minute.

“Blended payments”

—refers to the graduated repayment schedule for principal payments with extended overall maturities (up to 14 years from the previous 10 years), but a shorter grace period, granted to upper-middle-income countries since February 1992.

Concessional rescheduling

—See below, enhanced concessions and Toronto terms.

Conditional further rescheduling

—See below, “multiyear rescheduling agreement.”

Consolidated amounts

—the debt service payments and arrears rescheduled under a rescheduling agreement.

Consolidation period

—the period in which debt-service payments to be consolidated or rescheduled under the terms applicable to current maturities have fallen or will fall due. The beginning of the consolidation period may precede, coincide with, or come after the date of the Agreed Minute.

Coverage

—the amount of eligible debt service or arrears covered by the rescheduling agreement. Comprehensive coverage implies the inclusion of most or all eligible debt service and arrears.

Current maturities

—principal and interest payments falling due within the consolidation period.

Cutoff date

—the date before which loans must have been contracted in order for their debt service to be covered by the rescheduling. Decisions about whether to include in an agreement debt service due under previous multilateral official reschedulings are made independently of whether those previous agreements were before or after the cutoff date.

Cutoff interval

—the number of months between the cutoff date and the beginning of the consolidation period.

“De minimis” clause

—the provision whereby creditor countries whose claims are less than a specified minimum amount are excluded from the rescheduling agreement. Since 1983, about one half of the agreements have provided limits of SDR 500,000 or SDR 250,000. The debtor is expected to pay all claims excluded by this clause. Overdue claims are to be paid as soon as possible, and in any case by a date specified in the Agreed Minute.

Debt-reduction option

—see enhanced concessions.

Debt-service-reduction option

—see enhanced concessions.

Debt-subordination strategy

—the policy of the Paris Club under which new loans (contracted after the cutoff date) are excluded from rescheduling agreements. (Pre-cutoff date loans are subordinate to post-cutoff loans).

Debt-swap operations

—voluntary operations under which a creditor agrees that a certain debt is serviced by the debtor in domestic currency which can be used for equity purchase or environmental projects. No limits on swaps apply for ODA or direct government loans; but for other loans they are limited (under Paris Club agreements) to the higher of $10 million or 10 percent of consolidated commercial credits.

Deferred payments

—arrears or debt-service obligations that are not rescheduled under the terms of the Agreed Minute but are postponed. The Agreed Minute specifies a repayment schedule for these obligations; for arrears on post-cutoff date debt, full repayment is generally required during the consolidation period.

Down payment

—In this paper, down payment refers to payments falling due within the consolidation period on debts covered by the agreement.

Enhanced concessions

—refers to the exceptional rescheduling terms granted, since December 1991, to the poorest and most heavily indebted countries. The new menu incorporating enhanced concessions provides for a 50 percent reduction (in net present value terms) of debt-service payments consolidated on non-ODA debts through two main options. Under the first option, debt reduction, 50 percent of the debt service consolidated is canceled; the remainder is rescheduled at market interest rates over 23 years with a graduated repayment schedule including a grace period of 6 years. Under the second option, debt-service reduction, the amount of debt service consolidated is rescheduled at reduced interest rates so as to reduce the net present value by 50 percent; principal payments are graduated over 23 years with no grace period. The menu includes a variant of the latter option that combines a lesser reduction of interest rates with a partial capitalization of moratorium interest, also providing a 50 percent present value reduction. The menu also includes the nonconcessional option B under “Toronto terms” (the long-maturities option) under which the debt service consolidated is rescheduled on the basis of the appropriate market rate over 25 years, including a grace period of 16 years (14 years prior to June 1992). As regards concessional ODA loans, creditors provide for graduated payments over 30 years (including a grace period of 12 years) at concessional interest rates. The rescheduling agreements based on the new menu contain the provision that Paris Club creditors would be willing to consider the matter of the stock of debt after a period of 3–4 years. For such consideration, the debtor country must have fully implemented the earlier rescheduling agreement, made comparable debt-relief arrangements with other creditors, and continued an appropriate arrangement with the IMF.

Effectively rescheduled portion

—the proportion of total payments covered by the rescheduling agreement that is rescheduled or otherwise deferred until after the end of the consolidation period.

Flow rescheduling

—the rescheduling of specified debt service falling due during the consolidation period. This, together with the rescheduling in some cases of the stock of specified arrears outstanding at the beginning of the consolidation period, has been the approach used in all Paris Club reschedulings so far, except in the cases of Egypt and Poland in 1991.

Goodwill clause

—refers to creditors’ willingness as expressed in the Agreed Minute to meet to consider a further debt rescheduling in the future, subject to fulfillment by the debtor country of certain specified conditions.

Grace period and maturity

—Paris Club Agreed Minutes specify the first and last payment dates, but do not refer to the length of the grace period or to the maturity. In this paper, grace periods and maturity on rescheduled current maturities are counted from the end of the consolidation period. In the case of the rescheduling of arrears and late interest on arrears, they are measured from the beginning of the consolidation period.

Graduated payments

—see blended payments.

Graduation

—debtor countries graduate from the Paris Club when they cease relying on reschedulings from Paris Club creditors.

Initiative clause

—the standard undertaking in the Agreed Minute that the debtor country will seek to restructure debts owed to other creditors on terms comparable to those outlined in the Agreed Minute. This clause appears as one of the general recommendations and reads:

In order to secure comparable treatment of public and private external creditors on their debts, the Delegation of [debtor country] stated that their Government will seek to secure from external creditors, including banks and suppliers, rescheduling or refinancing arrangements on terms comparable to those set forth in this Agreed Minute for credits of comparable maturity, making sure to avoid inequity between different categories of creditors.

Late interest

—interest accrued on principal and interest in arrears.

Local currency clause

—refers to a provision in the Agreed Minute (normally in cases where private debt is rescheduled) whereby the debtor country undertakes to establish or extend the necessary mechanisms to ensure that debtors other than the Government can make into the central bank or other appropriate institutions the local currency counterpart payments corresponding on the due dates.

Long-maturities option

—nonconcessional option under enhanced concessions under which the consolidated amount is rescheduled over 25 years with 16 years grace (14 years prior to June 1992).

Low-income countries

—poorest, most heavily indebted countries eligible to receive “enhanced concessions” terms. The Paris Club has decided eligibility on a case-by-case basis. Only countries eligible to receive highly concessional IDA credits from the World Bank (“IDA only”) have been deemed low-income.

“Lower middle-income country terms” (LMIC)

—refers to the rescheduling terms granted, since September 1990, to the most heavily indebted lower middle-income countries. These terms provide for 15-year maturities with a grace period of up to 8 years for commercial credits, compared with the standard rescheduling terms of 10 years with 56 years grace. ODA credits are rescheduled over 20 years including a grace period of up to 10 years. This set of rescheduling terms also includes the introduction—on a voluntary basis—of the limited use of debt swaps.

Maturity

—grace period plus repayment period.

Middle-income countries

—countries not considered lower middle-income or low-income by the Paris Club. They receive standard terms (rescheduling over 10 years, with 5–6 years’ grace) from the Paris Club.

Moratorium interest

—the interest payments on the amounts rescheduled (the consolidated amounts) or deferred under the agreement. These are specified in the bilateral agreements.

Most-favored-nation clause

—the standard undertaking in the Agreed Minute whereby the debtor country agrees not to accord to creditor countries that did not participate in the multilateral agreement repayment terms more favorable than those accorded to the participating creditor countries for the consolidation of debts of comparable term.

Multiyear rescheduling agreement (MYRA)

—agreements, granted by official creditors, that cover consolidation periods of two or more years. They are implemented through a succession of shorter consolidations (serial reschedulings) that automatically come into effect after certain conditions are satisfied or tranched consolidations. To this effect, the Agreed Minute includes provisions that set forth the payments due in specified future periods, and the conditions for such a rescheduling to become effective without a further Paris Club meeting. The implementation of each stage requires only a decision by creditors that the relevant conditions have been met. The conditions generally include full implementation to date of the rescheduling agreement and implementation of IMF-supported programs.

Serial rescheduling

—see “multiyear rescheduling agreement.”

Special account

—an account established under some Agreed Minutes by the debtor country with the central bank of a participating creditor country into which monthly deposits of an agreed amount are made. The total amount deposited usually approximates the amounts estimated to be payable to all participating creditors during the year; the debtor country draws on the account as bilateral implementing agreements are signed and specific payments under these agreements become due.

Standard terms

—the standard rescheduling terms offered by the Paris Club to middle-income countries, under which the consolidated amounts are rescheduled (at market rates) over 10 years with a grace period of 56 years. ODA credits receive the same terms.

Stock-of-debt operation

—rescheduling of the eligible stock of debt outstanding as opposed to flow reschedulings. Stock-of-debt operations by the Paris Club have occurred, only on an exceptional basis, in the cases of Egypt and Poland in 1991. Under enhanced concessions, the Paris Club has agreed to consider stock-of-debt operations for low-income countries provided certain conditions are met.

“Toronto terms”

—(the options approach) the rescheduling granted, between October 1988 and June 1991, to the poorest and most heavily indebted countries. Under this approach, creditors chose one of three options (or a combination of options). Under Option A (partial cancellation), one third of debt-service obligations consolidated was canceled and the remaining two thirds rescheduled on the basis of the appropriate market rate over 14 years, including a grace period of 8 years. Under Option B (extended maturities), debt-service obligations consolidated were rescheduled on the basis of the appropriate market rate over 25 years, including a grace period of 14 years. Under Option C (concessional interest rates), debt-service obligations consolidated were rescheduled over 14 years, including a grace period of 8 years on the basis of the appropriate market rate reduced by 3.5 percent.

Transfer clause

—a provision in the Agreed Minute that commits the debtor government to guarantee the immediate and unrestricted transfer of foreign exchange in all cases where the private sector pays the local currency counterpart for servicing its debt to Paris Club creditors.

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