Abstract

From 1976 through 1989, 50 debtor creditors concluded 150 multilateral rescheduling agreements with official creditors for a cumulative cash-flow relief of nearly $110 billion.4 During the first half of the 1980s, Paris Club creditors consolidated $19 billion in 46 reschedulings for 21 countries. Activity in the Paris Club more than doubled during the second half, as 45 debtor countries obtained 93 rescheduling agreements and the amount consolidated by official creditors more than quadrupled to $85 billion.

From 1976 through 1989, 50 debtor creditors concluded 150 multilateral rescheduling agreements with official creditors for a cumulative cash-flow relief of nearly $110 billion.4 During the first half of the 1980s, Paris Club creditors consolidated $19 billion in 46 reschedulings for 21 countries. Activity in the Paris Club more than doubled during the second half, as 45 debtor countries obtained 93 rescheduling agreements and the amount consolidated by official creditors more than quadrupled to $85 billion.

Following the emergence of widespread debt-servicing difficulties in 1982–83, the frequency of reschedulings rose sharply and a first peak was reached in 1985 when 21 countries reached agreement with Paris Club creditors (Chart 1). The number of reschedulings then declined to an annual average of about 16 during 1986–88, but this apparent stability masked a continuing deterioration in the external situation of most rescheduling countries, and many countries experienced difficulties in adopting the Fund-supported adjustment programs that could serve as a basis for a new rescheduling. This was particularly the case for a number of middle-income countries that also encountered increasing difficulties in their negotiations with commercial banks on appropriate financing packages. Thus, the number of countries with effective rescheduling agreements dropped to 13 at the beginning of 1989, the lowest number since the beginning of 1985 (Table 2).

Chart 1.
Chart 1.

Multilateral Official Debt Renegotiations for All Countries, 1976–89

Sources: Agreed Minutes and IMF staff estimates.
Table 2.

Multilateral Official Rescheduling Agreements, 1985–90

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Sources: Agreed Minutes of debt reschedulings.

On the basis of rescheduling agreements concluded through end-July 1990.

This trend was reversed during 1989 as a record of 24 countries reached rescheduling agreements, and the number of agreements in effect nearly doubled to 23 at the beginning of 1990. Only five of the 27 rescheduling countries with expired consolidation periods, however, had resumed debt-service payments as scheduled.5 Essentially all of the remaining 22 countries were expected to return to the Paris Club for further reschedulings. Some have reached agreements with the Paris Club in the first months of 1990, and others will be meeting if and when a Fund-supported adjustment program is in place.6 Several other countries, however, have been accumulating arrears to most creditors for some time, and progress continues to be slow in framing and implementing appropriate adjustment programs that could serve as a basis for a rescheduling agreement with Paris Club creditors. In addition, most countries with rescheduling agreements are expected to seek further debt reschedulings upon the expiration of their present consolidation period. Graduation from Paris Club reschedulings has thus remained a very slow process.

Reflecting the protracted nature of the problems of many debtor countries, repeat reschedulings again accounted for the majority of consolidations in 1989. In contrast to previous years, however, there was also a significant number of new reschedulers, as seven countries approached the Paris Club for the first time. Some of these countries had only recently experienced debt-servicing difficulties and required a rescheduling of part of the debt service falling due; a few others had accumulated arrears to official creditors for some time but had not been in position to regularize their relations because of the absence of an appropriate adjustment program.

The single most important factor in determining the frequency of Paris Club reschedulings remained the rate at which Fund-supported programs were concluded; creditors have continued to require a Fund arrangement to be in place as a precondition for a rescheduling for Fund member countries.7 The unprecedented number of rescheduling agreements in 1989 is thus largely a reflection of the record number of countries whose programs are supported by the Fund. At the same time, the financing of Fund-supported programs has also become increasingly dependent on debt relief from official (and other) creditors. Prior to the debt crisis, only a small percentage of Fund-supported programs required exceptional financing in the form of multilateral reschedulings by official creditors. Since 1986, however, four fifths of the programs supported by the Fund through stand-by and extended arrangements and two thirds of those supported by SAF and ESAF arrangements required financial support through Paris Club reschedulings. For the majority of rescheduling countries, cash-flow relief from the Paris Club has become the largest single source of exceptional balance of payments assistance.

Year-to-year changes in the amounts consolidated provide a less reliable indicator of underlying developments because the amounts are heavily influenced by a few reschedulings with countries that have large outstanding debts to official bilateral creditors. Poland alone accounts for more than one fifth of the cumulative amounts rescheduled since 1976, and the reschedulings for the five countries with the largest debts account for over 50 percent.8 By contrast, the SAF-eligible countries account for only 15 percent of the total amount rescheduled, but these countries represent more than one half of the 50 rescheduling countries and nearly two thirds of the total number of reschedulings.

Coverage of Debt Consolidation and Subordination Strategies

Paris Club reschedulings normally do not include all debt-service payments falling due during the consolidation period. To restore or preserve the flow of new credits by official creditors, certain debts are typically not covered by the consolidation. The main element in this strategy of subordination has been the maintenance since May 1984 of the cutoff date in all rescheduling agreements with Fund member countries seeking successive reschedulings.

Cutoff Date

The cutoff date is established at the first multilateral rescheduling agreement and applies not only to officially supported export credits but also to all other forms of bilateral debt. Debt-service payments on loans contracted before that date can be consolidated under the first or subsequent agreements, but those falling due on loans contracted after the cutoff date are excluded from reschedulings and are to be serviced on a timely basis. As rescheduled claims relate to pre-cutoff date debts, they may be re-rescheduled. On the strength of the subordination of old, pre-cutoff date debts to new, post-cutoff date claims, official creditors have been prepared to extend new credits to countries that continue to be unable to service their debts in full, but are implementing adjustment programs. The Paris Club’s continued strict adherence to established cutoff dates was the main factor behind the increased willingness to restore and maintain cover for rescheduling countries.9

Most debtor countries have recognized the important role that the cutoff date played in enabling export credit agencies to provide new credits, though the argument has been made that the maintenance of cutoff dates had not been effective in encouraging new export credits for low-income countries or that new credits on commercial terms were not an appropriate form of project financing for these countries. Underlining the systemic consequences of a change in official creditors’ subordination strategy, Paris Club creditors have not accepted requests for a change in the cutoff date.10 Creditors have also noted that a change in cutoff date could jeopardize continued flows of development aid. In any case, since most creditors have extended new financial assistance in the form of highly concessional loans or outright grants, post-cutoff date debt service contributes only marginally to the debt-servicing problems of the low-income countries.

Short-Term Debt

Paris Club creditors have also continued their policy of excluding short-term debt falling due during the consolidation period. Since the maintenance of or increases in short-term credit lines by official export credit agencies have been essential to the financial support of the adjustment efforts of all rescheduling countries, debtor countries have generally not requested a consolidation of current debt service on short-term debts, and these debts have been excluded from all reschedulings since 1983. In a very limited number of cases, however, Paris Club creditors have agreed, on an exceptional basis, to consolidate arrears on short-term debt.11

Private Sector Debt

Another aspect of the strategy is the treatment of private sector claims not guaranteed by the debtor government. Until 1985, these claims were generally included in the consolidation, except for countries with convertible currencies through their membership in currency unions. During the past years, however, an increasing number of debtor countries specifically requested the exclusion of private sector debt from the consolidation; Paris Club creditors generally agreed, despite the questions of inter-creditor equity that arose from this change in coverage. Even though new credits to repeat reschedulers are already protected by the cutoff date, the exclusion of private sector debt has further encouraged export credit agencies to support private sector development through new credits. For many debtor countries the requested exclusion of private sector debt was also based on operational considerations, because in practice it has often proved difficult to identify eligible private sector claims and to separate cases of commercial default not covered by Paris Club reschedulings.12 The exclusion of private sector debt has now become the norm rather than the exception in Paris Club reschedulings.

Pre-Cutoff Date Debt

In recent years creditors have shown increasing flexibility regarding coverage of pre-cutoff date debts, including previously rescheduled debt and arrears in those cases where the payments capacity of the debtor country was severely constrained. Creditors had already moved toward 100 percent coverage of interest and principal payments on current maturities (not arising from previous reschedulings) in the period 1986–88, and service on these debts continued to be fully included in all but two repeat reschedulings. In many cases, however, previously rescheduled debt accounts for the largest share of scheduled debt-service payments. With debt-servicing difficulties persisting for most repeat reschedulers (reflecting in part the terms of previous consolidations), it became increasingly necessary to re-reschedule previously rescheduled debt. In 1989 previously rescheduled debt was at least partially included in all but four repeat reschedulings. Moreover, continuing a trend of the previous two years, the number of previous rescheduling agreements covered in the new consolidation increased in every case, in some instances dramatically as countries found themselves unable to make payments on any previous consolidation. In several cases the rescheduling agreement included essentially all debt-service payments falling due on medium-term pre-cutoff date debt.

Creditors have also increasingly aligned the repayment terms for rescheduled arrears with those applying to current maturities and previously rescheduled debt, and typically covered 100 percent of rescheduled arrears. This streamlining sought, in part, to ease the administrative burden associated with the rescheduling and also recognized that the harder repayment terms previously applied to these debts could not realistically be met.

Whenever possible, however, creditors excluded from the medium-term rescheduling late interest (interest accrued on arrears) and arrears on previously rescheduled debt that had not been covered in the last agreement. In these cases repayment was generally required within the consolidation period in several tranches. Shorter repayment terms were also applied to short-term debt in arrears in the few cases that included this debt in the rescheduling. Thus increasing standardization in the treatment of the major types of debt was accompanied by increasingly finer distinctions among various subcategories of debts that arose from repeated reschedulings and re-reschedulings.

In contrast to the increased coverage of debts for most repeat reschedulers, especially the low-income countries, previously rescheduled debt continued to be excluded in the repeat reschedulings for many middle-income countries. For some countries in this category the consolidations also excluded part of the interest payments on current maturities in the form of a phased decline in the coverage or a very short deferral of a portion of interest payments, or excluded interest from the consolidation altogether for part or all of the consolidation period.

Rescheduling Terms

Debt service covered by the consolidation is usually rescheduled on a medium-term basis. The standard terms for Paris Club reschedulings in 1989 remained an overall maturity not exceeding ten years with a grace period not exceeding six years (exceptions made only for the low-income, heavily indebted countries, as discussed in Section IV),13 Chart 2 illustrates the progressive elimination of previous distinctions in repayment terms for different types of debts; it also shows the substantial decline in recent years in the proportion of payments falling due during the consolidation period (down payments) and within the grace period (deferred payments) not only for current maturities covered by the consolidation but also for arrears. The marked lengthening in average grace and repayment periods since 1987 is due to the preferential treatment accorded to low-income countries (Chart 3). The repayment profile of reschedulings for middle-income countries (countries not eligible for the SAF or the ESAF) has remained broadly unchanged in recent years, though there is a noticeable increase in the average grace period and a slight increase in the overall repayment period, which reflects in large part the recent lengthening of the average consolidation period (Chart 4).

Chart 2.
Chart 2.

All Countries: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

Sources: Paris Club Agreed Minutes and IMF staff estimates.
Chart 3.
Chart 3.

SAF- and ESAF-Eligible Countries: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

Sources: Paris Club Agreed Minutes and IMF staff estimates.
Chart 4.
Chart 4.

Middle-Income Countries1: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

Sources: Paris Club Agreed Minutes and IMF staff estimates.1Defined as countries not eligible for SAF and ESAF arrangements.

The multilateral renegotiation does not cover interest rates applied to the consolidation but a reference to market interest rates has long been included in the Agreed Minute. The provision specifies that the conditions and rates of interest on the financial arrangements covered by the agreement will be determined bilaterally on the basis of the appropriate market rate. It has been the general practice, however, to reschedule debt service on official development assistance (ODA) debts on concessional rates.

Consolidation Period

Cash-flow relief by official creditors applies to current debt-service payments on debts covered by the agreement and falling due during a specified period of time (the consolidation period) and, in some cases, also to arrears that accumulated to the beginning of the consolidation period. While consolidation periods have typically extended over one year, Paris Club creditors have provided effective relief for many countries over a much longer period. As illustrated in Chart 5, successive reschedulings have provided for long periods of effective consolidation of debt (in one case extending over fifteen years). This has been accomplished either through the rescheduling of arrears that had arisen between agreements or, very rarely, through a unbroken sequence of consolidation periods.

Chart 5.
Chart 5.

Consolidation Periods of Successive Rescheduling Agreements, 1979–July 19901

Sources: Agreed Minutes and IMF staff calculations.Notes: 1, 2, 3, etc.—start of successive consolidation periods since 1976 (see Table 1).*indicates conditional future rescheduling or extension of consolidation period.< - indicates consolidation date of arrears.1The number of consolidation period may, in some cases, exceed the number of rescheduling agreements owing to conditional future consolidations becoming effective. Representation of dates is approximate.2Conditional consolidation period of second agreement did not become effective.3The 1989 rescheduling consolidation only arrears at end-1988.

During 1989, the average consolidation period lengthened considerably (to 16 months from an average of 14 months during 1986–88) as creditors agreed to three multiyear reschedulings, and also made more frequent use of shorter conditional extensions of the consolidation period.14 This move to longer consolidation periods reflected creditors’ desire to reduce the number of annual rescheduling meetings for countries with multiyear Fund arrangements and to provide debtor countries with a clearer financial framework for medium-term adjustment programs.15 Creditors also indicated that they would consider multiyear reschedulings on concessional terms on the basis of a SAF- or ESAF-arrangement, and the 26–month consolidation for Mali in November 1989 was the first instance of a rescheduling based on a SAF arrangement.

The multiyear reschedulings were invariably phased, with the second (or third) tranche conditional on creditors’ assessment by a specified date whether the conditions for a further extension of the consolidation have been met. These conditions include a review of the extended arrangement by the Fund’s Executive Board or approval of the second and third annual arrangement under the SAF or ESAF. Similar conditions have been attached to the shorter extensions of the consolidation periods in a number of reschedulings during 1988–89.

Recent Experience, November 1990
  • View in gallery

    Multilateral Official Debt Renegotiations for All Countries, 1976–89

  • View in gallery

    All Countries: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

  • View in gallery

    SAF- and ESAF-Eligible Countries: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

  • View in gallery

    Middle-Income Countries1: Average Repayment Schedule for Current Maturities and Arrears, 1985–89

  • View in gallery

    Consolidation Periods of Successive Rescheduling Agreements, 1979–July 19901