The Paris Club of official
creditors is considering concrete measures to
prevent private litigation undermining efforts at debt relief
for heavily indebted poor countries (HIPC). Concern is growing
among Club members at the trend for private funds to buy the
sovereign obligations of countries eligible for official debt
forgiveness, and then sue for full value recovery through the
courts, its president Xavier Musca has told Emerging
Musca said litigating creditors
have already been awarded around $1 billion by the courts.
Compare this amount with the $1.5 billion in debt relief
expected so far from private creditors in the framework of the
When the Paris Club writes off
HIPC debts, it usually asks private creditors to accord
comparable treatment to the government concerned. But in a
crucial judgement in February 2007, a UK court upheld a demand
from so-called vulture fund Donegal International
for Zambia to repay debts worth more than $55 million,
originally owed to the Romanian government. Donegal had
purchased the obligations in 1999.
In May this year, the Paris Club
publicly expressed alarm over the phenomenon, and Musca said
they have since discussed methods to curb the practice.
The common aim of these different measures is to
facilitate negotiations between HIPC countries and their
non-Paris Club creditors, thus avoiding the selling of claims
to litigating creditors, he explained.
These measures include better
information for HIPC countries on the precise financial
requirements of comparability of treatment, and technical
assistance from the Paris Club Secretariat to analyze debt
treatment offers from other creditors.
Musca added that the Paris Club
wanted to strengthen its communication policy on the issue,
both towards the general public and to non-Paris Club
creditors that would be willing to provide HIPC debt
The major non-Paris Club
official creditor in Africa is China, and Musca said that
Beijings reaction towards any debtor that encountered
difficulties repaying debts is not known.
However, we know that
China has provided debt relief to several low-income countries,
most of them eligible to the HIPC initiative. He added
that the Paris Club would welcome a dialogue with
China on debt-related issues concerning HIPC, to enhance
a better mutual understanding.
We feel that it would make
sense for the Paris Club and China to have some exchange of
information regarding the debt treatments that would need to be
provided to low-income countries in debt-distress.