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Foreign Exchange

Paris Club members adapt to new rules

THE PARIS CLUB has gone through fundamental change over the past year. First it agreed to an enormous debt reduction for Iraq, then it started to allow debtor nations to buy back their debts. Most recently, it came to a long-awaited and ground-breaking agreement with Nigeria that involved elements of both debt reduction and buyback.

At the same time, the official creditors' association's members are generally avoiding bilateral lending in favour of granting credits through multilateral institutions. Many private-sector creditors remain critical of the Paris Club's opacity and high-handedness. But the future of the Club seems clear: more debt reduction, more buybacks, and less lending mean that it could be reforming itself out of relevance.

That would by no means be a bad thing. The Paris Club is almost unique among creditors in never wanting to roll over its debt; also, of course, it has a lot more political clout than the average bank or bondholder. For those reasons, most countries would rather not borrow from it. And for their part, Paris Club members, most of them in tough fiscal situations of their own, have no particular love of lending to other nations.

They have also, over the past decade, seen outright debt forgiveness move from being a bad thing fiscally to being a good thing politically.

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