Context: India sent financing assurances to the International Monetary Fund (IMF) on Monday, becoming the first of Sri Lanka’s creditors to officially back the crisis-hit island nation’s debt restructuring programme.
About the News
- China, Japan, and India are Sri Lanka’s three largest bilateral lenders.
- With India getting on board, Sri Lanka’s chances of swiftly tapping IMF assistance now depend on similar assurances from Japan and China.
- Sources familiar with Sri Lanka’s ongoing negotiations with creditors said that the Paris Club, of which Japan is a member, is likely to send its financing assurances “soon”.
What is Paris Club?
- This refers to an informal group of creditor nations focussed on dealing with borrower nations that face difficulty in paying back their loans.
- The origin of the club is traced to a meeting that happened in Paris between officials from Argentina, which had trouble paying back its debt, with a group of lenders in 1956.
- It is similar to the London club, which is a group of commercial bankers formed in 1976 to deal with the financial problems of Zaire and is focussed on providing various forms of debt relief to countries that face financial distress due to their heavy debt load.
- The Paris Club has 22 permanent members, including most of the western European and Scandinavian nations, the United States, the United Kingdom, and Japan.
- The Paris Club stresses the informal nature of its existence.
- As an informal group, it has no official statutes and no formal inception date, although its first meeting with a debtor nation was in 1956, with Argentina.
- The objective of the Paris Club, an informal group of creditor nations that meets each month in the French capital, is to find workable solutions to payment problems faced by debtor nations.
- The group is organized around the principles that each debtor nation be treated case by case, with consensus, conditionality, solidarity, and comparability of treatment.
- In addition to the Paris Club’s 22 member nations, there are observers—often international NGOs—who attend but cannot participate in the meetings.