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Cologne Terms


1/ History

In November 1999, the Paris Club creditor countries, in the framework of the initiative for "Heavily Indebted Poor Countries" (HIPC) and in the aftermath of the Cologne Summit, accepted to raise the level of cancellation for the poorest countries up to 90% or more if necessary in the framework of the HIPC initiative.

39 countries are potentially eligible for the HIPC Initiative and may benefit from the Cologne terms.

As of today, 38 countries have benefited from the Cologne terms.

2/ Eligibility

Cologne terms are implemented on a case by case basis. To qualify for these terms, debtor countries must be eligible for Naples terms and:

(i) have a sound track record with the Paris Club and continuing strong economic adjustment;

(ii) have been declared eligible to the enhanced HIPC Initiative by the boards of the IMF and the World Bank.

The level of debt cancellation required to achieve debt sustainability from each creditor is calculated by the international financial institutions based creditors' relative exposure in net present value terms of total external debt, as defined under the framework of the HIPC initiative. The Paris Club provides its share of the debt reduction needed to achieve debt sustainability on the understanding that all other creditors (public, private and multilateral) also make a consistent contribution to the common objective of debt sustainability.

3/ Description

3.1. Non-ODA credits are cancelled up to a 90% level or more if necessary in the context of the HIPC initiative (including topping-up). Creditors decided to implement the 90% debt reduction using the "debt reduction option" ("DR"): 90% (or more if necessary to achieve sustainability in the framework of the HIPC initiative) of the claims treated are cancelled (including topping-up), the outstanding part being rescheduled at the appropriate market rate according to standard table "A1" (23 years with a 6-year grace and progressive repayment period).

Other options were also designed, in case a creditor country could not use the "DR" option but they are used by creditors on a temporary basis, because they result in unrealistic repayment periods.

3.2. Concerning ODA credits, they are rescheduled at an interest rate at least as favourable as the original concessional interest rate applying to these loans, according to standard table "D2" (40 years with 16-year grace and progressive repayment). This rescheduling results in a reduction of the net present value of the claims, as the original concessional rate is smaller than the appropriate market rate. The reduction in the net present value varies from one country to another, depending on the original interest rate of the claims. By contrast, the Paris Club rescheduling has a positive effect on the expected value of the ODA claims, as the creditors salvage value relative to the recovery of otherwise defaulted amounts.

3.3. Cologne terms also include the possibility for creditor countries to conduct, on a bilateral and voluntary basis, debt swaps with the debtor country.

These swap operations in principle may be carried out without limit on official development aid loans, and up to 20% of the outstanding stock of debt at a fixed date, or 15 up to 30 million SDR for non-ODA credits.

Paris Club creditors and debtors regularly conduct a reporting to the Paris Club Secretariat of the debt swaps conducted.

3.4. Creditors may cancel their commercial claims up to a level higher than the one provided by the Paris Club agreements. Creditors will inform other creditors of an increased cancellation prior to such decision. It is understood that bilateral cancellations beyond multilateral treatment must benefit the debtor country.


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