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Creditors Litigating against HIPCs

Total claims from litigating creditors (in 54 separate procedures against 12 HIPCs) are worth around USD 1,5 billion, of which USD 1,2 billion has already been awarded by the courts at end-2007. These figures are likely to increase as a number of HIPC-eligible countries that have not yet reached the completion point have large commercial debt stocks – in particular, Liberia, Cote d’Ivoire, Central African Republic and Sudan.

This phenomenon has significant negative consequences for targeted debtor countries. In particular, the IMF and World Bank have noted that lengthy court proceedings might impose severe burdens on the budgets and institutional resources of HIPCs. In addition, the failure of commercial creditors to commit to participation in the HIPC Initiative might also jeopardise the provision of debt relief under the HIPC and MDRI initiatives: IMF and World Bank HIPC policy requires a minimum of 80% creditor participation to reach the HIPC initiative’s completion point. Thus, aggressive litigation could deprive the targeted countries of the full benefit of international initiatives and block their return to sustainable debt ratios.

The Paris Club has expressed its concern and adopted several concrete measures to tackle aggressive litigation against HIPCs.

Through a press release dated 22 May 2007, the Paris Club has expressed its concern about the action of litigating creditors, as they free ride on the debt cancellation granted by other creditors and thus divert resources from poverty reduction expenditures in the debtor country.

Paris Club creditors also recalled that they are committed to the full implementation of the HIPC initiative. They urged all official and commercial creditors and debtor countries to take the steps necessary to implement this initiative. In particular, consistent with the Paris Club principle of comparability of treatment and taking stock of the harmful consequences of litigation for HIPCs, Paris Club creditors have confirmed that they are committed to avoid selling their claims on HIPCs to other creditors who do not intend to provide debt relief under the HIPC initiative, and urged other creditors to follow suit. This call for enhanced cooperative action was reiterated in the Paris Club contribution to the Doha Conference on Financing for Development.

During its July 2007 session, the Paris Club adopted several measures, aimed at increasing awareness of the problem of litigation and helping HIPCs to obtain debt relief from their non-Paris Club creditors, thus reducing the risk of claims being sold to litigating creditors:

-    The Paris Club has strengthened its advisory role to HIPCs on the terms of the debt relief they should expect from all creditors under the HIPC framework. This advice is provided by the Secretariat at the time when an agreement is reached with the Paris Club, with a document presenting precisely the rates of debt relief they should seek on different categories of debt. In addition to that, to support HIPCs engaged in negotiations with other creditors, the Secretariat analyses, upon request, debt treatment offers received from other creditors to assess their comparability with Paris Club terms.

-    The Paris Club provides new information on its website to raise public awareness of the problem of litigation against HIPCs and the importance of all creditors providing debt relief.

-    Other official creditors (beyond those traditionally associated) are invited to take part in Paris Club negotiations with HIPCs, provided these creditors commit to applying Paris Club principles to the negotiation.

Paris Club members have been supportive of a decision by the International Development Association in April 2008 to enhance the Debt Reduction Facility, which has been used to help heavily indebted poor countries to reduce their sovereign commercial external debt.

Furthermore, the Executive Board of the African Development Bank approved in April 2008 the establishment of a Legal Support Facility, which aims to provide technical legal advice to countries targeted by litigation.

Paris Club creditors also supported and welcomed the commitments from the EU in May 2008 and from the Commonwealth Finance Ministers in October 2008 not to sell claims on HIPCs onto other creditors.


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