Comparing Comparability: Participation in HIPC Debt Relief

• In Event: Sovereign Debt Dynamics: Regime Survival, Accountability, and Negotiations

Abstract

Countries borrow from a host of creditors including commercial banks, bondholders, foreign governments, and multilateral institutions. Therefore, when countries face debt distress they must negotiate separate debt restructurings with each group of creditors, who operate in different forums and on different timelines. This creates problems of intercreditor equity. The common solution is comparability of treatment, whereby debtors negotiate a debt restructuring with official bilateral creditors in the Paris Club and agree to seek “arrangements on terms comparable” with other bilateral and commercial creditors. While a longstanding principle, comparability of treatment remains aspirational; it is discretionally assessed and not necessarily achieved. In this paper, I examine the (lack of) comparable treatment provided by non-Paris Club official bilateral creditors under the Highly Indebted Poor Countries Initiative (HIPC). Some non-Paris Club bilateral creditors have provided full relief, achieving comparability, while other non-Paris Club bilateral creditors have shirked their obligations. What explains this variation, especially given that the costs of achieving comparability are relatively low? I argue that if comparability can only be enforced by the “moral persuasion” of its biggest proponents (the IMF, World Bank and Paris Club) then it is more likely to be achieved when there are deeper economic and political relationships between the main proponents of debt reduction and delinquent creditors. I use novel data collected for IMF and World Bank reports to test my argument.

Author

• Lauren Elizabeth Ferry, University of Mississippi