COMMENT The Indian Ocean tsunamis have generated a flurry of proposals to reduce the burden of external debt owed by the stricken countries. These proposals raise a host of public policy issues including conditionality, precedent and fairness. An especially thorny issue is burden sharing by commercial lenders.
The Paris Club group of rich creditor countries met this week for a preliminary discussion of tsunami debt relief. The statement issued on Wednesday and comments by officials involved in the meeting indicate that the Paris Club creditors are prepared to make an exception to their longstanding burden-sharing rule. The application of this rule in recent years has become increasingly problematic. Now is a good time for the Paris Club to adopt a more forward-looking approach to burden sharing by commercial creditors.
