Mario Cordoni, CEO and Founder of CFE Finance Group, explains the operation and history of the Club de Paris in Economy Magazine

There’s a club in Paris that only talks about money. Its members don’t play golf or tennis; they focus exclusively on interest rates, deadlines, and net amounts—basically, just numbers. More specifically, debts and credits, particularly those that can no longer be collected. It’s the last resort for indebted countries unable to meet their payments and a lifeline for companies that mistakenly trusted the solvency of foreign states. The Paris Club defines itself as “an informal group of financial organizations,” meeting periodically to review ongoing operations and keeping its doors open for countries unable to honor their debts. However, it doesn’t deal with sovereign debt, such as bonds issued by states to finance themselves—that’s handled by others like the IMF. The Paris Club addresses debts contracted by state entities, ministries, banks, and public companies with foreign creditors.

This isn’t finance; it’s economics. Discussions revolve around contracts, goods, services, products sold, and companies at risk of not being paid. When a debtor country turns to the Paris Club, it meets representatives from 22 countries—once called “economically advanced”—and export-supporting structures each nation has established. For Italy, for example, a representative from Sace Simest, a company of Cassa Depositi e Prestiti, is present to insure export operations.

At the Club, decisions are made on which portion of the debt is to be canceled and which is to be restructured—converted or deferred over time with a certain interest rate. The canceled debt is covered by insurance—Sace in Italy’s case—while the uncovered portion returns to the market. After negotiations, creditor companies receive their payments—mostly from insurance, with the remainder coming from transforming their credits into a financial product sold to institutional investors.

CFE Finance Group is a boutique specialized in trade finance based in Geneva, investing in “Paris Club Debt.”

“In a time of zero or negative interest rates, banks, pension funds, and insurance companies are searching for products that ensure a positive return, and the credits arising from Paris Club operations are among the few that offer that,” explains Mario Cordoni, founder and CEO of CFE Finance Group, a Geneva-based boutique with 40 employees specializing in niche credit strategies, including Paris Club Debt, Pre-export Finance, Commercial Transaction Structuring, and ECA Financing. “We can hold these credits, sell them to a counterparty, or securitize them. We can buy after the Paris Club has set the rules or try to preemptively buy the debt. The latter can be very interesting, but it requires significant experience, even beyond what most international banks have, and the ability to work with very limited documentation and accept a degree of risk. But it can be worth it. For example, in the late ’90s, the sovereign debt of the former Soviet Union was worth 5 cents; after the Paris Club intervention, it was worth 85-90 cents.”

Since 1956, the Paris Club has signed 470 agreements with 99 debtor countries, totaling a debt of $588 billion.

All countries pay. Iraq will continue paying until 2028, while Algeria, the former Soviet Union, and Argentina have paid off their debts, with Argentina being a frequent visitor to the Club, having restructured its debt seven times. Every country respects the agreements made in Paris, or returns to renegotiate if needed. The reason is simple: commercial credit is the engine driving the world economy, and the system cannot afford to seize up. That’s why the Paris Club exists. If negotiations don’t end favorably (which never happens), or if debts aren’t paid, no one will want to export to that country, making an already difficult situation impossible to manage. Finance might be avoidable, but exports and imports are not.

“Since 1956, when Argentina first agreed to meet its public creditors in Paris, the Paris Club has reached 470 agreements with 99 debtor countries, managing a total debt of $588 billion,” continues Cordoni. The list of countries includes tiny nations like Tonga and chronically poor countries like Sudan, as well as industrially significant ones like South Korea, China, and Thailand, which still pay off old debt restructurings. Even neighboring European countries like Slovakia, Serbia, or Cyprus, or nations like Portugal and Slovenia, which have fully repaid their debts, are still listed by the Paris Club.

Times change, and economies evolve. But often, poor countries—although relieved of their debts—risk becoming even poorer, and could fall into further debt, potentially with players like China or Saudi Arabia, who don’t follow the Paris Club rules and sometimes ask for something in return, like a port, a business, or political submission. For this reason, the latest G20 summit has established a more stringent framework for future debt restructurings. Everyone knows the pandemic moratorium on interest payments and principal repayments granted to 46 poor countries in May 2020 for a total of $71.5 billion won’t be enough, and intervention will be needed starting next year. But it will be done on new terms and common principles, not only for the 22 member countries of the Paris Club, but also for non-members like India, Saudi Arabia, South Africa, Turkey, the UAE, Kuwait, and China, which, by the end of 2019, accounted for 63% of the total debt owed by G20 countries.

If the debt isn’t sovereign, the discussion moves to London.

If the commercial credit is insured and contracted with a state entity, it’s discussed under the Eiffel Tower. But if it’s not insured and the debt falls on a private entity, like a bank not controlled by the local government, the discussion moves across the Channel to the London Club. Here, there are no fixed members or scheduled meetings. The meetings occur upon the debtor country’s request, with creditor interests represented by a steering committee composed of the creditors themselves. The London Club forms part of a system designed in the late ’90s, during the major debt crisis of developing countries, by Italian Prime Minister Bettino Craxi. With the support of an international scientific committee, Craxi produced a report on reducing the debt of poor countries, which, by the end of 1990, was unanimously approved by the UN General Assembly and established a framework still valid today. While the two clubs already existed, they were strengthened.