London club

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London club
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London club is an informal group of creditors on the international stage. The first meeting of members was in 1976 and it was due to Zair's debt problems. Since that moment, the London Club is responsible for schedules of repayment of countries' debt to commercial banks - members' duty is to change them (repayments) into more convenience for economies. The membership of this informal group is non-exclusionary, there are no minimum requisites to commercial bank creditors (Sperling J., Kirchner E. 1997, s. 167).

London Club Negotiations

London Club negotiations are "normally set in motion when a country is in substantial arrears to commercial creditors and has agreed to a high conditionality IMF stand-by agreement, although commercial banks have pre-emptively rescheduled sovereign debt before these conditions are met" (Sperling J., Kirchner E. 1997, s. 167).

It is worth mentioning that there also exist other informal organization like London Club - the Paris Club, however, they differ. The main areas of differences are as following (Biersteker T. J. 2019, s. 91):

  1. the scope and also type of rescheduled debts
  2. participation, the length and cost of rescheduling negotiations
  3. prerequisites for rescheduling

The first mentioned difference is the scope and type of activity. Members of the Paris Club rather negotiate loans already existing, while the London Club quite often negotiates new loans (practically never rescheduling interest obligations, while the Paris Club or do). That is why the interest rates in the French club are lower (Biersteker T. J. 2019, s. 91).

The second area of divergences between the two clubs is participation and length in negotiations. The London Club schedule changes must take account of all commercial banks at risk in the country of the debtor - in a Paris club negotiations are open to almost everyone (with the appropriate amount of debt a candidate country) (Biersteker T. J. 2019, s. 91).

The last category of differences are the conditions for changing the schedule - the Paris Club requires "a debtor country to be in a position of imminent default and to have an agreement with the IME in place before undertaking rescheduling negotiations" while the London Club is more likely "to restructure debt service payments in the absence of an IMF arrangement" (Biersteker T. J. 2019, s. 91).

However, it should be remembered that both clubs have the mission of changing the country's debt repayment schedule in the most optimal way (Biersteker T. J. 2019, s. 91).


Author: Urszula Bochenek