It is long past the time that the countries of the Global South came together to protect their interests. They need to establish a collective body to boost coordination and mutual support as they navigate the increasingly complex channels of financing and borrowing and search for some relief from the ravages of the global debt crisis.
This is not to suggest that there have been no attempts to forge such a body during the past four decades. For example, the Cartagena Initiative in 1984, which was spurred by the then Latin American debt crisis, aimed to create a debtors’ coalition. However, the initiative failed due to the divergent positions of the debtor countries and obstructions from creditors, which preferred to deal with each troubled nation individually.
Another initiative was the Committee of Ten, formed by a number of African countries to coordinate responses to the 2008 global financial crisis and strengthen their collective stance towards the international financial institutions. That committee initially met with some progress before its activities and influence waned by in the mid-2010s.
Among other attempts to address debt challenges collectively were made by linking it to sustainability issues and climate crisis. Two recent examples of such approach are those Debt Sustainability Coalition, launched at the UN Conference on Climate Change, the COP27, held in Sharm El-Sheikh, and the debt related issues advanced by the V20 Group made up of the most climate-vulnerable countries.
The creditor nations, on the other hand, have been more successful at forming groups to advance their interests. The best known is the Paris Club established in 1956 to address bilateral government loans. It was a response to the debt crisis in Argentina, a country with a long history of debt accumulation, default, and bailout attempts. Before that, in 1956 six European governments formed the Hague Club to coordinate their stances in the negotiations over the Brazilian debt.
The Paris Club has developed considerable influence over the years, even though it is an informal body that is not governed by an international treaty. Its clout stems from the power of its 22 members and the de facto recognition it has come to enjoy, as evidenced by the participation of the International Monetary Fund (IMF), World Bank, Organisation for Economic Cooperation and Development (OECD), UN Conference on Trade and Development (UNCTAD), and other such international institutions as observers in its meetings.
The Paris Club’s role has evolved with every debt crisis since the 1980s, acquiring institutional form with the establishment of a permanent secretariat based at the French Ministry of Finance. Staffed by a small, well-connected, and experienced group of professionals, the secretariat regularly reviews global debt positions and strategies for addressing them.
Negotiations begin when a debtor country declares its inability to service its debt and requests relief through rescheduling of partial principal and interest cancellation. These discussions are based around reports and databases provided primarily by the IMF. The fund’s involvement is essential, for without an IMF-supported programme, the debtor country will never be able to reach an agreement with the Paris Club.
Over the past two decades, the share of low- countries sovereign debt held by private bondholders among creditors has risen from two per cent in 2000 to 12 per cent in 2022, while official creditors outside the Paris Club (such as China) have increased their share from eight per cent to 20 per cent.
International financial institutions have maintained a relatively steady share of around 45 per cent of the developing countries’ external debt. Nevertheless, despite the Paris Club’s declining share in global lending, it still holds a significant portion of the debt owed by many developing nations. It also remains a key reference point – even for newer creditor countries – thanks to the institutional knowledge and technical expertise it has accumulated over the decades.
With regard to private lenders, the London Club was established to represent commercial bank creditors. It was initially formed by creditor banks to Zaire (now the Democratic Republic of Congo), which defaulted on its commercial bank loans in 1976. Turkey and Peru, among other countries, soon followed suit.
Negotiations with these countries were typically conducted through the banks’ advisory committees and often dragged on for years. Unlike the Paris Club, the London Club does not have a secretariat, a permanent headquarters, or a fixed membership. Nor does it have a standard negotiating framework or an established body of precedent it can draw on for resolving defaults.
Over the past four decades, the share of commercial bank lending to the developing countries has declined in favour of international bondholders. As a result, debtor countries must now contend with a broad array of creditors, including major and minor “investors” such as banks, insurance companies, pension funds, and even local institutions that acquired debtor nation sovereign bonds through the financial markets.
Despite various proposed coordinating mechanisms – such as those supported by the Institute of International Finance, and initiatives from the International Capital Market Association (ICMA) and the International Primary Market Association (IPMA) – coordination among bondholder committees has remained both difficult and exhausting.
At the recent Seville Financing for Development Conference, the UN Secretary General’s Expert Group on Debt presented a report that proposed 11 measures to remedy the current debt crisis and prevent its recurrence. Among them was a recommendation to establish a Borrowers’ Club as a forum for the countries of the Global South.
According to the report, this forum would promote responsible borrowing and act as a platform for sharing knowledge and expertise, facilitating technical cooperation and strengthening institutional capacity in the developing countries. It would also enhance their ability to engage with international financial institutions and improve their debt management frameworks.
What has changed so that such a forum would succeed today where other attempts have failed in the past? This question will be addressed in a forthcoming article titled “Debt Management in a Rapidly Changing World.”
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 17 July, 2025 edition of Al-Ahram Weekly
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