stanley fischer : “ the paris club at fifty ” address by professor stanley fischer, governor of the bank of israel, at the celebration of the 50th anniversary of the paris club, paris, 14 june 2006. these remarks were prepared for presentation at the ” fiftieth anniversary conference of the paris club ”, to be held in paris on june 14, 2006. i am grateful to mark allen of the imf for helpful discussions. * * * it is a pleasure and an honor for me to take part in this celebration of the fiftieth anniversary of the paris club – both as a former official of the imf, who learned so much from the former chairman of the paris club with whom i had the pleasure of working for over five years, and as governor of the bank of israel. the paris club is the gifted child of the french tresor. but it is also in many ways a british institution – and i take that to be a compliment. it is a club, a voluntary gathering of interested parties, it operates without a written constitution, it operates case - by - case, and it displays a remarkable pragmatism and flexibility that has enabled it to evolve and deal with an enormous variety of debt problems over the years – over 400 agreements with over 80 debtor countries and more than $ 500 billion rescheduled. in performing its essential task, it has stood the cause of development well over the past fifty years. and at the age of fifty, it faces new challenges that ensure that it will have to continue to evolve with the times. i. debt relief like the bank for international settlements, the paris club grew out of the need for debt relief – a need which has been with us for as long as debt has existed. in gradually developing a flexible set of rules for granting relief on inter - governmental debts, mostly the debts of developing countries, the club has made a major contribution to the orderly operation of the international financial system. the principle of conditionality is critical. by making the conditionality that of the imf, the paris club gained at least two major benefits for the international community : that of operating with the fund ’ s skilled professionals, who understand how to design and monitor an economic program ; and the legitimacy of operating within an institutional framework in which both the creditors and debtors are members. in turn, by putting the imf at center stage in developing and enforcing conditionality, the club contributed to the development of the fund ’ s analytic and

operational approach. there are nonetheless major questions about the effectiveness of the combination of conditionality, concessional loans, and debt relief. these can be summarized by recognizing that many countries that received conditional debt relief once, received it again – and again. the underlying question is why it has turned out to be so difficult for many of the poorest countries to begin to grow on a sustained basis, despite receiving aid that amounted to double digit percentages of their gdp over long periods, and despite being in imf and world bank programs. i suspect that if we were to go back to the participants in paris club discussions in the fifties and sixties, they would say that income levels in many of the countries whose debts they rescheduled are much lower today than they would have imagined in their most pessimistic moments. these concerns relate mainly to some african countries. many african countries have been growing more rapidly recently, so maybe we are beginning to turn a corner. the renewal of growth is helped by the global commodities boom, and the fact that several african countries are now exporters of oil. developments in south africa are encouraging, and south african growth affects the countries around it. nigeria too is making progress, helped by a paris club agreement and by the price of oil. but the facts remain that the number of people in poverty in africa is increasing, that a greater share of the world ’ s poor live in africa than ever before, and that aids and other diseases are exerting a devastating effect on populations in many countries. it is easier to raise questions about the effectiveness of conditional debt relief than to answer them. for the problem is not particularly that of conditional debt relief, it is rather the question of what development strategies are most likely to succeed. i will not go into that question in any detail now, beyond saying that while we know many of the necessary conditions for growth, we do not yet know the sufficient conditions. over the course of its lifetime, paris club rescheduling became increasingly far - reaching. the original approach of flow rescheduling combined with new money lasted for about thirty years. in the late 1980s under the brady plan, paris club reschedulings began to include relief on the stock of debt. now we all know that to a first approximation what matters is the present value of the debt, so that there is no difference in the economics of flow versus stock reschedulings. 1 nonetheless the shift from flow to stock debt reduction was a major change