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IIF2014

Houston terms

 

1/ History

In September 1990, Paris Club creditors agreed to implement a new treatment of the debt of the lower middle-income countries. This new treatment called " Houston terms " grant three substantial enhancements with respect to Classic terms, that can be implemented on a case by case basis:

  • Non-ODA repayment periods are lengthened to or beyond 15 years and ODA repayment periods are lengthened up to 20 years with a maximum of 10-year grace;
  • ODA credits are rescheduled at a concessional rate;
  • Debt swaps can be conducted on a bilateral and voluntary basis.

As of today, 20 countries have benefited from the Houston terms.

2/ Eligibility

Eligibility for Houston terms is assessed on a case-by-case basis by Paris Club creditors, taking into account the track record of the debtor country with the Paris Club and the IMF and various criteria, including at least two of the following three criteria (i) low level of income (GDP per capita smaller than $2995), (ii) high indebtedness (defined as reaching at least two of the following three criteria: debt to GDP higher than 50%, debt to exports higher than 275%, scheduled debt service over exports higher than 30%); (iii) have a stock of official bilateral debt of at least 150% of private debt.

3/ Description

3.1. Non-ODA credits are rescheduled at the appropriate market rate over around 15 years with 2-3 years grace and progressive payments raising year by year. In the past, some Houston terms reschedulings were made over 15 years with 8 year grace and equal payments each year.

3.2. ODA credits are rescheduled at an interest rate at least as favourable as the original concessional interest rate applying to these loans, over 20 years with a maximum 10-year grace. This rescheduling usually results in a reduction of the net present value of the claims, as the original concessional rate is smaller than the appropriate market rate. The reduction in the net present value varies from one country to another, depending on the original interest rate of the claims. By contrast, the Paris Club rescheduling has a positive effect on the expected value of the ODA claims, as the creditors salvage value relative to the recovery of otherwise defaulted amounts.

3.3. Houston terms also include the possibility for creditor countries to conduct, on a bilateral and voluntary basis, debt swaps with the debtor country.

These swap operations may in principle be carried out without limit on official development assistance (ODA) loans, and up to 20% of the outstanding amount or 15-30 million SDR for non-ODA credits.

Paris Club creditors and debtors regularly conduct a reporting to the Paris Club Secretariat of the debt swaps conducted.

 

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