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The Paris Club Agreed Minutes include a clause of "comparability of treatment", which aims to ensure a balanced treatment among all external creditors of the debtor country. According to this clause, the debtor country commits itself to seek from non-multilateral creditors, notably other official bilateral creditor countries that are not members of the Paris Club and private creditors (mainly banks, bondholders and suppliers), a rescheduling on comparable terms to those negotiated within the Agreed Minutes.
Paris Club creditors agree that no creditor should be regarded as inherently privileged. Paris Club creditors reschedule a country's debt to respond to a situation of imminent default, and in the context of the debtor's taking adequate measures to correct the situation through an IMF program. The Paris Club creditors seek to maximise recoveries. They typically require immediate repayment of as much of the original claim as possible. Amounts that cannot be repaid are rescheduled on terms that balance future payments with the objective of minimising the chance that the debtor will return to the Paris Club with additional requests for forbearance.
The Paris Club creditors make an exception for multilateral creditors, such as the International Monetary Fund and the World Bank. Paris Club creditors agree that the debtor should meet its obligations to multilateral creditors before servicing other creditor's claims (multilateral debt treatment only occurs under the HIPC initiative).
The Paris Club creditors do not expect that the debtor's agreements with its other creditors will exactly match the terms of the Paris Club's own agreement. Instead, considering the diversity of other possible creditors (non-Paris Club official bilateral creditors, banks, suppliers, bonholders, etc.), the Paris Club creditors require that the debtor seek terms that are "comparable" to the Paris Club's own agreement. The Paris Club creditors require the debtor to share with them the results of its negotiations with other creditors.
Paris Club creditors traditionally have taken a broad approach to assessing whether the debtor has provided comparable treatment. Factors for assessing comparability include, for each type of creditor, the changes in nominal debt service, net present value and duration of the restructured debt. No form of debt instrument is inherently protected from rescheduling. However, Paris Club creditors do consider on a case-by-case basis whether particular factors mitigate against demanding comparable treatment of a particular creditor or debt instrument(s). Creditors can make exceptions, for example, when the debt represents only a small portion of the debtor's burden, or if restructuring would unduly interfere with the smooth operation of trade. Short-term trade finance is generally excluded from a Paris Club rescheduling.
Non Paris Club official bilateral creditors generally make the same type of medium-long term loans that the Paris Club creditors provide. Experience is that non-Paris Club official bilateral creditors often restructure on terms very similar to those agreed in the Paris Club. These creditors may also participate in Paris Club treatments as other official creditors, and under these circumstances apply exactly the same treatment as the one applied by Paris Club creditors.
By contrast, debtor's experience with external private creditors is more complex. There is an extensive track record of international banks rescheduling their exposures to sovereign borrowers, often through the so-called "London Club". Paris Club experience is that it may be more difficult to make a direct comparison between the efforts of creditors that choose to reschedule flows and those creditors that restructure stock of debt. For example, in recent cases where debtors have sought financial relief from bondholders, the debtors have offered a new bond(s) in exchange for the existing instrument. As general rule, comparability of treatment is assessed with the effect of private treatments compared to the effect of Paris Club treatments (in terms of duration, net present value and flow relief). Since new money being provided can also be taken into account, the cutoff date that is being used for the internal purposes of Paris Club treatments does not apply to private creditors.
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