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Debt Glossary


ACP countries: the group of former colonies eligible for preferential treatment under various EEC arrangements, such as Stabex, the Common Agricultural Policy and trade restrictions. (ACP is an abbreviation for Africa, Caribbean and Pacific.)

Adjustment: a general change in the orientation of economic policies, intended to improve long-term economic performance or to respond to changes in the international economic environment facing a country. Adjustment may comprise macroeconomic adjustment and/or structural adjustment. The IMF generally uses the term 'adjustment' to refer to the former, and the World Bank to the latter.

'Adjustment with a Human Face': an important study produced by UNICEF in 1987 (written by G A Cornia, Richard Jolly and Frances Stewart) on the social impact of debt and adjustment. It focuses primarily on the effects on health and education, and deliberately avoids separating out the effects of debt (and other factors underlying the need for adjustment) and the effects of adjustment as such, or considering the causal links between specific adjustment policies and specific social effects. 'Adjustment with a Human Face' is also used to refer to the policy recommendations arising from this study - primarily the protection of the health and education sectors from cuts in public expenditure.

Agreed minute: the formal agreement between the Paris Club and a debtor country, setting out the terms of rescheduling (apart from the interest rate, which is negotiated separately by individual creditors). The agreed minute has no legal force, but represents an agreement to negotiate bilateral rescheduling agreements.

Annual Meetings: the main meetings of the Boards of Governors of the IMF and World Bank, held each Autumn; and the occasion of one of the two meetings of the Interim Committee and the Development Committee, the other being the Spring Meetings. Although in theory the Annual Meetings represent the main occasion for the Fund and Bank to make major policy decisions, in practice, the main decisions are taken by the Executive Board in discussions beforehand, and are merely rubber-stamped at the Annual Meetings themselves. Two in every three years the Annual Meetings are held in Washington DC; every third year, they are held elsewhere.

Article IV consultation: the regular consultation which the IMF hold with each of its member countries, to discuss the country's economic and financial policies. The consultation itself is conducted by the IMF staff, whose report is then discussed by the Executive Board. Such consultations take place under Article IV of the IMF's Articles of Agreement.

Attachment: the legal seizure of assets belonging to a debtor by a creditor in the event of de jure default on a debt owed to the creditor, or the triggering of a cross-default clause as a result of de jure default on another debt. Attachment of assets by a creditor is limited to the value of the debt outstanding to that creditor. In practice, attachment of assets is extremely unusual, largely because of the practical problems and limitations of the mechanism: the requirement of a de jure default ruling delays the process substantially; only assets belonging to the debtor institution itself can be attached; most debtor governments have relatively few overseas assets, and much of what they have is protected by diplomatic immunity; the remaining assets can be protected by financial manipulations (such as the transfer of nominal ownership to a new agency unencumbered by foreign debts); and the existence of cross-default clauses means that there would be considerable competition among creditors to attach what assets were available. Thus the benefits to creditors from attachment are very limited, and outweighed by the effect attachment would have on relations with the debtor concerned and other borrowers.


Balance of payments: a country's receipts and expenditure in international transactions.

Balance of trade: the difference between a country's merchandise exports and imports; that is, its net receipts of foreign exchange from international trade in goods.

Bank for International Settlements (BIS): the world-wide organisation of central banks. The BIS played an important role in the early stages of the debt crisis after 1982, by providing bridging loans to major debtor countries whose IMF programmes had been delayed by negotiations with commercial banks on new money loans. These bridging loans were repaid from the first drawings from the Fund when the programmes came into effect. This was the first approach to tackling the problem of financing assurances, but came to an end as the BIS became increasingly reluctant to provide such loans, due to the risk attached to them.

'Basket case': a phrase used mainly in the Paris Club to denote a country which is totally insolvent (see solvency) and, based on current expectations, has no possibility of ever servicing its debts in full.

Bilateral Debt:
1. (of debt): owed by one government to another, usually resulting from aid loans or guaranteed export credits on which the guarantees have been called.
2. In the Paris Club, a round of negotiations between a debtor government and one of its official creditors to implement an agreed minute; or the rescheduling agreement between the two countries which results from such negotiations.

Board of Governors: in theory, the highest decision-making bodies of the IMF and the World Bank, consisting in each case of the governors from all the member countries of the institution. In the case of the IMF, the Governor representing each country is generally its Finance Minister or equivalent; in the case of the Bank, the Governor is generally the aid minister (for developed countries) or the development minister (for developing countries). In practice, the considerable size of the Board of Governors (it has 151 members) makes it very unwieldy and virtually powerless. Because of the difficulty of getting 151 senior ministers together in the same place at the same time, it meets only twice a year, at the Annual Meetings and the Spring Meetings; and even then the actual decisions are made by the Executive Board, the Interim Committee and the Development Committee. The role of the Board of Governors is essentially limited to rubber-stamping decisions taken elsewhere.

Bond: a form of debt which is transferable between creditors, and bears interest at a fixed or floating rate. (A special case is the zero-coupon bond used in some debt reduction packages under the Brady Initiative.) Bonds are generally repaid in a single instalment, and are often bought by individuals or by other financial institutions rather than by commercial banks, who have historically tended to prefer other forms of lending, such as syndicated loans.

Brady Initiative: the third debt initiative put forward by the major creditor governments, launched by US Treasury Secretary Brady in 1989. The main objective of the Initiative was to encourage voluntary debt reduction and debt-service reduction by the commercial banks, by providing enhancements to the value of reduced debts in the form of rolling guarantees on interest payments and/or collateral for principal repayments, and by financing debt buy-backs. The Initiative met, at best, with limited success. The negotiation process proved to be very slow, so that very few countries benefited in the early stages; the resources available for debt reduction were limited, the percentage reduction in the debt under the enhancements approach was limited; the debt reduction which was achieved was partly off-set by the increased official lending which financed it; and the use of non-additional official lending and the debtor country's reserves further tightened the short-term foreign exchange constraint facing the country. In the longer term, there is a risk that the large volume of debt which needs to be reduced to achieve a given degree of debt reduction will reduce the base for new loans in the future, and limit the scope for any further efforts at debt reduction.

Bretton Woods: the conference, held in 19944, at which the International Monetary Fund, the World Bank and the General Agreement on Tariffs and trade (GATT) were established, to provide a basis for the functioning of the world economy in the post-war period, and in particular to avoid a repetition of the Depression of the 1930s.

Bretton Woods Institutions: the International Monetary Fund and the World Bank. The term derives from the origins of these institutions at the Bretton Woods Conference of 1944.

Burden-sharing: the distribution between official and commercial creditors of net lending to debt problem countries. This has become a source of increasing concern to some creditor governments (especially the UK), as commercial lending has dried up, leaving the official creditors as the only substantial net contributors to capital flows to debt problem countries. It also represents a major obstacle to adequate financial support for adjustment programmes, as it means that official creditors are more inclined to respond to inadequate commercial financing by cutting their own contribution rather than by filling the gap.


Cancellation: the legal cancellation of a loan agreement by a creditor. This has been done mainly for aid debts to low-income countries.

Capital flight: a flow of financial capital which leaves a country other than through legitimate channels, generally in contravention of capital controls. The resulting stock of capital is called flight capital. The sources of capital flight often include (but are by no means exclusively composed of) income from illegitimate sources, such as crime, drug dealing and tax evasion; and it typically takes the form of bank deposits and real estate in developed countries (particularly the US). Capital flight appears in the errors and omissions section of the balance of payments accounts, as its very nature makes it impossible to measure, or even to estimate. The major motivations for capital flight include: restrictions on the international transfer of capital through legitimate channels; high tax rates and/or low real interest rates on domestic investments; expectations of a substantial exchange rate devaluation; and fears of political instability or of expropriation of savings and investments held domestically. Capital flight is a serious problem for many developing countries, and has at times reached very considerable volumes in the case of some highly indebted Latin American countries. It is a particular problem, not only because the interest, capital gains and profits on the resulting investments are not generally returned to the country of origin. The commercial banks regularly express serious concern over capital flight, on the grounds that it reduces the foreign exchange available to service the debts owed to them

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