THE PARIS CLUB GLOSSARY (continued)

Interest Capitalization
Contractual interest is capitalised as at the date of maturity and included in the scope of the rescheduling; unlike commercial banks, Paris-Club creditors generally accept to reschedule interest if warranted by a debtor's perceived debt service capacity; interest capitalization causes the stock of debt to increase, a particularly worrisome phenomenon if interest is rescheduled in successive reschedulings.

Late Interest
Late interest charges accrue between the contractual date of principal and interest due and not paid and a date to be fixed in the bilateral agreements concluded in the implementation of a Paris-Club Agreed Minute; the interest rate applying is usually that agreed upon in the original contract; however, some creditors apply the moratorium interest rate not only to future maturities, but also to payment obligations in arrears. (see "moratorium interest")

LMIC
lower-middle-income countries.

LMIC-Terms
Following a recommendation adopted at the Houston-Summit of 1990, the repayment periods relating to rescheduling agreements concluded with lower-middle-income countries were extended
- to 15 years with 8 years of grace for commercial credits,
- to 20 years with 10 years of grace for official-Development-Assistance loans (ODA-credits; see "ODA-loans")

In addition, creditors agreed to swap, on a voluntary basis, up to 10 percent or $ 10 Mio US of the rescheduled commercial debts, up to 100 percent of rescheduled ODA-loans Eligibility to LMIC-Terms is subject to the following criteria:
- per-capita income not exceeding the ceiling established by the World Bank for "blended-countries" (at present $ 1,235 US),
- a ratio of Paris-Club debt to commercial bank debt of 1.5,
- indebtedness indicators characterised by:

• a ratio debt/GNP of at least 50 percent;
• a ratio debt/exports of at least 275 percent,
• a scheduled debt service ratio of at least 30 percent

The requirements for classifying a debtor as a lower-middle-income country are fulfilled if two out of three criteria are met. As far as the indebtedness indicators are concerned, a country qualifies if it meets two out of three of the indicators listed above.

Moratorium Interest
Interest accruing on rescheduled amounts; the moratorium interest rate is agreed upon in the bilateral agreement implementing the Agreed Minute; this agreement is based on the appropriate market rate reflecting the cost of funding to creditor governments or their appropriate institutions; the moratorium interest rate relating to ODA-loans is concessional and generally conforms to the concessional rate agreed upon in the original loan agreements.

Moral Hazard
Incentive to debtors servicing their debts without recourse to debt rescheduling to default on their obligations in order to benefit from debt relief: this incentive is particularly strong,if the terms available include elements of concessionality, such as debt and debt service reduction.

MYRA
"Multiyear Rescheduling Agreement"; rescheduling agreements providing for consolidation periods of several years; in order to safeguard the principle of IMF-conditionality" (see "IMF-Conditionality), the activation of periods exceeding the duration of the arrangement concluded with the IMF is conditional on the debtor having successfully implemented such an arrangement and having concluded a successor arrangement in support of his ongoing reform efforts.

Multilaterality
Treatment of a country's debt problems in a multilateral rather than in a bilateral forum. (see "Equal Treatment")

Net-Present-Value
Stream of payments due from a debtor and discounted on the basis of prevailing market interest rates.

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