Economy

Analysis-Poor countries face peril over the elusive G-20 Debt Relief Push By Stocksak


© Stocksak. FILEPHOTO: Employees place the Saudi Arabian Flag during final preparations, before world leaders gather to take the official family photograph at the convention center La Nuvola in Rome on October 30, 2021. Ludovi

By Karin Strohecker, Andrea Shalal

LONDON/WASHINGTON – Policymakers, campaigners, and investors have been frustrated by the inability to make meaningful progress on debt relief for the poorest countries at the annual meeting of the International Monetary Fund (World Bank) in Washington.

The Common Framework was launched by the Group of 20 two years ago. It is a mechanism that provides a quick and comprehensive debt restructuring to countries suffering from the COVID-19 shock. It goes beyond temporary debt payment moratoriums.

But, the results have not been forthcoming. This is due to a combination of insufficient progress in bringing in key creditors to the table and getting these to commit to joint actions, and the establishment of debt parametres that form part of talks as well political upheavals in some of the countries.

The World Bank has found that the world’s poorest countries will face $35 billion in debt service payments to their creditors, both public and private, in 2022. More than 40% of this is due to China.

After the Washington gathering, Kristalina Georgieva, chief of the IMF, said that “Time is not our friend”, that interest rates have risen, the dollar has appreciated, and the debt burden had become heavier.” She spoke at a conference in London.

Debt restructurings can take a long time and it is difficult to get all the parties to agree on a shared process. However, doubts abound as progress has been slow.

It isn’t perfect. Guillaume Chabert, deputy strategy chief at the IMF, spoke to a panel in Washington. He took responsibility for the failures as he was one of the negotiators.

“We need a fast, quick, orderly, reliable, predictable mechanism. While the Common Framework is a good starting point, there are still many issues to be addressed.

Zambia was the first COVID-era default country in 2020. It is not clear who will lead negotiations to restructure its debt of nearly $6 billion with China.

Ethiopia’s debt restructuring is now at an impasse, as the country is engulfed by civil war.

Official creditors concluded that Chad, which was the first to apply for Commond Framework treatment in January 2020, might not require debt relief after all due to the rise in oil prices, but they expressed readiness to reconvene if necessary.

CHAD CHALLENGE

Experts believe that the experience of Chad could discourage other countries from applying to relief.

Chabert stated that there was still the possibility that Chad’s creditors would fail finalise their memorandums of understanding. Or that Glencore, its largest private creditor and commodities firm, would back out. This would effectively halt all existing IMF or World Bank programs.

Washington met with much fury over China’s role in lending to poorer nations as well as Beijing’s delay in addressing debt relief. U.S. officials warned that this could cause debt servicing problems, lower growth, and over-investment for dozens low- and medium-income countries. Janet Yellen, U.S. Treasury secretary, and other Western leaders gathered at Washington ratcheted-up criticism of China, the largest bilateral creditor in the world, as the main obstacle for debt restructuring agreements.

Chabert stated that, in addition to speeding up this process, it was important for equal treatment of the many creditors involved.

Joyce Chang from JPMorgan (NYSE) said that asset managers had more discussions about restructurings and repayment challenges in emerging markets than any other time since the 1990s.

Chang, who chairs global research and the strategic team of Wall Street bank’s research department, stated that solutions remain elusive and that there was open discussion about the flaws of the common framework.

Kevin Gallagher is the director of the Boston University Global Development Policy Center. He believes that the U.S. Treasury must also be more aggressive with private creditors like it did during the heavily-indebted poor country process or in Iraq.

“We showed during the 1990s that we can compel the private sector to come to the table through carrots and sticks and we’re just not willing to do it,” he said, acknowledging the debt restructuring regime amounted to a “huge problem”.

“It’s like walking into an emergency room with a bleeding head wound, and being told that you’re fine.”

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Stocksak Editorial

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