Analysis: Poor countries are at risk from elusive G-20 debt relief efforts

LONDON/WASHINGTON (Reuters) – The failure to make concrete progress on debt relief for the world’s poorest countries at the annual meeting of the International Monetary Fund and World Bank in Washington frustrated policymakers, activists and investors.

Two years ago, the Group of Twenty launched the Joint Framework – a mechanism designed to provide a rapid and comprehensive debt reform for countries writhing under debt burdens after the shock of the emerging coronavirus that would bypass a moratorium on debt payments.

But the results proved elusive, hampered by a combination of lack of progress in bringing major creditors around the table and getting them to commit to joint action, debt benchmarks that form the basis of the talks as well as political turmoil in some countries. Countries.

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The World Bank found that the world’s poorest countries will face $35 billion in debt service payments to official creditors and the private sector in 2022, more than 40% of that amount due to China.

“Time is not our friend, interest rates have gone up, the dollar has gone up and the debt burden is heavier,” International Monetary Fund chief Kristalina Georgieva told a conference in London after the Washington meeting ended in mid-October.

Debt restructuring can be prolonged, so getting several parties to agree on a joint operation is no small feat. But doubts are spreading with the progress that has been icy.

“It’s not a perfect tool. I take responsibility for that as a negotiator,” Guillaume Chabert, the IMF’s vice president of strategy who helped design the Common Framework during his time at the Paris Club, told a panel in Washington.

“We need a fast, fast, orderly, reliable and predictable mechanism. The Common Framework is a good start, but you need some reforms.”

For Zambia, Africa’s first COVID-era default in 2020, it is not yet clear who will lead talks to renegotiate its $6 billion debt with China.

Ethiopia’s debt restructuring came to a halt as the country plunged into civil war.

Official creditors have found that Chad, which first requested the Commond Framework remedy in January 2021, may not need debt relief after all thanks to higher oil prices, although they have indicated a willingness to meet again if necessary.

Chad Challenge

Experts said Chad’s experience in particular could discourage other countries from making requests for relief.

There is still a chance Chad’s creditors will fail to finalize their MOU or its largest private creditor, Glencore Commodities, Chabert said. (GLEN.L)which would effectively halt existing IMF and World Bank programmes.

China’s role as a lender to poor countries and Beijing’s slowdown in debt relief sparked a lot of anger at the Washington meeting. US officials warn that this could burden dozens of low- and middle-income countries with years of debt servicing problems, low growth and a lack of investment.

US Treasury Secretary Janet Yellen and other Western leaders meeting in Washington have stepped up their criticism of China, the world’s largest bilateral creditor, as the main obstacle to moving forward with debt restructuring agreements.

Chabert said that in addition to speeding up the process, it’s important to ensure that the transaction can be compared to the more diverse group of creditors involved now.

JPMorgan’s Joyce Chang, whose bank held an investor seminar alongside the IMF’s World Bank meeting, said asset managers had more discussions about repayment and restructuring challenges for emerging markets than at any time since the 1990s.

“Solutions remain elusive, and there has been open discussion about the shortcomings of the joint framework,” Zhang, head of global research and the Wall Street Bank’s strategic research team, said in a round of meetings.

For Kevin Gallagher, director of the Center for Global Development Policy at Boston University, the US Treasury also needs to be more robust with private creditors, as it did during the HIPC process or in Iraq.

“We showed during the 1990s that we can force the private sector to the negotiating table through carrot and stick policy and we are not ready to do that,” he said, acknowledging that the debt restructuring system is a “big problem.”

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

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(Covering) by Karen Stroecker in London and Andrea Shalal in Washington Additional reporting by Mark Jones and Giorgelina de Rosario Editing by Alistair Bell

Our criteria: Thomson Reuters Trust Principles.

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