G20 must push to avoid debt crises – experts, campaigners

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Indonesian Finance Minister Sri Mulyani and Indonesian Central Bank Governor Perry Warjiyo lead the opening ceremony of the G20 Finance Ministers and Central Bank Governors Meeting in Jakarta, Indonesia, February 17, 2022. Mast Irham /Pool via REUTERS

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  • The pandemic has aggravated tensions over the debt of developing countries
  • G20 debt relief efforts struggle to gain traction
  • IMF, World Bank and experts call for stronger measures

JOHANNESBURG/LONDON, Feb 17 (Reuters) – Rich countries must improve their flagship debt relief initiative or face a series of debt crises in the developing world, experts and campaigners say as governments CFOs of major G20 economies are gearing up for meetings later this week.

As the pandemic hit global economies, the Group of 20 major economies launched measures including a temporary suspension of debt service for poor countries to give them breathing space, as well as the Common Framework – a restructuring program debt for long-term relief.

The Debt Service Suspension Initiative (DSSI) has now expired. Meanwhile, after signing the Common Framework a year ago, Zambia, Ethiopia and Chad have still not received aid.

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Their uncertain fate, coupled with the fear of being punished by the market, has led other governments to steer clear of the common framework.

“It gives them no incentive,” Daouda Sembene of the Washington-based Center for Global Development, a former director of the International Monetary Fund (IMF), told Reuters.

“Unfortunately, so far it has done harm and not necessarily good.”

Alarm bells are ringing for many. According to the IMF, about 60% of low-income countries – mostly in Africa – are either in debt distress or at high risk, up from less than 30% in 2015. Read more

This year, 74 low-income countries must repay $35 billion to bilateral and private lenders, nearly double from 2020, according to the World Bank. With the US Federal Reserve poised to raise interest rates, borrowing costs are expected to rise for riskier emerging markets.

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US Treasury Secretary Janet Yellen has called for relief measures for the poorest countries and will urge her G20 counterparts to work to support developing countries. Read more

World Bank President David Malpass said last month that slow relief was increasing the risk of sovereign default.

Hung Tran, a former deputy director of the IMF now a member of the Atlantic Council think tank, wrote this week that the G20 initiatives to deal with debt had “largely failed“.

“Unless these efforts are strengthened, sovereign debt crises will prevent vulnerable countries from rebounding fully from the pandemic. »

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Indonesian officials, who hold the G20 presidency this year, said debt relief was one of the issues on the agenda when finance ministers meet on Thursday and Friday.

IMF chief Kristalina Georgieva wants the common framework to be bolstered by timelines to speed up decision-making and clear comparability of treatment application, assuring creditors that the process is fair.

She also wants a halt in debt service during restructuring negotiations and a broadening of the scope of the framework, since many countries holding the bulk of the debt at risk are not poor enough to currently benefit from relief.

Others are pushing for deeper revisions.

Mr Tran, of the Atlantic Council, believes that the debt service halt should prevent rating agencies from downgrading countries that seek relief.

Tim Jones of the UK-based Jubilee Debt Campaign said a plan was needed to deal with private creditors and bondholders, who refused to take part in the now expired DSSI initiative.

“You have to make it clear that the alternative is that they don’t get anything,” he said.

What action, if any, the G20 delivers this week remains to be seen. Finance ministers could be wrapped up in issues closer to home – geopolitical tensions, rising global inflation and tightening monetary policy.

“So what’s happening in 30 low-income countries, even if it’s 30 countries, is something that could happen on another planet,” Carmen Reinhart, chief economist at the World Bank, told Reuters. World Bank.

Even a working common framework will only solve half the problem, experts say. Countries need to get help in growing economies, not just traditional austerity measures.

“It doesn’t solve a growth problem, and you can’t solve a debt problem by killing growth,” said Vera Songwe, executive secretary of the United Nations Economic Commission for Africa.

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Reporting by Joe Bavier and Rachel Savage Additional reporting by Andrea Shalal in Washington DC, Gayatri Suroyo in Jakarta, Loucoumane Coulibaly in Abidjan, Diadie Ba and Ngouda Dione in Dakar Editing by Karin Strohecker and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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