This week’s G20 deal to suspend debt repayments for the world’s poorest countries falls far short of what is needed and ignores the plight of many other developing economies which are also struggling to cope with the coronavirus pandemic, according to a growing number of critics.
Rich countries are facing calls to offer more support to the developing world in the fight against coronavirus, after the G20 agreed this week to freeze bilateral loan repayments for 76 countries until the end of this year.
International relief efforts have so far concentrated on the world’s poorest nations, many of which are in sub-Saharan Africa, but some argue that other economies also need urgent help; many developing countries not covered by the G20 agreement suffered from large debt burdens before the crisis struck and will be among the hardest hit by the shock to their economies and health systems.
“Developed countries can find their own solutions and they can also organise billions in aid for the poorest nations but the middle-income countries are sandwiched in the middle with nothing,” said Juan Manuel Santos, former president of Colombia.
This week he joined former presidents of Brazil, Mexico and Chile in an appeal to multilateral institutions such as the World Bank and the InterAmerican Development Bank to double their net lending to Latin America and the Caribbean, and to the IMF to expand its liquid assets known as special drawing rights.
“The Covid-19 pandemic is a shock of unprecedented magnitude, uncertain duration and catastrophic consequences that, if not properly addressed, could lead to one of the most tragic episodes in the history of Latin America and the Caribbean,” they wrote.
Latin America is among the world’s most vulnerable regions. The IMF forecast this week that its GDP would shrink by 5.2 per cent this year, far worse than the contractions of 1.6 per cent for sub-Saharan Africa or 2.8 per cent for the Middle East and Central Asia.
African negotiators said they were reasonably happy with the G20 deal, which helps many African countries, but further steps will be needed.
Vera Songwe, secretary-general of the UN Economic Commission for Africa, which is helping to co-ordinate the continent’s debt response, said that freezing debt payments until the end of the year was not enough.
“Nobody can pay anything in January; that’s why we’re asking for a two-year across-the-board moratorium,” she said. Without a lengthier standstill, Ms Songwe added, “this crisis will throw everybody off a cliff. What you will have is a totally disorganised default”.
Donald Kaberuka, an African Union special envoy on debt, said that after bilateral and multilateral talks it would be important to discuss the $115bn of debt owed by African countries to private creditors. Any standstill on payments would have to stop short of a default, which could lock African governments out of the markets for years, he said.
Even expanding this week’s G20 deal to cover repayments to private investors would be “woefully and shockingly inadequate”, according to Stephanie Blankenburg, head of debt and development finance at Unctad, the UN’s trade and development agency.
It would fail to address anything but the immediate problem, as the debts would still have to be repaid, she said: “The breathing space [of the G20 deal] is welcome but it is a tiny step towards what will have to be very comprehensive sovereign debt cancellation and restructuring for the developing world. Developing countries need outright debt relief and cash injections.”
Unctad has called for $2.5tn in assistance for developing countries, including $1tn in debt cancellation and $500bn for health and social services in the form of grants from rich countries.
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Kristalina Georgieva, IMF managing director, said last month that $2.5tn was a “very conservative, low-end estimate” of the financing needs of the world’s 165 low-income and emerging economies.
Many economists say a cash injection will be essential to avoid a deeper crisis once the immediate shock of coronavirus has passed.
Sonja Gibbs, director for global initiatives at the Institute of International Finance, an industry body, pointed to the rapid accumulation of debt in the 30 biggest emerging markets over the decade since the global financial crisis of 2008-09. During the current crisis, many countries have had their credit ratings downgraded, raising their borrowing costs when they can least afford it.
“Debt levels were at record highs already,” she said. “But now you have the hit from the Covid-19 crisis to their credit spreads and to their ability to service their debts, and on top of that you have dollar appreciation [making it more expensive to service external debts], so it’s really a triple whammy.”
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Without co-ordinated action to relieve debt distress and tackle the “really dire consequences” of rising inequality, she warned, the risk was of a recurrence of the pandemic.
“Covid-19 is hitting the most vulnerable the hardest and it really is a wake-up call,” she said. “Purely in terms of self-interest, if we don’t act to address the problem — and high debt levels are one facet of global inequality — it will come back to haunt us.”
But Tidjane Thiam, former chief executive of Credit Suisse and also an AU special envoy, said he was hopeful that more could be done. A few weeks ago the idea of a debt standstill had been “complete anathema . . . [but] now it’s happening. There was no veto from China or anyone else”, he said.
Debt negotiations are a process which take some time, he added: “There will be many rounds of announcements and decisions. There’s a strategic objective to get countries in financial shape, but there’s a lot of tactics involved.”
Source: Economy - ft.com
