G20 finalizes work on a common framework for debt reduction

G20 finalizes work on a common framework for debt reduction

WASHINGTON (Reuters) – Group of 20 finance officials plan to complete work on a common framework to address the debt problems of the world’s poorest countries at their meeting on Friday, with G20 leaders due to give their approval a week later.

FILE PHOTO: A man stands next to a chalkboard with the logo of the G20 Finance Ministers Meeting in Buenos Aires, Argentina, March 19, 2018. REUTERS / Marcos Brindicci

Accepted in principle by G20 officials last month and approved by the Paris Club of official creditors, the framework will essentially extend the rules of the informal creditors group to China, which accounted for 63% of total debt to G20 countries. in 2019, according to World Bank data.

“We plan to move forward with the common framework, and it’s a very important step to have this coordination of creditors at the G-20 level. The idea is that this will be finalized at the time of the leaders’ summit, ”Ceyla Pazarbasioglu, director of the Strategy, Policy and Review Department (SPR) of the International Monetary Fund, told Reuters.

She said the framework was important because it included China and would help ensure comparability of treatments “much more forcefully” than the G20’s freeze on official bilateral finance debt payments that runs until June 2021.

Pazarbasioglu said IMF officials have met with private lenders to explore ways to increase participation in the G20 Debt Service Suspension Initiative (DSSI). “It is possible that the private sector is involved in DSSI, especially for non-bond debt,” she said.

Private creditors are pushing for a case-by-case approach.

“The options that investors face with regard to DSSI cannot be simplified to participate or not in the suspension of debt service,” said Ashok Parameswaran, chairman of the Emerging Markets Investors Alliance representing some 2,000 asset managers in a letter to the IMF last month.

Friday’s special meeting comes amid signs that the pandemic has exacerbated the problems of the poorest countries, 50% of which are now over-indebted or at risk.

World Bank chief economist Carmen Reinhart has warned that debt cuts, not just deferrals, are needed, and that the G20’s failure to move in this direction could result in a “lost decade.” She said China has so far been reluctant to embrace the prospect of debt cancellation.

A source close to the framework negotiations said China has sought to “water down” some of the guidelines adopted by the Paris Club, including definitions of state-owned banks – an attempt to protect the Development Bank of China and China’s EXIM from full exposure to possible restructuring.

The International Chamber of Commerce, the International Trade Union Confederation and Global Citizen, a group that works to end extreme poverty by 2030, have urged G20 officials in an open letter not to exclude or discourage need for debt cancellations and write-offs in some cases. .

The letter, seen by Reuters, said G20 officials should ensure that debtors do not accept less favorable treatment from commercial creditors and that the framework should apply to “all indebted countries in need. debt restructuring, especially small island developing states ”.

IMF Managing Director Kristalina Georgieva stressed the need to help these countries, an initiative supported by Canada, but work on a separate instrument inspired by the IMF’s Poverty Reduction and Growth Trust does not has not found broad support, according to several sources familiar with the effort.

Reporting by Andrea Shalal in Washington, Additional reporting by Karin Strohecker in London, editing by Catherine Evans

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