It seems clear that this is not just a low-income or an African country problem. There are several calls for debt standstills here , here and here to ease the burden on developing countries. Debt threatens to create a global development emergency in much the same way as the pandemic is creating a global health emergency. Both could result in social unrest and instability.
Something will have to be done, so it is useful to recap the lessons from previous debt crises. Timeliness and urgency are important. Many developing countries simply will not have the foreign exchange to service their debt this year, notably those who are heavily indebted , are commodity dependent two-thirds of all developing countries according to UNCTAD , have relied on large tourism receipts , or on remittances.
A good example of the value of buying time is the negotiated rollover of private bank credits to Korea in , aided by regulators who agreed not to call the measures a technical default. In the current context, timeliness means that case-by-case solutions may not be feasible. Like COVID, there is a need to flatten the curve of debt reschedulings so that the peak falls within the capacity of the system to handle them.
All creditors must participate. In the early days of the mids debt crisis, the Baker plan sought voluntary extensions of new credits by banks to highly indebted countries, to permit them to grow out of their crisis. In the event, banks provided one-third less money than anticipated and the plan largely failed to meet its objectives because a group of midsized banks had incentives to free ride and exit.
Commercial banks similarly exited ruble bond markets when a large IMF package to help Russia deal with its debt crisis did not address private debt and capital flight. Currently, there are two groups of potential free-rider creditors who are quantitatively important but who do not participate in any formal debt restructuring processes like the Paris or London clubs: private holders of bonds without collective action clauses, and official lenders from China and other non-OECD countries.
However, for both political and financial reasons, it would be hard to have an effective response today without including these two groups of creditors. Market-based solutions can work but require a degree of coordination and comprehensiveness. In the s debt crisis, the Brady Plan gave banks an option to exit by taking a haircut in exchange for credit enhancements on loans restructured into bonds.
Since then, many developing countries have tapped bond markets, often using collective action clauses that facilitate restructurings should those become necessary. In the current context, a useful precedent may be U. Security Council resolution , granting a debt-shield mechanism to prevent commercial creditors from suing the government of Iraq to collect on sovereign debt. The U. China currently spends at least twice as much on international development finance as the U.
However, this is often in the form of debt rather than aid, and this imbalance has accelerated in recent years. Since the introduction of the Belt and Road, China has issued 31 loans for every 1 grant, the report found.
The deals' financing arrangements remain somewhat opaque , with a lack of detailed information causing investor reticence in recent years in some lower- and middle-income countries, such as Zambia. China has long denied pushing developing nations into so-called debt traps, which could pave the way for Beijing to seize assets as collateral for unpaid debt obligations.
The pandemic ushered in a second phase because, while no part of the world was left untouched by covid, poor countries were hit harder than developed nations.
Many poor countries have borrowed in US dollars, and the cost of servicing these loans— already high— will increase still further as the Fed tightens policy. That will be the point of maximum danger. We need new systems to push that along, because so many countries are in external debt distress or at high risk of it. We need a comprehensive approach, including debt reduction, swifter restructuring, and more transparency in order to make progress on this problem.
Lending from private creditors was the fastest-growing component of the external debt of DSSI-eligible borrowers, up fivefold since The G20 urgently need to compel private creditors to take part in debt restructuring. For dealing with the source of the debt crisis coming from the private sector, it is indeed important to put in place a sovereign debt restructuring mechanism SDRM. In those circumstances, individual creditors would be unable to hold out for a better deal.
Policymakers need to prepare for the possibility of debt distress when financial market conditions turn less benign, particularly in emerging market and developing economies. Save my name, email, and website in this browser for the next time I comment. Sign in.
Log into your account. Sign up. Password recovery. Pakistan Today. History of Western philosophy. LGs and the promotion of democracy. The greatest leader of all times. Overcharging of fares in the public transport. Intizar murder case: ATC gives death sentence to 2 cops for…. TikTok ban violation of constitutional rights: IHC.
Hong Kong to further tighten Covid travel restrictions.
0コメント