Focus: Emerging market debt relief negotiations, creditor China not cooperating | Reuters

Facebook
Twitter
LinkedIn
Pinterest
Pocket
WhatsApp

[London, 4th Reuters]–From a $ 360 million project to expand the international airport in Lusaka, the capital of Zambia, to a $ 1.4 billion port development project in Colombo, the capital of Sri Lanka, underway in developing countries. In many debt relief talks, China is completely missing.

From a $ 360 million project to expand the international airport in Lusaka, the capital of Zambia, to a $ 1.4 billion port development project in Colombo, the capital of Sri Lanka, on July 4, is underway in developing countries. In many debt relief talks, China is completely missing. The photo is the Chinese flag displayed in front of the Ministry of Foreign Affairs of China. Taken in February (2022 Reuters / Carlos Garcia Rawlins)

China has become an overwhelming creditor with loans to relatively small, high-risk developing countries. But China remains unobtrusive not only in terms of lending, but also in how to renegotiate with debtors who are stuck in repayment.

This attitude became even clearer after the pandemic of the new coronavirus. Many economically deprived countries are now seeking debt relief.

There is increasing pressure on China to play a more active role in helping reduce its debt burden. A statement from the G7 Summit, released on June 28, named China in encouraging support from creditors.

According to the World Bank, poor countries are facing debt repayments totaling $ 35 billion to public and private sector creditors this year, with more than 40% of the total repayment to China.

But experts say the fair share of debt mitigation burdens assumed by the International Monetary Fund (IMF) and the World Bank could lead to a clash with China, raising doubts about the prospect of a comprehensive debt restructuring. It is said that it will occur.

“China’s Belt and Road initiative is everywhere, so every sovereign debt restructuring will raise this issue,” said Dennis Haranitzky, head of sovereign proceedings at law firm Quinn Emmanuel. Said.

Reuters requested comments from the Chinese Ministry of Foreign Affairs and the People’s Bank of China (Central Bank), but did not respond.

The Zambia and Sri Lanka deals are a touchstone for assessing the speed at which debt talks are progressing. The two countries need to agree on debt restructuring with foreign bondholders and put together an IMF program.

“China’s involvement in debt talks is not a problem for the IMF or governments,” said Polina Kurdyavko, Head of Emerging Markets at BlueBay Asset Management. “Getting China to the negotiating table at the right time may be the biggest challenge in future debt restructuring,” she said.

<Opaque>

Loans in China are mostly provided by government agencies and policy banks and are often unclear.

According to a report by the National Bureau of Economic Research (NBER), half of the 5,000 loans and grants China made to 152 countries between 1949 and 2017 have not been reported to the IMF or the World Bank. Even though China is a member of both institutions.

“In some of these Chinese loans, opacity has been a recurring issue,” said Matthew Mingay, senior analyst at the Rhodium Group. China added that its commercial lending agreement includes stricter non-disclosure clauses than other countries.

According to data compiled by Aid Data, a US research institute at William and Mary University, over a three-year period, loans made by China’s state-owned banks include provisions that require priority to repay to China.

When Anna Gelpalm, a professor of law at Georgetown University, took the lead in examining 100 loans from China to 24 low- and middle-income countries, the level of confidentiality was unusually strict compared to other loans, and the loan agreement was reached. In some cases, he was asking not to reveal his existence.

In many cases where China has agreed to reduce its debt burden, the details are unclear.

Too many lenders in China also complicates the matter. However, the most involved in lending are the China Export-Import Bank and the China Development Bank.

“In the event of debt restructuring negotiations, Chinese banks may not know how their other banks will respond,” Mingay said.

Zambia became the first country to default in the pandemic phase more than two years ago and is now seeking relief on its $ 17 billion external debt. One of the reasons for the slow progress is China’s lack of experience in troublesome debt restructuring, according to people familiar with the matter.

In the Sri Lanka deal, talks are proceeding faster as the IMF has decided to pursue a new program. But China’s response remains uncertain.

On the other hand, according to the IMF, about 60% of low-income countries have or are at high risk of debt repayment.

At the end of 2020, the 20 countries / regions (G20) started a common framework to put creditors such as China and India in the same negotiating table as the IMF, Paris Club and private creditors. Along with Zambia, Chad and Ethiopia are calling for debt restructuring based on this new mechanism.

But Terimar economist Patrick Karen said the framework “added another bureaucratic layer to the already complex debt restructuring process.” He said this could discourage participation from other countries.

(Jorgelina do Rosario reporter)

Facebook
Twitter
LinkedIn
Pinterest
Pocket
WhatsApp

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Recent News

Editor's Pick