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Will the G20 step up debt relief for the poorest countries? | Business and Economy

The G20 is set to discuss going beyond the initial debt relief efforts agreed to in April as the pandemic continues to ravage poor economies.

The Group of 20 major economies this weekend may have to consider expanding aid to the world’s poorest countries, three months after agreeing to provide temporary debt relief amid the coronavirus pandemic continues to ravage the nations.

G-20 central bankers and finance ministers will hold a virtual meeting on Saturday to discuss and coordinate phased efforts to spur a global economic recovery. Looking beyond debt relief efforts would be part of it.

The Covid-19 pandemic is now spreading faster in the Americas and Africa compared to the previous meeting in April, when the bulk of infections were in Asia and Europe. The rate of infections is rising in many countries, with the cost of debt outweighing health and social spending.

Unprecedented stimulus measures from the world’s largest central banks have helped most emerging markets regain access to international capital markets, but some smaller economies that typically do not benefit from large-scale borrowing will still need help.

“The focus on debt is important, but we shouldn’t focus on it to the exclusion of everything else,” said Anna Gelpern, professor of law at Georgetown University, at a conference July 9. “The goal must be essential funding. needs in response to a public health shock. How to get there is a second-rate question.

Since the April G-20 agreement that aims to waive around $ 12 billion in bilateral debt payments from countries particularly vulnerable to the pandemic, 41 of 73 eligible countries have asked for help. The Paris Club waived $ 1.3 billion in repayments and the International Monetary Fund made $ 100 billion in emergency funding available for low-income and emerging countries.

Middle income countries

However, charities, including Oxfam, have said that the aid given to the world’s poorest countries so far is “woefully insufficient”. Saturday’s talks could focus on extending the debt break beyond 2020 and adding middle-income countries, said Eric LeCompte of Jubilee USA Network, a non-profit group that advocates for the debt relief for small economies.

France’s main priorities for the meeting will be to extend the moratorium on the debt service of the poorest countries until 2021 and to encourage international negotiations for digital and minimum taxation, the finance minister said. Bruno Le Maire. Discussion of a new allocation of special drawing rights to the IMF will likely remain on the table, according to a finance ministry official.

A proposal to increase these reserve assets, which would increase the IMF’s lending power, was blocked by the United States at the lender’s meeting in April. However, the governor of China’s central bank on Thursday called on the IMF to use a new issuance of SDRs to help developing countries.

In a letter to G-20 finance ministers released on Friday, a group of economists including former US Treasury Secretary Larry Summers and Vera Songwe, executive secretary of the United Nations Economic Commission for Africa, urged the meeting to extend the debt moratorium and consider new SDR allocations. Summers is a Bloomberg News contributor.

“It will take more than a six-month suspension of debt service on existing bilateral debts to help the poorest countries finance the necessary fiscal and health response,” said Brad Setser, senior researcher at the Council on Foreign Relations and former economist in the US Treasury Department. “We also need more financial flows. “

Private creditors have so far backed away from efforts to stop payments on Eurobonds as countries feared triggering default clauses.

Another sticking point is China, which has been slow to join the debt suspension initiative. The participation of the world’s second largest economy is essential for the debt cancellation campaign to work, World Bank President David Malpass said last week.

“The persistent lack of clarity on which Chinese creditors will participate, coupled with the resistance of private sector creditors to voluntary participation suggest that the actual relief will be far less than originally expected,” Alicia Garcia Herrero, Chief Economist for Asia-Pacific at Natixis SA, says in a note.


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