The Group of Seven (G7) finance ministers on Friday backed the extension of the Group of 20 (G20) debt moratorium and recognized the need for broad debt relief in the future, while pointing the finger at G20 member China for a lack of transparency in its loans. According to U.N. finance expert Eric LeCompte, “China is under increasing pressure,” said U.N. finance expert Eric LeCompte, “They’re being very specific, and all Chinese government entities should stop accepting debt repayments from poor countries. .”
According to Reuters, G7 finance ministers backed the extension of the debt moratorium for the poorest countries and urged China to increase its participation.
The G20 debt moratorium initiative (DSSI), approved in April of this year, is designed to help developing countries deal with the impact of the coronavirus pandemic. To date, the initiative has helped 43 countries delay $5 billion in official debt repayments.
However, G7 finance ministers said in a joint statement that they “deeply regret” that some countries do not fully participate in the DSSI by classifying state-owned institutions as commercial banks. Although China was not specifically mentioned in the statement, G7 officials said the message was clearly directed at Beijing. In its dealings with countries seeking debt relief, Beijing does not include loans from the state-owned China Development Bank (CDB) and other government-controlled entities in its official debt totals.
Japan’s Finance Minister Taro Aso told reporters after a G7 conference call that “China’s participation in the DSSI is totally inadequate,” and that “I told the G7 that we must put further pressure on China and that the DSSI needs to expire after the deadline at the end of this year”. With further extensions, we must ensure that all creditors share the burden fairly.”
Restrictions put in place to combat the coronavirus pandemic that has infected nearly 32 million people worldwide have hit poor countries particularly hard, threatening to push more than 100 million people into extreme poverty. The pandemic would force many countries that were already heavily indebted before the crisis to restructure their loans or face default, and G7 finance ministers acknowledged that some countries would need further debt relief beyond the current suspension of official bilateral debt repayments and urged major G20 economies and Paris Club creditors to agree on common terms to restructure those debts before the G20 finance ministers meet on Oct. 14.
Friday’s announcement reflects a growing recognition that the plan is falling short of its goals, Reuters said. The plan saves developing countries far less than the $12 billion originally projected, and about 30 eligible countries have chosen not to ask for an extension for fear of jeopardizing their future borrowing capacity.
According to G7 finance ministers, the initiative should be extended “with a request for International Monetary Fund (IMF) financing,” and called for a new list of terms and a memorandum of understanding to improve implementation of the initiative. They said the effort should focus on key issues such as debt treatment beyond debt standstills and “equitable burden sharing among all creditors. In addition, the ministers said that all claims classified as “commercial” under the DSSI will be treated in the same way in future debt treatment and in the implementation of IMF policy. This policy will allow more Chinese loans to participate in future debt restructurings.
The ministers reiterated their call for private lenders to participate in the program when requested, noting that their lack of participation in the process may limit the potential benefits to some countries. The G7 finance ministers’ support for the DSSI extension would pave the way for the larger G20 to take a decision on the matter, which could be formalized at the G20 leaders’ summit in November.
According to Reuters, World Bank President Malpass wrote on Twitter that he welcomed the G7’s call for an extension of the DSSI, greater debt transparency, and debt relief action beyond a debt moratorium, and urged swift action to help poor countries.
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