The International Monetary Fund chief stated that China has changed its mind about participating in the debt restructuring process after seeing countries who are unable to pay their debts. This is a sign of hope for nations struggling with debt.
Kristalina Gheorgieva, head of the Milken Institute Global Conference, Beverly Hills, California, said that China, now the largest lender to developing countries, has joined the traditional western creditors in the Paris Club to recognize the need for a better mechanism to overhaul debt.
Georgieva stated that one of the greatest challenges facing the country is to understand the scope of their own lending. This is due to the lack of coordination in the past between different government agencies. She said that while China has long refused to provide relief citing the fact that it is a developing nation, this attitude is changing.
“Why? “For a very straightforward reason,” said the IMF head. Because they are being burned. “Nothing makes you want to learn more about debt restructuring like when a nation says, ‘I’m sorry, I can’t pay you back. ‘”
My view is that they have to be dragged — perhaps that’s not the best word to use — we must walk together. We must act now, or there will be disaster for many countries.
Over 70 nations with low incomes face a combined debt burden of $326 billion, and more than half are already in debt distress or close to it, including Zambia. In many cases China is the biggest creditor. This includes Zambia, where 75% of debts that need to be restructured are owed to Zambia, Georgieva stated.
Disagreements between the Paris Club, a group of wealthy Western nations, and China, whose new members are mainly emerging economies, have hampered efforts to restructure these debts and save those economies from crisis.
The failure to cooperate among creditors was the key theme of last month’s IMF and World Bank Spring Meetings. This included the Global Sovereign Debt Roundtable which had a broad mandate to find a solution for debt treatment between all creditors.
Georgieva stated that China had participated in the discussions “quite constructively”. She also said the country has offered to host a few technical meetings for the roundtable.
IMF chief Christine Lagarde said that her March visit to China, and her meetings with Premier Li Qiang as well as vice ministers, showed that China is willing to work with both the Group of Seven and the IMF. She said that the review of the IMF’s members’ quotas or weighting countries is crucial to addressing the increasing importance of emerging markets such as China.
She said, “If we don’t address this issue, IMF’s strength as a place of meeting will be compromised.” The 15th Review concluded in 2020 without any increase in quotas. The 16th review is underway and should be finished by mid-December.
China, at the last meeting, softened her insistence that multilateral creditors like the World Bank share losses or haircuts on their debt with all other creditors. The World Bank appeared to have made a concession to increase ultra-low-interest loans and grants for countries in debt distress.