Finance officials from the Group of 20 major economies agreed on
Wednesday to suspend debt service payments for the world’s poorest countries
through the end of the year, a move quickly matched by a group of hundreds of
private creditors.
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| A street in Goma, DR Congo |
The actions to freeze both principal
repayments and interest payments will free up more than $20 billion for the
countries to spend on improving their health systems and fighting the
coronavirus pandemic, Saudi Finance Minister Mohammed al-Jadaan told reporters
after a virtual meeting of G20 finance officials.
Saudi Arabia is hosting the G20
meetings this year. Wednesday’s video conference meeting of finance ministers
and central bank governors ran well over the scheduled two hours, delaying news
conferences planned by al-Jadaan and International Monetary Fund Managing
Director Kristalina Georgieva.
The meeting came amid widespread
criticism - including from many G20 member countries - of U.S. President Donald
Trump’s decision on Tuesday to temporarily halt funding to the World Health
Organization over its handling of the COVID-19 disease pandemic, which has now
killed 131,000 people.
The debt standstill offer is open to
the world’s poorest and least-developed countries, as defined by the World Bank
and the United Nations, as long as they are current in their debt service
payments to the World Bank and the IMF.
The initiative, backed by the Paris
Club of creditors, is part of globally coordinated efforts to bolster the
global economy which is facing the deepest recession since the Great Depression
of the 1930s due to the pandemic.
German Finance Minister Olaf Scholz
called the move “an act of international solidarity with a historical
dimension,” adding it would let the countries invest in healthcare “immediately
and without time-consuming case-by-case examination”.
Oxfam International said more work
was needed to protect Lebanon, Ecuador and other countries not covered by the
deal, and to raise the estimated $1 trillion needed to help countries weather
the “economic tsunami” unleashed by the pandemic.
The charity group and others have
called for cancellation - not just suspension - of poor countries’ debts in
2020.
A source familiar with the agreement
said it would cover $12 billion to $14 billion in bilateral debt service
payments owed by the 76 International Development Association (IDA) countries,
plus Angola, through the end of the year.
The poorest countries will be hardest
hit by the pandemic because they have weak health systems and have seen a
massive outflow of capital since the crisis began. Many have also been rocked
by a sharp drop in commodity prices.
Georgieva welcomed the G20’s
“exceptionally rapid” decision to move ahead on debt relief. In a new IMF
document, she said debt relief was in the interest of all, “as the global
community is as strong as its weakest member in a global pandemic.”
Private creditors will join the debt
relief effort on a voluntary basis, said the International Institute of
Finance, which represents 450 banks, hedge funds and other global financial
firms.
That is critical since countries had
been reluctant to offer debt relief if countries could use the freed funds to
service private-sector debts.
A French finance ministry official on
Tuesday said private creditors had agreed to roll over or refinance $8 billion
of the debt of the poorest countries, on top of the roughly $12 billion in debt
payments to be suspended by bilateral creditors.
A further $12 billion is owed to
multilateral lenders, mainly the World Bank, French Finance Minister Bruno Le
Maire told reporters, although he provided no details.
World Bank Group President David
Malpass said the Bank, the IMF and other multilateral lenders were exploring
options for suspending their debt service payments while maintaining high
crediting ratings on their bonds.
“This is a powerful, fast-acting initiative
that will do much to safeguard the lives and livelihoods of millions of the
most vulnerable people,” he and Georgieva said in a joint statement.
The debt suspension will last until
the end of the year but creditors will consider a possible extension during
2020, taking into account a report on countries’ liquidity needs by the World
Bank and the IMF, the G20 said.
Eric LeCompte, executive director at
the non-profit Jubilee USA Network, estimated the agreement could ultimately
result in $25 billion of relief for the poorest countries.
Georgieva, in a statement to the G20
leaders, also said the IMF was “urgently” seeking some $18 billion in new
resources for the Fund’s Poverty Reduction and Growth Trust for poor countries
and was exploring the use of special drawing rights to bolster its $1 trillion
in lending capacity. - Reuters
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