US Treasury official criticizes China’s ‘unconventional’ debt practices

Banknotes of Chinese yuan can be seen in this image, taken on April 25, 2022. REUTERS/Florence Lo/Illustration

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  • China is the world’s largest official creditor
  • Lack of transparency, confidentiality agreements under attack
  • Progress pushed for Common Framework debt deals for Zambia, others

WASHINGTON, Sept. 20 (Reuters) – A top adviser to US Treasury Secretary Janet Yellen warned on Tuesday that China’s protracted debt relief could burden dozens of low- and middle-income countries with years of debt repayment problems, lower growth and underinvestment.

At an event at the Peterson Institute for International Economics, Yellens adviser Brent Neiman criticized China’s “unconventional” debt practices and failure to make progress with debt relief.

“China’s sheer scale as a lender means its participation is essential,” Neiman said in the speech, first reported by Reuters, citing estimates that China has $500 billion to $1 trillion in outstanding official loans, mostly in low-cost loans. and middle-income countries.

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Many of those countries are facing indebtedness after borrowing heavily to combat COVID-19 and its economic impact. Now Russia’s war in Ukraine has sent food and energy prices soaring, while rising interest rates in advanced economies have led to the largest net capital outflow from emerging markets since the global financial crisis, Neiman said.

He said there was no systemic debt crisis, but that economic tensions and domestic vulnerabilities were mounting and could get worse.

China had a unique debt responsibility as it is the world’s largest bilateral creditor, with claims exceeding those of the World Bank, the International Monetary Fund and all the official creditors of the Paris Club combined, Neiman said.

Neiman’s criticism of China’s debt practices marks the latest salvo from Western officials and leaders of the World Bank and International Monetary Fund, who have grown tired of delays and broken promises by China and private lenders. read more

As many as 44 countries each had debt equal to more than 10% of their gross domestic product to Chinese lenders, but Beijing has consistently failed to write off debt when countries needed help, Neiman said.

Instead, China has chosen to extend maturities or grace periods and in some cases, such as Congo’s 2018, even increase the net worth of its loans.

Neiman said China’s lack of transparency and the frequent use of non-disclosure agreements made coordinated debt restructuring efforts difficult, and meant that obligations to China were “systematically excluded” from multilateral surveillance.

Beijing signed the Common Debt Management Framework agreed at the end of 2020 by the Group of 20 Major Economies and the Paris Club, but it had the formation of creditors’ committees for Chad and Ethiopia, two of the three countries that had sought aid under the the framework.

In July, it said it and other official creditors would deal with the third, Zambia, but the delays created prolonged uncertainty and could discourage other countries from asking for help, Neiman said.

He said he hoped Zambia’s creditors could complete a memorandum of understanding by the end of the year.

All three cases need to be resolved quickly, he said, adding that some middle-income countries such as Sri Lanka also urgently needed debt restructuring.

Neiman warned that IMF funding should not be used by countries to repay selected creditors, and called for more transparent reporting and tracking of funding guarantees.

He noted that China had engaged in “unconventional” practices that allowed the IMF to move forward without obtaining standard funding guarantees.

He cited China’s past actions regarding Ecuador’s debt in 2020 and its refusal to restructure its debt service to Argentina, although Paris Club creditors are likely to do so.

“In many of these cases, China is not the only creditor holding back a rapid and effective implementation of the typical (debt restructuring) playbook. But in the international credit landscape, China’s lack of participation in coordinated debt relief is the most common and the most prevalent. consistently.”

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Reporting by Andrea Shalal; Editing by Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

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