At the April 10-16 IMF/World Bank annual “Spring Meetings” in Washington, China continued to stick to its position that any debt forgiveness to developing countries should be shared among all lenders. The issue continues to enrage Western authorities, who demand that China forgive the bulk of developing country debt, and soon.
This issue has been simmering for some time now as debt held by the developing world has been growing, but has now reached a crisis point in the wake of COVID, the sanctions against Russian food, oil, and fertilizer, the dollar’s fluctuating value, and rising interest rates. The most pressing cases include Zambia, Ghana, Sri Lanka, and Ethiopia, but IMF Managing Director Kristalina Georgieva has said that 15% of low-income countries are in debt distress, and dozens of others are on the verge of it as well.
The IMF’s problem is that China is not going along with what Reuters calls the “traditional rules of engagement” and is demanding that the IMF and private Western creditors share in the debt writeoffs. China’s share of the debt from developing countries has grown in recent years, but is still only a very small portion compared to Western financial institutions. For this reason, China has insisted that “fair burden sharing [is] required to solve sovereign debt issues"—which means that multilateral institutions like the IMF and private creditors “should participate in a comparable manner,” according to a People’s Bank of China (PBOC) statement. PBOC Governor Yi Gang made that point at the IMF/World Bank meeting he attended last week. (https://www.imf.org/-/media/AMSM/Files/SM2023/IMFC/peoples-republic-of-china.ashx )
Western leaders refuse it, in part because the entire trans-Atlantic financial system depends on financially looting the developing sector, and they expect China to take the haircut, so that Western debt can be paid in full (as was covered in the February 4, 2023 Morning Briefing). Without these payments, a possible “debt bomb” scenario may emerge, given the fragility of the financial system, and the magnitude of claimed debt that is nearing default. However, it is also the case that the so-called “rules” of the postwar world are that the IMF doesn’t accept writedowns, but only new loans to roll over old debt, and China’s posing of such an obvious solution is unacceptable.
