Rich countries move towards viral debt relief for poor countries

G7 countries support a temporary halt in debt payments to the world’s poorest countries, but only if G20 governments also agree

PARIS, France – Rich countries appeared on Tuesday April 14 to be heading towards a temporary debt relief deal to help poor countries overcome Coronavirus pandemic.

Finance ministers and central bankers from G7 countries said on Tuesday they were in favor of a temporary halt in debt payments of the world’s poorest countries, but only if the G20 governments also agree.

Noting that poor countries face the greatest difficulties in dealing with the coronavirus pandemic, the Group of Seven advanced countries said it was “ready to grant a time-limited suspension of debt service payments” owed to their governments “if it is joined by all official bilateral G20 creditors agreements and as agreed with the Paris Club.

French Finance Minister Bruno Le Maire announced earlier that the G20 countries and the Paris Club of creditors of rich nations had agreed to a one-year moratorium on the payment of debt of poor nations.

He said the G20 and Paris Club countries, which includes all members of the Group of Seven, had agreed on the moratorium for 76 countries including 40 in Sub-Saharan Africa.

The Mayor said the deal has so far included the deferral of $ 20 billion in payments to bilateral and private creditors.

An additional $ 20 billion in payments to multilateral institutions, primarily the World Bank, are still awaiting a decision.

the International Monetary Fund (IMF), the other major multilateral creditor, announced debt relief for 25 poor countries for 6 months on Monday April 13.

The G20 includes major emerging market economies like China, which said Tuesday that Le Maire had supported the debt relief initiative. (READ: Kyrgyzstan asks China for debt relief amid pandemic)

G20 finance ministers will hold a conference call on Wednesday April 15.

Relief or forgiveness?

Many poor and developing countries have taken advantage of relatively low interest rates to borrow abroad. Now the need to make payments is stifle funding for their efforts to control the pandemic and revive their economies. (READ: Coronavirus pandemic poses perfect storm scenario for Argentina’s debt)

Calls for debt cancellation have multiplied, especially from Pope Francis and French President Emmanuel Macron, as poor countries must increase their health spending to cope with the pandemic.

“May all nations be enabled to meet the greatest needs of the moment by reducing, if not canceling, the debt weighing on the balance sheets of the poorest nations,” the Pope said in his Easter message.

In a national televised address on Monday, Frenchman Macron also called for the cancellation of debts.

The Mayor acknowledged that a moratorium did not achieve this goal, but said it represents a “major step” to help countries respond to the coronavirus crisis.

“If for some of the poorest countries on the planet, it appears that the debt is not sustainable … this could lead us to cancel debts,” said Le Maire.

He said debt cancellation would be done on a case-by-case basis and multilaterally by creditors.

Containment threatens to provoke upheaval in international trade, with fears that some countries will impose significant restrictions on the export of foodstuffs, causing soaring prices and shortages for importing countries.

“We have seen a risk of food shortages developing for these countries which could lead directly to a human catastrophe,” said Le Maire.

While there is broad agreement on temporary debt relief, there is still no agreement on giving the IMF more firepower to help countries in financial difficulty.

The Mayor said that the United States has so far been opposed to increasing the funds the IMF can deploy by 500 billion euros ($ 550 billion). – Rappler.com

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