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

Chinese yuan banknotes are seen in this illustration photo taken 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 fire from critics
  • Progress demanded on Common Framework debt agreements for Zambia and others

WASHINGTON, Sept 20 (Reuters) – A top adviser to U.S. Treasury Secretary Janet Yellen warned on Tuesday that China’s slowdown in debt relief could weigh on dozens of low-income countries and intermediate with years of debt service problems, weaker growth and underinvestment.

Yellen adviser Brent Neiman criticized China’s “unconventional” debt practices and failure to move forward with debt relief during an event at the Peterson Institute for International Economics.

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

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Many of these countries are facing debt distress after borrowing heavily to combat COVID-19 and its economic fallout. Today, Russia’s war in Ukraine has caused food and energy prices to soar, while rising interest rates in advanced economies have triggered the largest net capital outflows from markets. emerging markets since the global financial crisis, Neiman said.

He said a systemic debt crisis had not materialized, but economic tensions and national vulnerabilities were growing and could worsen.

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

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

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

Instead, China chose to lengthen maturities or grace periods, and in some cases, like Congo’s in 2018, even ended up increasing the net worth of its loans.

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

Beijing signed the Common Framework for Debt Treatment agreed by the Group of 20 major economies and the Paris Club at the end of 2020, but it delayed the formation of creditors’ committees for Chad and Ethiopia, two of the three countries who had requested assistance under the framework.

In July, he said he and other official creditors would provide debt treatment for the third, Zambia, but delays have prolonged uncertainty and could discourage other countries from asking for help. Neiman said.

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

All three cases should be resolved quickly, he said, adding that some middle-income countries like Sri Lanka also needed urgent debt restructuring.

Neiman warned that IMF financing should not be used by countries to repay certain creditors, and called for more transparent reporting and tracking of financing assurances.

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

He cited China’s past actions on Ecuador’s debt in 2020 and its refusal to restructure its debt servicing of Argentina, even though Paris Club creditors were likely to do so.

“In many of these cases, China is not the only creditor impeding the rapid and effective implementation of the typical playbook (debt restructuring). But in the international lending landscape, the lack of participation from China to coordinated debt relief is the most common and the most consequential.”

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Reporting by Andrea Shalal; Editing by Ana Nicolaci da Costa

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