A looming debt crisis in the Global South
Over half of all developing countries in the world are either currently in, or headed toward debt distress. In this commentary, Martin Guzman, former Minister of the Economy of Argentina and co-president of Columbia University’s Initiative for Policy Dialogue, discusses how these countries reached this situation. He argues that two factors contributed to this situation:
- The “search for yield” has enabled a significant number of countries to access, for the first time, international credit markets, but at rates that acknowledged risks. This was the case in African nations that were borrowing at 8-10% interest rates when the treasury bonds from advanced economies were yielding rates close to zero — and in some cases even negative.
- COVID-19 led to increases in global debt as countries saw their tax revenues drop and a need for increased spending. For several countries in the Global South, this situation created immediate debt distress.
How is the current situation different from the debt problems of the 1980s?
The last decade and a half has featured a significant increase in the incidence of new official bilateral creditors, referred to as the ‘non-Paris club creditors’ as opposed to the established group of major creditor countries which have coordinated their dealings with debtor countries for nearly 70 years, meeting regularly in Paris. This new group has China as the major player but also includes other emerging official creditors such as India, South Africa, and Saudi Arabia.
Another Debt Crisis in the Global South? Economist Reveals the Key to Understanding It
By: Lynn Parramore – INET
Why is the IMF delaying help to developing countries?
As a debt crisis looms in the Global South, the IMF has been very slow to provide them with help. But it’s not The IMF’s fault argues Anne Kruger in this commentary. The Fund’s charter stipulates that it can lend only when there are assurances that sustainable economic activity will be restored. If a country’s debt burden is too high, all its creditors must agree to a haircut because otherwise, any new loans it receives will go toward servicing its debts to the holdouts. This process has come to a standstill because China which has become a major creditor has refused to write down the value of its loans:
The current delays are the result of China’s refusal to take the same haircut as other creditors. Chinese bilateral lending has grown rapidly over the past decade and now accounts for almost half of all government credits to poor countries. Generally, when a debtor country cannot repay China, the latter will extend a new loan to finance the debt-servicing obligations, thus increasing the amount the debtor owes.
Breaking the Debt-Relief Paralysis
By: Anne O. Krueger – Johns Hopkins University School of Advanced International Studies
