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U.S. Treasury official criticizes China’s ‘unconventional’ debt practices - Financial Markets Worldwide

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Economy 2 hours ago (Sep 20, 2022 01: 01PM ET)

U.S. Treasury official criticizes China's 'unconventional' debt practices Reuters. FILE PHOTO: Chinese yuan banknotes have emerged in this illustration picture taken April 25, 2022. REUTERS/Florence Lo/Illustration

By Andrea Shalal

WASHINGTON (Reuters) -A top adviser to U.S. Treasury Secretary Janet Yellen warned on Tuesday that China’s foot-dragging on credit card debt relief could burden a large number of low- and middle-income countries with years of debt servicing problems, lower growth and underinvestment.

Yellen’s counselor Neiman criticized China’s “unconventional” debt practices and its own failure to go forward with credit card debt relief at a meeting at the Peterson Institute for International Economics.

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

A lot of those countries are facing debt distress after borrowing heavily to combat COVID-19 and its own economic fallout. Now Russia’s war in Ukraine has caused food and energy prices to soar, while rising interest levels in advanced economies have triggered the largest net capital outflows from emerging markets because the global financial meltdown, Neiman said.

He said a systemic debt crisis hadn’t materialized, but economic stresses and domestic vulnerabilities were increasing and may grow worse.

China had a distinctive responsibility on debt issues because it may be the worlds largest bilateral creditor, with claims surpassing those of the planet Bank, International Monetary Fund and all Paris Club official creditors combined, Neiman said.

Neiman’s critique of China’s debt practices marks the most recent salvo by Western officials and the leaders of the planet Bank and International Monetary Fund, who’ve grown weary of delays and broken promises by China and private lenders.

As much as 44 countries each owed debt equal to a lot more than 10% of these gross domestic product to Chinese lenders, but Beijing has consistently didn’t jot down debts when countries needed help, Neiman said.

Instead, China has opted to lengthen maturities or grace periods, and perhaps, such as for example that of Congo in 2018, even finished up increasing the web value of its loans.

Neiman said China’s insufficient transparency and its own frequent usage of nondisclosure agreements complicated coordinated debt restructuring efforts, and meant liabilities to China were “systematically excluded” from multilateral surveillance.

Beijing registered to the normal Framework for debt treatments agreed by the Band of 20 major economies and the Paris Club in late 2020, nonetheless it had delayed formation of creditor committees for Chad and Ethiopia, two of the three countries that had sought help beneath the framework.

In July, it said it along with other official creditors would provide debt treatments for the 3rd, Zambia, however the delays had prolonged uncertainty, and may discourage other countries from requesting help, Neiman said.

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

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

Neiman warned that IMF financing shouldn’t be utilized by countries to settle select creditors, and needed more transparent reporting and tracking of financing assurances.

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

He cited China’s past actions on Ecuador’s debt in 2020 and its own refusal to restructure its debt service for Argentina, despite the fact that Paris Club creditors were more likely to achieve this.

“In lots of of the cases, China isn’t the only real creditor holding back quick and effective implementation of the normal (debt restructuring) playbook. But over the international lending landscape, Chinas insufficient participation in coordinated credit card debt relief is the most typical and probably the most consequential.”

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