May 28, 2023

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Western countries criticize China. The country is accused of influencing the debt restructuring of many countries

Western countries have intensified their criticism of China, the world’s largest bilateral creditor, as the main obstacle to debt restructuring agreements for a growing number of countries, writes Reuters.

US Treasury Secretary Janet Yellen said on Friday that high inflation, tightening monetary policies, currency pressures and capital outflows are increasing the debt burden in many developing countries and that more progress is urgently needed.

She said she discussed these issues during a dinner with African finance ministers and in many other sessions.

The Group of Seven rich nations also met with African finance ministers, who worry that the focus on the war in Ukraine is draining resources and distracting from their pressing concerns.

Everyone agrees that Russia should stop its war against Ukraine, and that would solve the most important problems facing Africa,” Yellen told reporters at the annual meetings of the International Monetary Fund and the World Bank in Washington.

But she said that a more efficient debt restructuring process is also needed, and China has an important role to play.
“Indeed, the barrier to greater progress is an important creditor country, namely China. So there was a lot of discussion about what we can do to bring China to the table and promote a more effective solution,” she said.

With China the missing piece in a number of ongoing debt negotiations in emerging markets, the Group of 20 launched a joint framework in 2020 to bring creditors such as China and India to the negotiating table with the IMF , the Paris Club and private creditors.

Zambia, Chad and Ethiopia have requested restructuring under this new mechanism, which has not yet been tested.

Sri Lanka is to begin talks with bilateral lenders, including China, following a $2.9 billion staff-level agreement with the IMF under a similar platform.
Creditor nations from the Paris Club reached out to China and India last month, trying to coordinate closely on Sri Lanka’s debt negotiations, but are still awaiting a response.

The world’s poorest countries face debt service payments of $35 billion to official and private sector creditors in 2022, with more than 40 percent of the total owed to China, according to the World Bank.

Spanish Finance Minister Nadia Calvino, who chairs the IMF’s steering committee, told Reuters in an interview on Thursday that there was growing concern that China was not fully participating in debt relief efforts, noting that China did not send officials to personally attend this week’s IMF and World Bank meetings.

“China is a necessary partner. It is indispensable to have them in the room and in the discussions when it comes to debt relief,” Calvino said, adding that many heavily indebted countries have also been hit hard by inflation and climate shocks.

German Finance Minister Christian Lindner also joined growing criticism of China’s lack of timely participation in debt restructuring for lower-income countries.

China has argued that it will not take part in some cases unless the IMF and World Bank accept some cuts.

Lindner told reporters that he regrets that China did not accept his invitation to participate in the round table between the G7 and African countries.

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