The View | Bankers make little progress on global debt crisis as currency risks loom
- The World Bank and IMF have taken baby steps, including setting up a sovereign debt roundtable, but the plodding approach is likely to be overtaken by emergency action
- This is especially as currency risks have yet to be addressed in debt restructuring plans
The numerous reports, agreements and comments sounded alarms for urgent action to ease the dire struggles of low-income countries, but were short on breakthroughs. Support was mustered for interest rate increases while euphemisms were reiterated that made palatable the painful government actions once ominously called – but now taboo – austerity measures.
On the plus side, an agreement is reportedly near for China to abandon its long-standing demand that multilateral development banks take the same losses on their sovereign loans as other creditors. In exchange, the World Bank and International Monetary Fund would commit to low-cost financing, including grants, for countries restructuring their debts.
The World Bank and IMF, backed by the United States and others, viewed such “haircut” losses on their loans – already provided on more favourable terms than those of private banks – as bailouts to creditors.
With that logjam cleared, immediate rescues are more likely. Last week, about 30 private creditors sent Sri Lanka’s government a proposal to restructure its debt after Japan, India and France announced a similar initiative. But whether Sri Lanka’s largest bilateral creditor, China, would join such talks was up in the air. Zambia could see a rescue soon, too.
In another move forward, the Global Sovereign Debt Roundtable held its first meeting. Participants agreed to increase information-sharing on macroeconomic projections and debt sustainability assessments. They also endorsed a case-by-case approach for restructuring sovereign debts.
