Despite the huge debt everywhere, the IMF is struggling to be supportive

IN the one-hullor On the surrounding streets Of the IMF Headquartered in Washington, DC DC, You can hardly find a soul nowadays. Atma-Sandhani is also keeping the officials busy inside the building. With government debt ballooning everywhere, many are crossing the globe, talking to countries that can still borrow and indulge lenders to provide relief to those who can’t. But the world’s last recourse lender is hampered by conflicts among its members – just as rising interest rates could be a major blow to defaulters.

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The two-year epidemic and the on-off lockdown have turbocharged global debt, both public and private. In 2020 alone, it rose 28 percentage points to 256% GDP-The largest debt increase in a year since World War II. In recent months, central banks have raised interest rates in the face of inflation, increased demand for funds, increased the cost of providing services. Pain is currently manageable in most large emerging markets. Rising inflation and currency depreciation have not yet pushed Brazil or India into crisis.

Instead, a quiet crisis is being created in small countries devoid of hard currency. Sri Lanka, Tunisia, Lebanon and Ghana are all candidates for the loan program IMF. On February 23, the fund said it would begin talks with Ukraine on a possible অংশ 700 million loan portion. Of the world’s 60-odd poorest countries, more than half carry a debt burden that may require restructuring. This could be an understatement: a recent World Bank report found that 40% of low-income countries have not disclosed any information about their sovereign debt since 2020.

The IMF There is enough firepower to help solvent countries. Its resources were increased after the global financial crisis, which increased its lending capacity from 400 400 billion in 2010 to $ 1 trillion today. Since the onset of the epidemic, it has responded creatively to the inconvenience of its members. When markets melt in early 2020, it launches a short-term liquidity facility that allows countries facing cash crunch to borrow cheaply. It has lent $ 170 billion through a fast credit facility like its standard loan program, but fewer strings attached.

Last August, it granted new special drawing rights worth 50 650 billion (SDRs), a semi-currency used to increase the country’s foreign exchange reserves, to all its members. Because SDRThe allocation is based on what each member contributes to the fund, with most of the issue going to affluent countries. Only ২১ 21 billion was allocated for those who really needed it. However, the fund is working to create a trust through which some people SDRAllocations for rich members may be available for long-term loans to the poor. Although Yes20 promised last year to raise $ 100bn for the trust, so far only $ 60bn has been pledged.

As the market dries up, such programs have helped tide in many solvent countries. But lending, no matter how easy or cheap, rarely helps countries that are almost bankrupt. At least a dozen countries today owe more than they hoped to repay. Against the backdrop of a fragile outlook for growth — covered by tight monetary policy, a weak Chinese economy and geopolitical tensions — more could join their ranks. Without debt relief, many will only use IMF Loans to repay other creditors by keeping funds with a growing share of tabs.

In the past IMF He used his convening power to force rich members to forfeit some of their debts. In 2020, its efforts resulted in the Debt Service Suspension Initiative, which made 73 low-income countries eligible for temporary suspensions for debt repayment. By the end of the program in December last year, about 50 countries had chosen to use it, with some 10 10 billion free to use to meet urgent needs. Separately, r IMF It has also suspended some of its debt repayments in 29 extremely poor countries.

But such deferrals do not make the underlying debt burden more sustainable, as defaulted principal and interest payments remain. Thus a new one Yes20 initiatives, referred to as “general frameworks”, were launched in November 2020 Its complete failure to achieve traction এখন so far only three countries have sought relief under its auspices, and no one has completed the process-illustrates the new political course. IMF Finds himself

The purpose of the framework was to provide a comprehensive set of policies that could be applied to individual countries in need of debt relief. More importantly, it was intended to extend beyond the “Paris Club” to lenders – rich-world governments that have long collaborated on sovereign bankruptcy – to include private lenders and countries such as China, India and Saudi Arabia. They, however, refused to play ball. This is a big problem. Where members of the Paris Club still lend a lion’s share to poor governments a decade ago, China is increasingly bankrolling them: its published debt (which probably reduces the actual total) to about half of what it owes to other governments.

This type of debt restructuring is extremely difficult. Opinions differ in China on how much debt relief should be provided to over-indebted borrowers. Many Chinese companies are involved in foreign loans, not all of which are interested in helping. And many poor countries are reluctant to seek relief from China, lest they disassociate themselves from future access to Chinese funding or otherwise oppose the Chinese government.

Yet without participation from other lenders, IMF One hurdle is: under pressure from rich-world politicians to do more to help struggling economies, yet often unable to provide programs that lead countries to stable money. Some critics suspect that the fund, thus suppressed, has at times been overly optimistic about the potential of countries to justify its debt. Kenneth Rogoff, a former chief economist, in January IMF, Wrote that the approval of the fund took the risk of transforming the organization into an aid organization. In a recent, interim agreement IMF And Argentina, for refinancing কাছে 45 billion in arrears to the fund, has been widely criticized for its ambiguity in the path it has taken to repay the debt.

There is a lack of good funding options. Failure to reach an agreement with Argentina could be a financial catastrophe for that country and it could lose IMF Billion’s leaders may be more vocal in urging China to be more humble. But the West’s reluctance has led to a 6 percent increase in the country’s vote IMF, Matched by its new economic power, has made China less willing to listen. And the window to China’s deeper entry into the tent is probably closed, as its relations with the West have deteriorated a lot.

In the 1990s IMF And the World Bank, capitalizing on a moment of international camaraderie, has marshalled the initiative of the heavily indebted poor countries, which has forgiven the debts of 37 economies – most of the financing came from the creditors. The amount needed today is not too much, but the world’s major powers find it more difficult to agree on anything. 18th February a YesThe 20th meeting ended with no firm commitment to extend debt relief. Ill bodes for that IMF. Without global cooperation, it is rapidly becoming a shadow of its former soul – just like the terribly quiet district where its offices stand. 3

This article is published in the Finance and Economics section of the print edition under the title “Lost and Funded”

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