EXCLUSIVE: US Treasury Official Criticizes China's 'Unconventional' Debt Practices

EXCLUSIVE: US Treasury Official Criticizes China’s ‘Unconventional’ Debt Practices

Chinese yuan banknotes are seen in this illustrative image taken on April 25, 2022. REUTERS/Florence Lo/Illustration

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  • China is the world’s largest official creditor
  • Lack of transparency, confidentiality agreements under fire
  • Progress Urged on Common Framework Debt Agreements for Zambia and Others

WASHINGTON, Sept 20 (Reuters) – A top adviser to U.S. Treasury Secretary Janet Yellen will warn on Tuesday that China’s delay in debt relief could burden dozens of low- and middle-income countries with years of debt service problems, lower growth and underinvestment

Yellen adviser Brent Neiman plans to criticize China’s “unconventional” debt practices and its failure to move forward with debt relief at an event at the Peterson Institute for International Economics, text of his prepared remarks shows. obtained by Reuters.

“China’s enormous scale as a lender means its involvement is essential,” Neiman said in the speech, citing estimates that China has between $500 billion and $1 trillion in official loans outstanding, mostly to low- and middle-income countries.

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Many of those countries are facing debt problems after taking out large loans to combat COVID-19 and its economic fallout. Now, Russia’s war in Ukraine has caused food and energy prices to skyrocket, while rising interest rates in advanced economies have triggered the largest net capital outflows from emerging markets since the crisis. world financial, Neiman said.

He said a systemic debt crisis had not materialized, but economic strains and domestic vulnerabilities were mounting and could worsen.

China bears a unique responsibility on debt issues as it is the world’s largest bilateral creditor, with claims exceeding those of the World Bank, International Monetary Fund and all official Paris Club creditors combined, Neiman said.

Neiman’s criticism of China’s borrowing practices marks the latest salvo from Western officials and leaders of the World Bank and International Monetary Fund, who have grown weary of delays and broken promises by China and private lenders. read more

As many as 44 countries each owed more than 10% of their gross domestic product debt to Chinese lenders, but Beijing has consistently failed to pay off debts when countries needed help, Neiman said.

Instead, China has chosen to lengthen maturities or grace periods, and in some cases, such as Congo in 2018, has even gone so far as to increase the net value of its loans.

Neiman said China’s lack of transparency and its frequent use of confidentiality agreements complicated coordinated debt restructuring efforts and meant liabilities to China were “systematically excluded” from multilateral surveillance.

Beijing signed up to the Common Debt Framework agreed by the Group of 20 major economies and the Paris Club at the end of 2020, but delayed the formation of creditor committees for Chad and Ethiopia, two of the three countries that they sought help under the structure.

In July, he said he and other official creditors would provide debt treatments for the third party, Zambia, but delays prolonged uncertainty and could deter other countries from seeking help, Neiman said.

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

Neiman warned that countries should not use IMF financing to pay selected creditors and called for more transparent reporting and monitoring of financing guarantees.

He noted that China had engaged in “unconventional” practices that had allowed the IMF to move forward without obtaining standard financial guarantees.

He cited China’s past actions on Ecuador’s debt in 2020 and its refusal to restructure its debt service for Argentina, even though Paris Club creditors were likely to do so.

“In many of these cases, China is not the only creditor holding back the rapid and effective implementation of the typical (debt restructuring) playbook. But in the international credit landscape, China’s lack of involvement in coordinated relief of debt is the most common and the most common. consequent.”

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Information from Andrea Shalal; Edited by Ana Nicolaci da Costa

Our standards: the Thomson Reuters Trust Principles.

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