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Cancel the debts of poor countries, charities urge G20 nations

17 April 2020

The G20 group is to suspend debt payments by 77 of the world’s poorest countries

PA

A homeless man wearing a handkerchief to cover his face walks in front of a Buddhist temple in Colombo, Sri Lanka. The country has one of the biggest differences between the proportions of government revenue spent on health and spent on external debt

A homeless man wearing a handkerchief to cover his face walks in front of a Buddhist temple in Colombo, Sri Lanka. The country has one of the biggest ...

A MOVE this week by the G20 group of nations to suspend debt payments by 77 of the world’s poorest countries is welcome, but does not go far enough, the Jubilee Debt Campaign says.

Its director, Sarah-Jayne Clifton, said that the suspension was an important step forward, saving $12 billion and giving those countries breathing space to fight the Covid-19 crisis. But suspending payments rather than cancelling them meant that interest would continue to mount.

“We urgently need G20 governments to commit to engaging in a UN process to agree a comprehensive and enforceable way to cancel debts down to a sustainable level, ready to be implemented in 2021,” she said.

The Jubilee Debt Campaign estimates that 64 countries spend more than their health budgets on debt repayments. The ten with the biggest difference between the proportions of government revenue spent on health and spent on external debt are Angola, Sri Lanka, Gambia, the Republic of Congo, Ghana, Zambia, Laos, Lebanon, Pakistan, and Cameroon. Last year, they all spent more than one fifth of government revenue on repayments.

In advance of a meeting this weekend of the International Monetary Fund to discuss a coronavirus global rescue package, Christian Aid has also called for the cancellation of debt repayments by the poorest countries. The charity’s principal adviser on he private sector, policy, and advocacy, Dr Matti Kohonen, said: “By dropping the debt, poorer nations could spend money on their own fight against Covid-19, helping to save millions of lives.

“Although the health impacts in developing countries are small so far, the economic effects of the pandemic have already hit them hard, with commodity prices, exports, and public revenues affected, and many people forced out of work.

“Additional lockdowns and movement restrictions could exacerbate the effects further. In the poorest nations, there is little social protection in place, and, when the health implications do start to rise, poor and vulnerable communities will need a great deal of support.”

Christian Aid estimates that total loan repayments this year by the 77 poorest countries will be about £33 billion.

The charity agreed that the G20 announcement was not enough. Its Principal Advisor on Private Sector, Matti Kohonen, said on Thursday: “The G20 risks kicking the can down the road. Debt payments for 2020 should be cancelled outright, rather than added to the debt burden of the poorest countries. At the moment, countries are still expected to pay back these debts with interest between 2022 and 2024.

“The economic impacts will outlast the pandemic. Creditor countries should be working now on a longer-term debt relief package, which includes suspension of all payments at least until the end of 2021. Without this, the poorest countries won’t have a realistic exit route from the economic crisis.”

It is thought that China, which has loaned billions to struggling nations, could increase its influence over them by either taking control of assets or cancelling debts on beneficial terms. State-owned Chinese companies and banks have become significant international lenders — often through large-scale infrastructure investments under the Belt and Road initiative.

A 2018 paper by two Harvard academics, Sam Parker and Gabrielle Chefitz, dubbed the tactic “debtbook diplomacy”. This month, Mr Parker said: “I think it’s early stages, but whatever debt leverage China had over countries is going to increase. Whatever bad consequences were going to happen as a result of being unable to repay China, I think the timeline could be severely accelerated.”

Ms Chefitz said: “There are opportunities for China to require payment on debt, perhaps with strategic assets in return, or to forgive that debt, which furthers that soft-power narrative as a global leader.”

 

Read more on the story from Paul Vallely

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