US Treasury official criticizes China’s ‘unorthodox’ lending practices

Chinese yuan banknotes are seen in this illustration image taken on April 25, 2022. Reuters/Florence Low/Illustration

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  • China is the world’s largest official creditor
  • Lack of transparency, confidentiality agreement under fire
  • Progress urged on common framework loan deals for Zambia, others

WASHINGTON, Sep 20 (Reuters) – A top adviser to US Treasury Secretary Janet Yellen warned on Tuesday that dozens of low- and middle-income countries would face debt woes, low growth and low investment as China drags its feet on debt relief. Might be possible. ,

Yellen’s adviser Brent Niemann at an event at the Peterson Institute for International Economics criticized China’s “unorthodox” debt practices and failure to move forward with debt relief.

“China’s vast scale as a lender means its involvement is essential,” Niemann said in the speech, first reported by Reuters, citing estimates that China has $500 billion in outstanding official debt. to $1 trillion, mainly for low- and middle-income countries.

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Many of those countries are facing debt crisis after incurring huge debt to deal with COVID-19 and its economic fallout. Now Russia’s war in Ukraine has driven up food and energy prices, while rising interest rates in advanced economies have triggered the biggest net capital outflow from emerging markets since the global financial crisis, Niemann said.

He said a systemic debt crisis had not occurred, but that economic tensions and domestic vulnerabilities were increasing and could get worse.

Niemann said China had a unique responsibility on debt issues as it is the world’s largest bilateral creditor, surpassing the claims of all official creditors of the World Bank, the International Monetary Fund and the Paris Club.

Niemann’s criticism of China’s lending practices marks the latest defense by Western officials and leaders of the World Bank and International Monetary Fund, who are tired of delays and broken promises by China and private lenders. read more

Each of the 44 countries owes debt to Chinese lenders equal to more than 10% of their GDP, but Beijing has consistently failed to write off debt when countries need help, Niemann said.

Instead, China has opted to lengthen the maturity or grace period, and in some cases, such as that of Congo in 2018, even ended the increase in the net worth of its loans.

Niemann said China’s lack of transparency and frequent use of non-disclosure agreements has complicated coordinated debt restructuring efforts, and meant that liabilities to China were “systematically excluded” from multilateral oversight.

Beijing signed the General Framework for Debt Treatment agreed by the Group of 20 major economies and the Paris Club at the end of 2020, but it delayed the formation of creditor committees for Chad and Ethiopia, two of the three countries helped under Was asked framework.

In July, it said it and other official creditors would provide debt treatment for a third, Zambia, but the delay prolonged the uncertainty, and could discourage other countries from requesting help, Niemann said.

He said he hoped Zambia’s creditors could complete a memorandum of understanding by the end of the year.

All three matters should be resolved quickly, he said, adding that some middle-income countries like Sri Lanka also needed immediate debt restructuring.

Niemann warned that IMF financing should not be used by countries to repay select creditors, and called for more transparent reporting and tracking of financing assurances.

He said China was involved in “unorthodox” practices that allowed the IMF to proceed without obtaining standard financing assurances.

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

“In many of these cases, China is not the only creditor preventing prompt and effective implementation of the typical (debt restructuring) playbook. But in the international debt landscape, China’s lack of participation in coordinated debt relief is the most common and most important of all. is consequential.”

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Reporting by Andrea Schallal; Editing by Ana Nicolasi da Costa

Our Standards: Thomson Reuters Trust Principals.

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