Reaction to G20 Common Framework for Debt Treatments: designed by and for creditors
Today the G20 published its “Common Framework for Debt Treatments beyond the DSSI.” The proposed framework is extremely disappointing, and yet again another mechanism that has been designed by and for creditors.
The Covid-19 pandemic has triggered a multifaceted crisis, which threatens to push a staggering 257 million people back into poverty, according to the latest information from the World Bank. Yet, today’s proposals entirely fail to address the dramatic social, health and economic crises faced by hundreds of millions of people in the global south. Instead the G20 has continued to offer limited respite for a small group of countries that fails to require the mandatory participation of creditors from the private sector or multilateral banks such as the International Monetary Fund (IMF) or the World Bank.
In response, Iolanda Fresnilllo, Senior Policy and Advocacy Officer working on Debt Justice at the European Network for Debt and Development (Eurodad) said:
“The details revealed today are utterly disappointing. The announcement merely offers reprofiling of debt payments for the limited number of countries already included in the G20 DSSI. This is absolutely insufficient to tackle the challenges of the economic and debt crisis in the global south.”
Developing countries are facing an acute series of needs as well as a systematic solvency problem. Consequently ambitious action is required, which the proposed “Common Framework” fails to provide. Specifically the proposals:
- Fail to deliver debt cancellation to those countries in need.
- Fail to require the mandatory participation of the private sector or the IMF, World Bank and other multilateral development banks in debt relief efforts.
- Restrict the scope of debt restructuring efforts to a very limited number of countries.
- Fail to take into account long-term financing requirements of developing countries to meet the Sustainable Development Goals (SDGs), the Paris Agreement or the Beijing Declaration.
Furthermore, reductions in the Net Present Value (NPV) of debts won't be enough to address the mounting debt burdens of these countries. Reprofiling in the face of insolvency only increases the costs of debt resolution. Worse, it will force them to implement painful austerity measures in a futile attempt to meet unpayable creditor claims.
Iolanda Fresnillo added: “Until countries get the debt relief they require, they will likely end up locked in a cycle of serial restructurings which will hamper their growth prospects and their ability to attract fresh financing.
“If the international community is serious in its intention to achieve the SDGs, the Paris Agreement and the Beijing Declaration, the G20 must take the needs of developing countries into account in the debt resolution process. More ambitious action is urgently needed, which includes offering extensive debt cancelations and establishing a Sovereign Debt Workout Mechanism under the UN to comprehensively address unsustainable and illegitimate debts.”
Notes to editors:
- Eurodad’s briefing outlining the limitations of the G20’s DSSI
- Eurodad research on IMF lending and austerity post Covid-19