The G20 will fail again
The worsening debt crisis in developing countries calls for immediate debt cancellation and structural reforms, but the G20 is not willing to deliver. A truly multilateral and systemic response, that includes borrowing countries in the decision-making, is urgently needed.
Indebted countries will spend less on essential public services in 2023 than in 2019, before the outbreak of Covid-19, according to new data from Debt Justice UK. UNDESA also reports that Cameroon, Liberia and Mauritania in Africa, Myanmar and Nepal in Asia, and small island states such as Tonga and Samoa have already cut public spending.
We don’t need this data to understand how people are struggling with food and energy price increases all over the global south. Street protests have broken out in Sri Lanka, Ghana, Sierra Leone and Ecuador, among other places. As Eurodad argued a few months ago, without a human rights-based response to the debt problems, many countries will find themselves trapped in a vicious cycle of self-defeating fiscal adjustments and social unrest. G20 finance ministers and central bank governors meeting in Bali this weekend have a complex task ahead of them. They will be expected to address the increasing difficulties countries in the global south, particularly ‘emerging markets,’ face to pay their external debt, as the risks of a cascade of defaults increase. Many are calling for the G20 to step up their response to the crisis. However, the writing on the wall predicts that any announcements made will be the usual “too little, too late”.
Here are four reasons to believe that the G20 will fail:
1. Incapacity to empathise with the realities of this crisis on the ground.
Kristalina Giorgieva, the IMF Managing Director warned on Tuesday of “a growing risk of a debt crisis”. She, like many financial analysts and decision-makers, believes that a debt crisis can’t be declared until there is a series of defaults (that would risk creditors not getting their money back), that threatens the stability of the financial sector (that would put the money of investors and creditors at risk).
But communities in the global south are suffering now. Their governments are already reallocating key resources from essential public services and social protection to repay their creditors, putting people’s survival at risk. The debt crisis is already upon us.
2. Lack of political will to force private creditors to bear their burden in debt restructurings
There has been a lot of finger-pointing among creditor countries in the last few months. The G7 and the Paris Club have taken turns to blame China for blocking reforms to improve the G20 Common Framework. China points at the multilateral institutions, particularly the World Bank, for not providing their share of debt relief. The World Bank and IMF point back at China for the lack of transparency in their debt operations. And no one seems to notice that the big problem is private creditors’ lack of engagement in debt relief.
As recent calculations by Debt Justice show: “African governments owe three times more debt to Western banks, asset managers and oil traders than to China, and are charged double the interest”. However, the proposals on the table of the G20 are not particularly focused at making private creditors bear their fair share in debt restructurings and cancellation. All the G7 managed to agree on in their last summit was to “encourage” private creditors “to contribute constructively to the necessary debt treatments”. It is worth noting that most of these private creditors have their headquarters in G7 countries.
3. Kicking the can down the road with more loans and debt suspension … to bailout the creditors
There are growing calls for a renewal of the DSSI (the Debt Service Suspension Initiative) approved by the G20 in April 2020 and that ended last December. The business sector representatives, the International Chamber of Commerce, proposed this week to “reinstate the G20’s Debt Service Suspension Initiative for an initial one-year period through July 2023, ideally with broad eligibility criteria to offer debt service relief to all countries in need”. Along the same lines, the governors of African countries at the IMF and World Bank, issued a statement supporting an “extension of the DSSI until such time that the Common Framework operates effectively providing timely relief (within 3-6 months or less)”.
Debt service temporary suspension only kicks the can down the road. We pointed this out when the DSSI was first approved. Debt crisis risks are being stored up for later, when creditors expect to get all their money back and borrowing countries will simply have bigger repayments. Furthermore, countries are not just cash strapped but have unsustainable debts that need to be reduced in their stock. Immediate, sufficient and unconditional debt cancellation provided by all creditors to all countries in need is the only way out.
The temporary suspension proposal is coupled by the usual call for new financing. While additional and concessional financing for development and climate finance is urgently needed, new lending without cancelling and restructuring the existing debt, will only make the debt snowball bigger. New lending without defaulting on the payments to private creditors would also, de facto, bail them out.
One thing the G20 could do is support new legislation to protect borrowing countries that default on their debt to non-collaborative private creditors, particularly in key jurisdictions like New York or London. However, their track record of defending private creditors interests over global south people’s rights makes us think they won’t risk making the financial markets nervous.
4. Lack of willingness to reform the debt architecture that has served creditors well
G7 leaders recently declared: “We recognise the urgency of improving multilateral frameworks for debt restructuring and to address debt vulnerabilities.” From the IMF leadership to the UN Secretary General, calls for international debt architecture reform abound. This week UNCTAD Secretary General, Rebeca Grynspan, published a letter in the Financial Times drawing attention to the longstanding danger that the lack of a mechanism to better manage external debt crises poses to the international monetary and financial system. But there is a huge gap between rhetoric and reality.
The G20 and the G7, both creditor-dominated forums, are far from willing to let go of a system that gives them all the decision-making power in global economic governance, including on sovereign debt resolution.
As the saying goes “if you’re not at the table, you’re on the menu”. When developing countries are excluded from the decision-making table when it comes to sovereign debt resolution, the responses framed and decided by creditors end up being fatal for the peoples of the global south.
A more inclusive and truly multilateral dialogue is needed to deliver the urgent and systemic solutions to the pressing multidimensional crises, including a profound debt architecture reform. Without a multilateral debt resolution framework that puts human rights, gender equality or the fight against the climate emergency over creditors’ claims, countries won’t receive the debt cancellation they need. We can’t expect the G20 to voluntarily relinquish their power and agree on such reforms, and this is why they will fail, once again, in providing the systemic changes that the world needs.
If we want to stop the debt-bleed, if we want debt justice, not just debt relief, we need to step up in mobilising a much stronger debt justice movement that forces the changes we want to see in the world.