The war of words between China and Western-led multilateral institutions about developing country debt is escalating. China’s party-owned tabloid Global Times has reacted to a recent CBS 60 Minutes interview with International Monetary Fund (IMF) Managing Director Kristalina Georgieva, in which she said: “China has to change its policies because low income countries cannot pay.”
This is only the latest such comment from high-level officials at International Financing Institutions (IFIs). Two weeks ago, World Bank President David Malpass accused Chinese actors of making unfair demands and stringing out Zambia’s debt renegotiation process.
Global Times pointed out that loans from Western-led Multilateral Development Banks (MDBs) and Western private lenders far outstrip the developing world’s debt to China.
This is part of a developing Chinese position that IFIs like the World Bank and the IMF have to accept losses as part of debt relief. Last week, Foreign Ministry spokesperson Mao Ning said the key to solving Zambia’s debt crisis “lies in the participation of multilateral financial institutions and commercial creditors in the debt-relief efforts.”
There are a few problems here. First, private creditors are holding out on concessions because they’re waiting to see what China will do. The much larger issue is that IFIs like the World Bank have traditionally been lenders of last resort that never take ‘haircuts.’ In other words, China’s position is a challenge to the global post-WWII development financing order.
China has agreed to join a comprehensive roundtable involving bilateral, multilateral and private lenders in India. Georgieva confirmed that China’s Finance Minister, Liu Kun, and the governor of the People’s Bank of China, Yi Gang, will attend.
Global Times Lobs the Ball Back to Georgieva:
- IFIs NEED TO DO MORE: “We hope that developed countries and major international financial institutions will also pay attention to the development needs of developing countries when offering debt relief to them.”
- IT’S THEM, NOT US: “In the case of the external public debt of Sri Lanka, the World Bank, the Asian Development Bank, and financial institutions in the US and its allies hold about 80 percent of Sri Lanka’s $51 billion worth of external debt, while China’s share is less than 10 percent.”
- THE WEST IS TO BLAME: “It is clear that Western multilateral financial institutions and commercial creditors should take a greater responsibility in reducing the debt burden for the developing world, and whether or not China writes off its debt should not be an excuse for the West to shirk its primary blame.”
WHY IS THIS IMPORTANT? If this fundamental philosophical standoff between China and Western-led IFIs escalates, bankrupt countries like Zambia and Sri Lanka could find their debt restructuring processes held hostage on both sides.
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