Creditors promise advances to ease the debt burden of poor nations (1)

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Private investors have said they could offer low-income countries liquidity to offset debt payments owed this year to help them fight the coronavirus pandemic.

The voluntary refinancing option would be via advances on interest and principal maturing this year and is one of a long list of suggestions that could allow private creditors to join a global aid initiative. Other solutions for relieving $ 140 billion owed by the world’s poorest countries could include the more traditional method of changing bond terms.

The options were revealed by the Institute of International Finance, which represents more than 100 financial companies with more than $ 45 trillion in assets under management. It aims to revive slow talks with a plan for negotiations between governments and creditors that have stalled over fears that general debt relief could trigger massive default.

Read: Creditors tackle legal thickets of bailout plan for needy nations

“There is no one-size-fits-all solution,” said Sonja gibbs, director general of global policy initiatives at the institute. “The idea is that the terms of reference can be adapted to the circumstances of each country, and these will vary.”

Debt terms

If nations and investors agree, payments could be deferred for the remainder of 2020 and possibly repaid over three years from 2022, after a one-year grace period.

Nations, however, have yet to convince investors to meet minimum participation thresholds to ensure fair burden sharing, according to the IIR. They may still need to go through the more traditional legal process of debt rescheduling.

Local currency debts, central bank and financial market transactions will not be covered by the initiative. Any advance to pay the obligations due this year will have the same repayment terms as the deferred amounts.

The Paris Club of official creditors has already signed a payment suspension for five countries. The initiative is led by the G-20 group of industrialized countries, the International Monetary Fund and the World Bank.

Despite progress and a resurgence in investor risk appetite as countries ease foreclosure measures across the world, the voluntary nature of the proposal may mean it fails to ease the unsustainable burden borne by some developing countries, according to Jubilee Debt Campaign, an advocacy group.

“A country that desperately needs to stop paying its debt now could end up paying a lot more in the medium term because of accrued interest,” said Tim Jones, policy manager at Jubilee. “The G-20 agreement in April and the IIR’s proposal today fall far short of addressing the unprecedented nature of the coronavirus debt crisis. “

(Add IIR comments to fourth paragraph, advocacy group ninth and tenth)

To contact journalists on this story:
Sydney maki in New York at [email protected];
Alonso Soto in Abuja at [email protected]

To contact the editors responsible for this story:
Caroline wilson at [email protected]

Marton Eder, Srinivasan Sivabalan

© 2020 Bloomberg LP All rights reserved. Used with permission.


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