Without participation from other lenders, the IMF is in a bind
Two years of pandemic-fighting and on-off lockdowns have turbocharged global debt, both public and private. In 2020 alone it soared by 28 percentage points, to 256% of—the largest one-year rise in borrowing since the second world war. In recent months, as central banks have raised interest rates to combat inflation, the cost of servicing it has increased, raising demand for the fund’s assistance. In most large emerging markets the pain is manageable, for now.
Instead a quieter crisis is breaking out in smaller countries devoid of hard currency. Sri Lanka, Tunisia, Lebanon and Ghana are all candidates for loan programmes from the. On February 23rd the fund said it would start talks with Ukraine over a possible $700m debt tranche. Among the world’s 60-odd poorest countries, more than half carry debt loads which may need to be restructured.
Last August it also doled out $650bn-worth of new special drawing rights , a quasi-currency used to augment countries’ foreign-exchange reserves, to all its members. Becauses are allocated based on what each member contributes to the fund, most of the issuance went to well-off countries. Just $21bn was allotted to those that really needed it. But the fund is working to create a trust through which some of thes allocated to richer members might be available for long-term lending to poorer ones.
Restructuring such debt is extremely hard. Views differ within China as to whether and how much debt relief to provide to overextended borrowers. Many different Chinese institutions are involved in foreign lending, not all of which are keen to help. And many poor countries are reluctant to seek relief from China, lest they cut themselves off from future access to Chinese financing or otherwise antagonise the Chinese government.
The fund lacks good alternatives. Failure to reach a deal with Argentina might well have meant financial disaster for that country and lost thebillions. Its leaders could perhaps be more vocal in calling for China to be more lenient. But the West’s reluctance to increase the country’s 6% voting share at the, to a figure matching its new economic might, has made China less willing to listen.
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