In their latest Geo Economical Report economists Radhika Desai and Michael Hudson discuss Russia’s move away from the ‘West’.
The points on Russia are certainly interesting. But they also remark on the tussle between China and ‘multilateral’ international lenders about debt forgiveness. This is a theme that played out in Washington DC last week during a high-level sovereign debt roundtable on the sidelines of the World Bank and International Monetary Fund Spring meetings in Washington.
In their talk Radhika Desai explains the basic problem with international debt:
RADHIKA DESAI: Well I think that the whole issue of debt, world debt in particular, has become a really important issue at this point, and it’s become an important issue because precisely now China is such a large part of the scene.
I remember going back to the earliest days of the pandemic when Third World debt had also figured as a major issue. Already at that point, the key reason why the debt issues were not going to be settled is because the West could not come to terms with the fact that it had to deal with China, and that it had to deal equitably with China.
Because what the West wants to do is precisely to get China to refinance the debt owed to it so that Third World debt repayments go to private lenders.
And China is basically questioning the terms of all of this, because for example China is saying, “Why should the IMF and the World Bank have priority? Why should its debt not be canceled?”
And the West is saying, “But this has always been so.”
And China is saying, “Well, if you don’t want to reform the IMF and the World Bank, then we are not going to accept their priority. If we have to take a haircut, they will also have to take a haircut.”
They simply do not accept that these institutions, the Bretton Woods institutions, have any sort of priority.
And this is part of the undermining, as you were saying. This is one of the biggest changes since the First World War. And part of these changes is that the world made at the end of the Second World War by the imperialist powers, who are still very powerful, is now increasingly disappearing.
On Wednesday a Reuters report claimed that China was changing its stand on the issue:
WASHINGTON (Reuters) – China is expected to drop its demand for multilateral development banks to share losses alongside other creditors in sovereign debt restructurings for poor nations, removing a major roadblock to debt relief, a source familiar with the plans said.
The development is expected at a high-level sovereign debt roundtable on Wednesday on the sidelines of the World Bank and International Monetary Fund Spring meetings in Washington.
Beijing would no longer insist multilateral lenders take “haircuts” on loans to poor countries, the source said on Tuesday, while the IMF and World Bank agreed to ensure their debt sustainability analyses of countries undergoing debt restructurings would be made available to Chinese authorities earlier in the process.
The rumor that China would change its principle position turned out to be wrong. Reuters being abused by anonymous sources to make politics is not unusual. But in this case the piece came with a picture of U.S. Treasury Secretary Janet Yellen so its likely that she was the “source familiar with the plans” which pushed this false rumor.
As the New York Times reported yesterday in way too many misleading words the issue was not resolved:
WASHINGTON — China, under growing pressure from top international policymakers, appeared to indicate this week that it is ready to make concessions that would unlock a global effort to restructure hundreds of billions of dollars of debt owed by poor countries.
China has lent more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors.
The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down a critical loan relief process and threatening to push millions of people in developing countries deeper into poverty.
Ghana appealed to the Group of 20 nations this year for debt relief through a fledgling program known as the Common Framework after securing preliminary approval for a $3 billion loan from the I.M.F. That money is contingent on Ghana’s receiving assurances that it can restructure the approximately $30 billion that it owes to foreign lenders. Officials from Ghana have been meeting with their Chinese counterparts about restructuring the $2 billion that it owes China.
Wang Wenbin, a spokesman for the Chinese Foreign Ministry, said on Friday that China had put forward a three-point proposal that included calling for the I.M.F. to more quickly share its debt sustainability assessments for countries that need relief, and for creditors to detail how they will carry out the restructurings on “comparable terms.”
The three point proposal is not a change but simply a repeat of China’s long standing position:
Spokesperson发言人办公室 @MFA_China – 15:09 UTC · Apr 14, 2023
To effectively resolve the debt issue, the key lies in joint participation of multilateral, bilateral and commercial creditors under the principles of joint actions and fair burden-sharing.
The case of Ghana shows that the IMF, over which the U.S. has a veto, will only lend fresh money if bilateral lenders like China, but not the ‘multilateral’ IMF or World Bank, nor private ‘western’ lenders, take haircuts.
A long People’s Dispatch piece about the IMF and Ghana’s debt crisis describes how the debt spiral is hitting the poor but resource rich countries again and again. The debt is a continuation of colonialism and China has little to do with that:
Based on the World Bank’s International Debt Statistics, 64% of Ghana’s scheduled foreign currency external debt service, which includes principal and interest amounts, between 2023 and 2029 is to private lenders. 20% of the debt is to multilateral institutions and 6% to other governments. Notably, while mainstream reporting on Ghana’s debt scenario tends to emphasize China as the country’s “biggest bilateral creditor,” only 10% of Accra’s external debt service is owed to Beijing.
Approximately $13 billion of Ghana’s external debt is held in the form of Eurobonds by major asset management corporations including BlackRock, Abrdn, and Amundi (UK) Limited. “Ghana’s lenders, particularly private lenders, lent at high-interest rates because of the supposed risk of lending to Ghana,” the open letter read.
“The interest rate on Ghana’s Eurobonds is between 7% and 11%. That risk has materialized… Given that they lent seeking high returns, it is only right that following these economic shocks, private lenders willingly accept losses and swiftly agree to significant debt cancellation for Ghana.”
In 2020 the G20 promised to implement a Common Framework for debt relief:
[T]he Common Framework had the opportunity to provide a broader debt cancellation, involving private creditors alongside bilateral lenders in the process to ensure that countries’ debts became sustainable.
“But very little was done to outline the details of how that would work. While the G20 stated that government and private lenders would be included in the scheme, however, multilateral lenders were excluded,” [Tim Jones, the head of policy at Debt Justice,] said.
“They did not give any new mechanisms to countries to negotiate a reduction in their debt owed to private creditors, leaving it to the debtor governments to say ‘If you want debt cancellation from governments, you have to negotiate the same deal from private creditors.’ But they did not offer any tools to help indebted countries to do that.”
There should of course be a mechanism by which countries can restructure their debt and in which all lenders make similar concessions. However the IMF and others offer no such thing. They are only willing to give more money when a country makes political concessions over IMF prescribed austerity measures and uses the fresh money to pay private ‘western’ lenders.
China is now determined to end that scheme. China insists that the IMF, the World Bank and private lenders take a similar share of debt losses as it is willing to take:
China is willing to implement the common framework for debt disposal with other countries, China’s central bank governor Yi Gang said during the World Bank and International Monetary Fund (IMF) spring meetings, according to a statement released by the People’s Bank of China on Friday.
Echoing Yi’s remark, Chinese Foreign Ministry spokesperson Wang Wenbin said at a press conference on Friday that China attaches great importance to the sovereign debt issue of developing countries and called for multilateral creditors, bilateral creditors and commercial creditors to participate in debt handling in accordance with joint action and fair manner.
“China has contributed more than anyone else to implementing the G20 Debt Service Suspension Initiative (DSSI). Besides, we have played a constructive part in the treatment of individual cases under the G20 Common Framework,” Wang said.
In contrast, Western creditors claim they need to maintain their credit rating and have thus refused to be part of the debt relief and service suspension effort, Wang said, noting that unprecedented massive interest rate hikes have led to tightening of financial conditions worldwide, making the severe debt problems of certain countries even worse.
China continues to press for its new scheme of international debt relief under equal terms for all lender. I am not ware of any pressure point the ‘West’ could use to change that position.
The IMF and its abusive role in global debt was likely a subject matter in the hours long talks Presidents Xi and Putin had in Moscow last month. Lets remember what was said at the end of that visit:
“Right now there are changes – the likes of which we haven’t seen for 100 years – and we are the ones driving these changes together,” Xi told Putin as he stood at the door of the Kremlin to bid him farewell.
The Russian president responded: “I agree.”
As Radhika Desai, quoted above, said about China’s debt relief standpoint:
This is one of the biggest changes since the First World War.
Michael Hudson summarizes the consequences:
Well obviously, the one thing the characterizes the new global World Majority order is a mixed economy where other countries will do what China has done. They will make money and land, meaning housing, and employment into public rights and public utilities instead of commodifying them and privatizing them and financializing them as has occurred in the West.
So we’re really talking about, in order to move away from the dollar-NATO-sphere, we’re not really talking about just one national currency or another.
It’s not going to be a question of the Chinese yen and the Russian ruble and other currencies replacing the dollar. It’s a whole different economic system.
That’s the one thing that is not permitted in the mainstream media to discuss. They’re still on the “There Is No Alternative” Margaret Thatcher slogan, instead of talking about: What is the alternative going to be?
Because obviously things cannot last the way they are now.
Reprinted with permission from Moon of Alabama.