Plans for debt relief for the world’s poorest countries inched forward on Thursday as private creditors laid out a blueprint for their involvement, though it received immediate criticism for not going far enough.
The proposal shepherded by the Institute of International Finance (IIF) said creditors would grant debt breaks on a case-by-case and voluntary basis this year after concluding a one-size-fits-all approach would have been “practically impossible”.
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It was the culmination of work involving more than 100 top money managers after the G20 economies had called on the private sector to match their recent Debt Service Suspension Initiative (DSSI) to help some 77 low-income countries.
“The IIF has been adamant that creditors of every type and size have a role to play in making sure the world’s most vulnerable countries have the liquidity needed to combat the COVID-19 pandemic,” said IIF President and CEO Tim Adams.
The G20 proposal and the IIF plan only cover to the end of the year.
United Nations chief Antonio Guterres called on Thursday for debt relief to be expanded and offered to all developing and middle-income countries and urged the International Monetary Fund to increase allocations of its Special Drawing Rights (SDR) currency to give countries more access to funding.
“Alleviating crushing debt cannot be limited to the Least Developed Countries,” Guterres told a high-level UN meeting on how to handle the pandemic’s economic fallout.
“It must be extended to all developing and middle-income countries that request forbearance as they lose access to financial markets.”
The IIF’s plan included coordination with the IMF, World Bank, Paris Club, UN Economic Commission for Africa, and more than a dozen finance and development ministers representing DSSI-eligible countries.
UN officials say debt relief is imperative to enable developing economies to spend more on stopping the spread of the coronavirus and limit what economists worry is an inevitable debt crisis.
Tim Jones, head of policy at Jubilee Debt Campaign, a charity that focuses on reducing poverty, was critical, however.
“Overall, the G20 agreement in April and IIF proposal today go nowhere near responding to the unprecedented nature of the coronavirus debt crisis,” Jones said.
Some countries could end up paying far more in the medium term due to accrued interest, he said, and some lenders could ignore the plan, which is voluntary.
Reuters news agency