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China and the World Bank are exploring compromises over how to restructure billions of dollars of debt held by poor nations, seeking a long-sought breakthrough that could unlock desperately needed aid.
Discussions on Wednesday in Washington, during the World Bank and International Monetary Fund’s Spring Meetings, are aimed at ending a deadlock among the world’s biggest creditor nations on how to renegotiate several poorer nations’ debt, which had become unsustainable amid surging inflation and a stronger dollar.
A proposal under discussion this week would see the World Bank provide fresh low-interest loans — known as concessional lending — and other grants to countries on the verge of default, in exchange for China dropping a key demand and agreeing on a timeline for debt relief.
The talks were described by people familiar with the matter, who asked not to be identified because the discussions are private and the outcome is still uncertain.
Key to the compromise is the World Bank increasing its emergency assistance to countries in debt distress, something its outgoing president, David Malpass, said Tuesday that the lender was already intending to do.
Officials from a number of countries cautioned, however, that a major breakthrough is unlikely this week, that China’s position remains unclear and the discussions are focused largely on the overall process.
The standoff over debt restructuring and the role of development institutions has played into the larger dispute between China and the US, particularly when engaging with developing economies where they’re both seeking influence.
People’s Bank of China Governor Yi Gang is the highest-level official expected from Beijing to attend the talks this week, along with Deputy Governor Xuan Changneng, according to a person familiar with the matter. Finance Minister Liu Kun didn’t travel to Washington, with Beijing opting to send Vice Minister Wang Dongwei instead, said a second person.
The World Bank and US Treasury Department declined to comment, while the PBOC and IMF didn’t immediately respond to requests for comment.
The Wall Street Journal reported earlier Tuesday on the possible compromise in the talks. Reuters reported late Tuesday that China would drop its demand on multilateral loans, citing a source it didn’t identify.
The debt-relief efforts, begun by the Group of 20 in late 2020, were intended as a way to coordinate traditional creditor nations, like the US and France, with emerging creditors, particularly China, the biggest lender to emerging economies.
Yet that mechanism, known as the Common Framework, has faced repeated delays over differences about how to treat various forms of debt. Beijing has been pushing for loans from multilateral development banks, such as the World Bank, to be treated the same as other debt — meaning everyone takes a similar “haircut,” or loss, on what’s owed.
That condition has been rejected by the US and others, who argue that such a move would harm multilateral banks’ preferred creditor status, which allows them to borrow and lend cheaply. Bloomberg
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