The head of the International Monetary Fund called on private creditors to join the Group of 20 in providing debt relief for the world’s poorest nations, saying that the alternative to suspension and restructuring is defaulting. A debt-service suspension would provide time for restructuring debt on a case-by-case basis in countries where debt sustainability needs to be restored, Managing Director Kristalina Georgieva said in a webcast with the U.S. Chamber of Commerce Tuesday.
Private investors last month said they may offer low-income countries cash to ease the burden of $140 billion in debt payments due this year to help them fight the coronavirus pandemic. Still, the voluntary nature of the proposal may mean it falls short of easing the unsustainable burden carried by some developing nations, according to the Jubilee Debt Campaign, an advocacy group.
Failure to provide relief and restructuring “would lead to inevitably a much worse option, which is disorderly defaults,” Georgieva said. “We can prevent that.”
In a separate event, Georgieva’s first deputy, Geoffrey Okamoto, said that the IMF is looking at ways to mobilize existing reserve assets rather than create new ones to help countries deal with the economic fallout of the global pandemic.
U.S. Treasury Secretary Steven Mnuchin said in April that the Trump administration opposed the plan to create more reserve assets because they are allotted to countries in proportion to their IMF voting share. This means 70% would go to G-20 countries that don’t need the help and just 3% to the poorest developing nations.