The spread of the novel coronavirus has seriously worsened fiscal conditions in developing countries. The situation could plunge the global economy into confusion. Major nations must work together to rescue those countries.
Finance ministers and central bank governors of the Group of 20 major economies have agreed to extend the suspension of official bilateral government loan repayments by an additional six months until June 2021 for 73 low-income countries, including Ethiopia in Africa and Bangladesh in Asia.
Medical systems in many developing countries are weak and hygiene management is poor. As fiscal spending soars to deal with the fragile public health infrastructure, there is a possibility that some of these countries could fall into default on their debts. Support from the international community is urgently needed.
If developing countries continue to be in default, credit uncertainty could spread to large emerging economies, such as Turkey and Brazil. Some emerging economies have already been suffering from an outflow of funds and depreciation of their currencies, which could lead to currency crises in their economies.
It is reasonable for the G20 to reach the agreement to prevent such a situation.
On the other hand, transparency and fairness are indispensable for support through international cooperation.
According to the World Bank, the amount of official bilateral government loans extended to the 73 countries by G20 economies and others was 178 billion dollars (about 19 trillion yen), of which about 60% was provided by China.
However, China has not disclosed enough information on its loans to developing countries. It is also said that there are many "hidden loans" that the G20 cannot grasp. China should actively disclose such information.
The measure taken this time to extend the suspension of debt payments targets official bilateral government loans, not loans from private financial institutions. For this reason, China is refusing to apply the extension of the suspension of debt repayments to the loans from the China Development Bank, claiming that they are "private transactions" even though it is a wholly government-funded bank.
The suspension of debt repayments by countries other than China will free up funds that developing countries can then use to make payments to China. This is unfair.
China's huge loans to developing countries have been criticized as a "debt trap" through which China obtains security benefits, such as the right to control ports and other facilities, by burdening recipient countries with debts that they are otherwise unable to repay. To dispel such concerns, it is important to cooperate in establishing the framework of assistance.
In the future, it could be necessary not only to suspend developing countries' debt repayments, but also to reduce their debts. The G20 plans to hold a special meeting of finance ministers and central bank governors ahead of a summit meeting in November to discuss additional measures.
The G20 needs to study effective measures to help developing countries rebuild their economies through such steps as establishing a rescue system with the involvement of private financial institutions.
-- The original Japanese article appeared in The Yomiuri Shimbun on Oct. 21, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
