Debt- relief dilemma

The annual summit of world leaders known as the Group of 20 is often more about form than substance given the varying interests and policy differences among participants, ranging from the United States and China to Argentina and South Africa. Nevertheless, in times of transnational trouble such as the COVID-19 pandemic, it is a necessary exercise.

Even by that realistic standard, this year’s G-20 process has disappointed in a critical respect: debt relief for low-income nations. According to a December 2019 World Bank study, public- and private-sector debt in the world’s poorest countries nearly doubled from $137 billion in 2010 to $268 billion in 2018. And then came the pandemic-related economic crisis, delivering a brutal shock to these countries’ export earnings.

The Trump administration has balked at one ambitious idea, initially proposed by France: to grant debtor nations hundreds of billions of dollars’ worth of International Monetary Fund resources known as special drawing rights, as was done in response to the 2008 financial crisis. Yet the United States and other Western nations alone could not solve a problem that, unlike previous debt crises, bears a “Made in China” label.

The People’s Republic has recycled its huge export earnings, and purchased political influence, via aggressive project lending across Asia and Africa. And it has done so without the transparency Western banks, multilateral institutions and governments customarily practice. According to research by economist Carmen Reinhart of Harvard, and Sebastian Horn and Christoph Trebesch, from Germany’s Kiel Institute for the World Economy, China loaned $400 billion to 106 developing and emerging-market countries through 2017 — twice as much as was recorded in debt-burden data published by multilateral organizations and credit-rating agencies.

China has joined the G-20’s Debt Service Suspension Initiative — a freeze on official debt service until mid-2021. As of Nov. 13, 46 countries had sought deferred payments worth $5.7 billion through the DSSI. Yet the group’s Sunday statement promised nothing more than an extension of this modest program through June 2021, and possibly six months after that. The level of indebtedness calls for principal reduction. China opposes that.

For the incoming Biden administration, the debt crisis presents an opportunity to achieve two key U.S. objectives: preventing global poverty and holding China accountable for its international conduct.