Pressure rises at IMF on the way to rework emerging mkts’ debt
World financial leaders are pushing to overhaul a system for sovereign debt restructurings that has left poor countries locked out of capital markets as China’s emergence as a key player upends traditional negotiations.
How to fix the so-called common framework initiative, hatched during the pandemic to help poor countries rework their debt, was among the top issues debated during International Monetary Fund’s spring meetings, which just wrapped in Washington DC.
Leaders from the IMF and G-20 countries—which started and oversee the process—have made some fixes aimed at speeding up debt restructurings, which have left countries stranded in default for years amid protracted negotiations. Zambia, considered a “guinea pig” for the new model, only recently struck a deal with creditors, three and a half years after it defaulted.
Ghana and Ethiopia, which stopped paying bondholders in late 2022 and 2023, are still negotiating.
“The last four years have been nothing short of a debt disaster,” said UN SecretaryGeneral Antonio Guterres. He railed against the system’s perceived ineffectiveness, citing the example of Zambia. “This is more than counter-productive.
This is immoral. This is wrong. This must change.”
While defaults are expected to subside and risk premium for high yield countries has plunged, emerging-market governments—excluding China—face an estimated $421 billion in debt payments this year. That, combined with the risk aversion roiling markets amid tensions in the Middle East and the Federal Reserve’s higher-for-longer stance, is adding to the urgency to find a fix. “Ultimately, the ones paying the real price of prolongated default periods are the people of these countries,” said Joe Delvaux, a money manager in London at Amundi SA.
Debt reworking has always been a complicated business that involves deals with the IMF, foreign Treasuries and private investors. Commercial banks and foreign governments organized into the London Club and Paris Club of creditors to streamline negotiations excerpts:
Are there any more regulatory concerns around the small- and micro-cap segments?
The intention of regulation is to create checks and balances in the market where there is a significant rise, driven either by flows or by a huge participation coming from high networth individuals (HNIs) and retail. Some elements of checks and balances need to be created. Secondly, they (participants) also ignore any investment that is being made at obnoxious valuations and so on. Therefore, the intervention that came was more intended towards this end.
It’s not just today. Historically I’ve seen that regulatory intervention helps stabilize the market.
How is the sentiment now?
The buoyancy continues to