G20 pledges to do ‘what­ever it takes’ to as­sist global econ­omy

Business World - - World Business/ World Markets -

BRUS­SELS/ BER­LIN/ WASH­ING­TON — Fi­nan­cial lead­ers from the Group of 20 (G20) ma­jor economies on Wed­nes­day un­der­scored the ur­gent need to bring the spread of the coro­n­avirus pan­demic un­der con­trol, and vowed to “do what­ever it takes” to sup­port the global econ­omy and fi nan­cial sta­bil­ity.

In a lengthy com­mu­nique, G20 fi nance min­is­ters and cen­tral bank gov­er­nors also agreed in prin­ci­ple for the fi rst time on a “Com­mon Frame­work” to deal on a case-by- case ba­sis with the ris­ing num­ber of low- in­come coun­tries fac­ing debt dis­tress. The Paris Club of of­fi­cial cred­i­tors also backs the frame­work.

The move marks a sig­nif­i­cant step for­ward for China, which has be­come a ma­jor cred­i­tor to poor coun­tries in re­cent years but had balked at the prospect of writ­ing off any debts, ac­cord­ing to sources fa­mil­iar with the G20 de­lib­er­a­tions.

G20 of­fi­cials also agreed — as ex­pected — to ex­tend by six months the Debt Ser­vice Sus­pen­sion Ini­tia­tive ( DSSI) that freezes of­fi­cial bi­lat­eral debt pay­ments un­til year- end, and said they would con­sider another six-month ex­ten­sion in April.

“The com­mon frame­work is a his­toric achieve­ment and a ma­jor break­through in the in­ter­na­tional debt agenda,” Mo­hammed al- Jadaan, fi­nance min­is­ter of cur­rent G20 chair Saudi Ara­bia, told an on­line news con­fer­ence dur­ing the an­nual meet­ings of the In­ter­na­tional Mone­tary Fund ( IMF) and World Bank ( WB). “It fa­cil­i­tates timely and or­derly debt treat­ment for DSSIel­i­gi­ble coun­tries, with par­tic­i­pa­tion of broad cred­i­tors, in­clud­ing the pri­vate sec­tor,” he said.

US Trea­sur y Sec­reta r y Steven Mnuchin urged G20 mem­bers to quickly en­dorse the frame­work, say­ing it would ease “debt write- downs when needed, help pro­mote debt sus­tain­abil­ity, and sup­port pol­icy re­forms” in low- in­come coun­tries with high debt bur­dens.

Mnuchin, in a state­ment to the IMF’s steer­ing com­mit­tee, also urged coun­tries not to with­draw fi scal and mone­tary pol­icy mea­sures pre­ma­turely given re­main­ing un­cer­tainty about the path of the pan­demic and its eco­nomic fall­out.

Fresh eco­nomic fore­casts re­veal a trou­bling di­ver­gence between ad­vanced economies, which are start­ing to re­cover from the pan­demic and wide­spread lock­downs, and de­vel­op­ing coun­tries and emerg­ing mar­ket economies, which face more dire straits and the grow­ing risk of de­fault­ing on their debts.

The new debt re­struc­tur­ing frame­work will be fi­nal­ized at an ex­tra­or­di­nary meeting be­fore a G20 lead­ers sum­mit next month, ac­cord­ing to the com­mu­nique is­sued af­ter a virtual meeting. An ear­lier draft had the min­is­ters adopt­ing the frame­work, but of­fi­cials were un­able to reach agree­ment on that step this week.

Of­fi­cials again ex­pressed dis­ap­point­ment about the con­tin­ued ab­sence of pri­vate-sec­tor par­tic­i­pa­tion in the mora­to­rium, and urged com­mer­cial lenders to join in when asked by coun­tries.

IMF Manag­ing Di­rec­tor Kristalina Ge­orgieva said only three el­i­gi­ble coun­tries had even reached out to pri­vate cred­i­tors out of fear of mar­ring their abil­ity to bor­row in the fu­ture.

She lauded China’s in­volve­ment, which has been crit­i­cized for not in­clud­ing the sta­te­owned China De­vel­op­ment Bank in its treat­ment of the DSSI re­quest, and said Bei­jing had now ac­knowl­edged it needed to “ma­ture do­mes­ti­cally” in how it han­dled co­or­di­na­tion of its own lenders.

UN­EVEN RE­COV­ERY

G20 fi­nance of­fi­cials said the over­all global eco­nomic out­look was less neg­a­tive, with eco­nomic ac­tiv­ity pick­ing up in some ar­eas. But they said the re­cov­ery was “un­even, highly un­cer­tain and sub­ject to el­e­vated down­side risks.”

They pledged to con­tinue to ad­dress the dis­pro­por­tion­ate im­pact the cri­sis is hav­ing on women, young peo­ple and other vul­ner­a­ble seg­ments of so­ci­ety.

World Bank Pres­i­dent Mal­pass told G20 of­fi­cials it was crit­i­cal to look be­yond the DSSI ini­tia­tive, which only de­fers pay­ments but doesn’t re­duce them, cit­ing a ris­ing risk of “disor­derly de­faults.”

He said the ur­gency of the cri­sis — which threat­ens to push 150 mil­lion more peo­ple into ex­treme poverty by 2021 — re­quired more force­ful ac­tion on debt re­duc­tion for in­debted poor states.

“The re­ces­sion in ad­vanced economies is less se­vere than had been feared, but in most de­vel­op­ing economies, it has be­come a de­pres­sion, es­pe­cially for the poor­est,” he said.

Mal­pass asked G20 lead­ers to back $25 bil­lion in ad­di­tional aid for the In­ter­na­tional De­vel­op­ment As­so­ci­a­tion, a divi­sion of the World Bank that helps the poor­est coun­tries.

G20 fi­nance of­fi­cials urged the IMF and the Bank, and other mul­ti­lat­eral de­vel­op­ment banks, to keep look­ing for op­tions to help struggling coun­tries, but failed to back a broader is­suance of new Spe­cial Draw­ing Rights, the IMF’s cur­rency, which would be akin to a cen­tral bank print­ing money.

The United States, the IMF’s largest share­holder, has firmly op­posed such a move, which is widely sup­ported else­where.

There was also no men­tion of cli­mate change in the com­mu­nique, af­ter the United States once again blocked its in­clu­sion, sources fa­mil­iar with the talks said.

Ge­orgieva said green in­vest­ments could add mil­lions of jobs, and called for more in­ter­na­tional co­op­er­a­tion on a vac­cine for COVID-19 (coro­n­avirus dis­ease 2019), not­ing that early progress could boost global in­come by $9 tril­lion by 2025. The United States has re­fused to sup­port the global COVAX scheme work­ing to dis­trib­ute COVID-19 vac­cines.

“Nine months into the pan­demic, we are still struggling with the dark­ness of a cri­sis that has taken more than a mil­lion lives, and driven the econ­omy into re­verse, caus­ing sharply higher un­em­ploy­ment, ris­ing poverty, and the risk of ‘ a lost gen­er­a­tion’ in low-in­come coun­tries,” she said. “A durable eco­nomic re­cov­ery is only pos­si­ble if we beat the pan­demic ev­ery­where,” she said.

Another se­nior IMF of­fi­cial said the United States should keep spend­ing to boost growth. But Mr. Mnuchin on Wed­nes­day down­played the prospect of reach­ing a new eco­nomic aid deal with Congress ahead of the Nov. 3 pres­i­den­tial elec­tion.

Saad Sid­diqui, a strate­gist at JPMor­gan, said progress to­ward a clear debt re­struc­tur­ing frame­work was im­por­tant to re­solve cur­rent un­cer­tainty plagu­ing some coun­tries.

“The longer it is dragged on, it just cre­ates un­cer­tainty, and that it­self is damaging,” he said. —

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