Image: China – No friend in need.
International Monetary Fund (IMF) Managing Director (MD) Kristalina Georgieva says the problem that China has in restructuring debt owed to it by countries like Sri Lanka is that they expect to be paid back because it is a developing country.
She made these comments while speaking to IMF’s Communications Director Julie Kozack on Thursday, January 12.
Furthermore, Georgieva warned that if countries like Sri Lanka are not provided with debt restructuring, it will be very difficult for those countries to provide basic services to the poor.
“We have engaged with the Chinese authorities, working on two very important issues: One, coordination among Chinese agencies that would allow all sources of debt to China to be part of the discussion for a solution.
And this has been a long process and it is still continuing.
China does not have the tradition of that coordination that exists in more mature lenders.
China has many agencies and entities involved.
The second area we have engaged with China is at the country level, to define a pathway for debt resolution of Chad, Zambia, also, we are discussing Sri Lanka, Suriname, to help China understand both the whole issue of debt sustainability and what can be a pathway for their contribution.
When we were in China last month, we asked to have a meeting with the two key agencies, the China’s Finance Ministry and the People’s Bank of China; as well as with the large lenders in China, Exim Bank and China Development Bank.
They came for this meeting and we had a very constructive and frank discussion on these issues.
What is the biggest problem internally, domestically for China?
It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore China will try to offer support to all developing countries genuinely with the objective to help, but also, they expect to be paid back because it is a developing country.
So, a haircut in the Chinese context is politically very difficult, but they understood, after many interactions that there are ways in which they can reach the equivalency of a haircut by stretching maturities, reducing or eliminating interest rates, payments and the Paris Club in their own engagement with China, so that there might be a way to reach the same objective in a way that in terms of reducing the burden of debt.
Now, of course, it is much better if debt reduction is done upfront, not to that reprofiling, but to as you said, haircut.
So, we of course, continue to discuss with China, the value for China as a lender to have their exposure to countries defined in a way that is rational and then the countries can actually service that debt.
For countries that are suffering under tremendous burden of debt, they cannot possibly serve, that translates into reducing social services for their own people.
And that is not the choice they should be faced with“.
Excerpt from Interview with Kristalina Georgieva, Managing Director (MD), International Monetary Fund (IMF), Publsihed on IMF Web on Friday, January 13