Long-running tensions between the major international lenders and China were aired at a meeting in China’s Anhui province, where participants sought agreement on a way forward for some of the world’s most indebted countries, many of them in Africa.
Representatives of the International Monetary Fund, World Bank, and Beijing’s finance ministry participated in the meeting to discuss debt restructuring for low-income countries — 60% of which the IMF says are at or near debt distress.
The relationship between the IMF and China — the world’s largest bilateral creditor — has not been an easy one, Harry Verhoeven, a senior research scholar at Columbia University, told VOA.
“The Fund has in recent years come under great pressure from its most important shareholders — the U.S. and European countries — to be much tougher on China and debt — and to help identify ways that either expose China as driving the build-up of unsustainable levels of indebtedness in African states” or that force China to cancel some of the debts owed to Beijing, he said.
“Yet on the other hand, the Fund also suffers from a crisis of legitimacy related to its perceived prioritizing of Western interests and concerns,” he added. “A growing number of developing countries in recent years/decades have sought to turn away from the Fund and deeply distrust its advice and conditionalities.”
What African countries hoped for as the outcome of this meeting, analysts said, was a combination of debt restructuring and forgiveness — as well as more predictability and reassurances that fresh capital will still be available to them.
“A large number of African countries' balance sheets are shot to bits and these countries are technically insolvent,” said Kenya-based economist Aly-Khan Satchu.
Conciliatory tone
The press releases from both Beijing and the IMF after the meeting struck an optimistic tone.
IMF chief Kristalina Georgieva said she had a “fruitful exchange” with her Chinese counterparts on how to accelerate debt relief to prevent “triggering a global debt crisis.”
Georgieva said China could “play an active role” in helping speed up the Common Framework, a plan by the G-20 announced two years ago to help countries buckling under debt by getting private creditors to participate and share the burden fairly.
So far, only Ethiopia, Chad and Zambia have made requests for debt relief under the Common Framework.
Ethiopia has been suffering a civil war, so its restructuring has been delayed, according to Reuters. Chad has completed the debt treatment process — although the agreement has been criticized for failing to reduce Chad’s overall debt.
“We need to build on the momentum of the agreement on Chad's debt treatment and accelerate and finalize the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks,” said Georgieva.
In 2020, Zambia became the first African nation in the COVID-19 pandemic era to default on its loans. In July its official creditors, led by China, agreed to provide debt relief. The move was welcomed by the International Monetary Fund, but the process is moving slowly. The finance minister of Zambia recently told Reuters he hopes his country will complete its debt-restructuring by the first quarter of 2023.
Meanwhile, crisis-hit Sri Lanka, which defaulted on its sovereign debt this year, is not eligible for the Common Framework because it’s a middle-income country. However, it has begun debt-restructuring talks, with creditors China, India and Japan playing key roles in the outcome.
The Chinese response
China has often come under criticism, especially from U.S. Treasury Secretary Janet Yellen, for not participating enough in international efforts to reduce developing nations’ debt burdens or for delaying those efforts.
However, after last week’s meeting, Chinese Premier Li Keqiang said that “China will continue to strengthen macro-policy coordination with all parties, including the IMF, to tackle debt” and will “work with relevant G-20 members to formulate and participate in a fair and equitable debt-restructuring plan.”
“As expected, China and the IMF made lots of positive noises about China's role in finalizing restructuring for Sri Lanka and Zambia, as both the [IMF] managing director and the Beijing leadership need each other to recognize the efforts and legitimacy of the other,” said Verhoeven.
However, “there was no full-throated endorsement of the IMF-led Common Framework for Debt Treatments by China,” he noted, something the IMF would have liked.
Verhoeven noted that in the IMF’s communique after the Anhui meeting, “there was a recognition that the Framework must become more functional and predictable, which in Beijing translates as a recognition that China should not be uniquely vilified for the accumulation of debts by emerging economies in Africa and elsewhere.”
China has often been accused by the West of practicing “debt-trap diplomacy” — deliberately lending to countries that it knows cannot pay back, thereby increasing its political leverage — though the theory has largely been rejected by academics.
Just this week, China’s ambassador to the U.S., Qin Gang, cited a report by British charity Debt Justice that shows African countries in fact owe three times as much to Western private lenders.
China has often argued that multilateral development banks should also participate in debt restructurings.
Hard road ahead
World Bank President David Malpass was also in attendance at the Anhui meeting and took a more confrontational line than Georgieva, saying: “In our meetings, we discussed in detail the debt crisis that is intensifying in the world’s poorest countries and China’s role and responsibility in initiating and implementing solutions.”
He said there is an urgent need for more rapid progress in debt restructuring discussions for Zambia and that “changes in China’s positions are critical in this effort.”
He also urged China to be transparent in its loan contracts to help investors make informed decisions.
Kenya-based economist Satchu was not convinced the meeting achieved much, in the end.
“The Chinese clearly prefer to maintain a degree of autonomy in all discussions with debtor countries and I suspect this visit was an attempt to reach some kind of modus operandi between the IMF and China after some quite ham-fisted railroading attempts by the IMF,” he said.
“In a geoeconomic context, it’s crystal clear China's Africa lending appetite is satiated, that the U.S. and the Multilaterals will need to step into the breach. ... The challenge for the U.S. [and the IMF] is that … a lot of these new funds will be round-tripped back to China to pay down Chinese loans,” said Satchu.
