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G20 finalizing work on common framework for debt reductions

WASHINGTON (Reuters) - Group of 20 finance officials expect to complete work on a common framework for dealing with the debt problems of the world’s poorest countries when they meet on Friday, with G20 leaders due to give their stamp of approval a week later.

FILE PHOTO: A man stands next to a board with the G20 Meeting of Finance Ministers logo in Buenos Aires, Argentina, March 19, 2018. REUTERS/Marcos Brindicci/File Photo

Agreed in principle by G20 officials last month and endorsed by the Paris Club of official creditors, the framework will essentially extend the rules of the informal creditor group to include China, which accounted for 63% of overall debt owed to G20 countries in 2019, according to World Bank data.

“We expect to go ahead with the common framework, and it’s a very important step to have this creditor coordination at the G-20 level. The idea is that this will be finalised by the time of the leaders summit,” Ceyla Pazarbasioglu, director of the International Monetary Fund’s Strategy, Policy and Review Department (SPR), told Reuters in an interview.

She said the framework was important because it included China, and would help ensure comparability of treatment “much more forcefully” than the G20 freeze in official bilateral debt payments that runs through June 2021.

Pazarbasioglu said IMF officials had been meeting with private lenders to explore ways to increase participation in the G20 Debt Service Suspension Initiative (DSSI). “There is potential for having the private sector participate in the DSSI, especially for non-bonded debt,” she said.

Private creditors are pushing for a case-by-case approach.

“The options that investors face with regard to the DSSI cannot be simplified to participate or not participate in debt service suspension,” Ashok Parameswaran, president of the Emerging Markets Investors Alliance representing some 2,000 asset managers said in a letter to the IMF last month.

Friday’s extraordinary meeting comes amid signs the pandemic has exacerbated problems for the poorest countries, 50% of which are now in or at risk of debt distress.

World Bank chief economist Carmen Reinhart has warned that debt reductions, not just deferrals, are needed, and that failure by the G20 to move in this direction could result in a “lost decade”. She said China had thus far been reluctant to embrace the prospect of debt cancellation.

One source familiar with the negotiations on the framework said China had sought to “water down” some of the guidelines adopted by the Paris Club, including definitions of state-owned banks -- an attempt to shield the China Development Bank and China EXIM from full exposure to potential restructurings.

The International Chamber of Commerce, the International Trade Union Confederation, and Global Citizen, a group pushing to end extreme poverty by 2030, urged G20 officials in an open letter not to exclude or discourage the need for debt cancellations and write-offs in certain cases.

The letter, seen by Reuters, said G20 officials should ensure debtors did not accept less favorable treatment by commercial creditors and that the framework should apply to “all debt countries needing debt restructuring, particularly small island developing states”.

IMF Managing Director Kristalina Georgieva has highlighted the need to help such countries, a move backed by Canada, but work on a separate instrument modeled on the IMF’s Poverty Reduction and Growth Trust to do that has not found widespread support, according to multiple sources familiar with the effort.

Reporting by Andrea Shalal in Washington, Additional reporting by Karin Strohecker in London, Editing by Catherine Evans

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