Bloomberg Law
Free Newsletter Sign Up
Login
BROWSE
Bloomberg Law
Welcome
Login
Advanced Search Go
Free Newsletter Sign Up

Creditors Pledge Advances to Ease Debt Pain of Poor Nations (1)

May 28, 2020, 1:33 PM

Private investors said they may offer low-income countries cash to offset debt payments due this year to help them fight the coronavirus pandemic.

The voluntary refinancing option would be made via advances on interest and principal falling due this year and is part of a long list of suggestions that may enable private creditors join a global relief initiative. Other solutions to ease $140 billion owed by the world’s poorest countries could include the more traditional method of changing bond terms.

The options were revealed by the Institute of International Finance, which represents more than 100 financial firms with more than $45 trillion in assets under management. It aims to kickstart slow-moving talks with a blueprint for negotiations between governments and creditors that have stalled due to fears blanket debt relief would trigger a mass default.

Read: Creditors Tackle Legal Thickets in Bond Plan for Needy Nations

“There’s no one-size-fits-all solution,” said Sonja Gibbs, managing director of global policy initiatives at the institute. “The idea is that the terms of reference can be tailored to individual country’s circumstances, and those are going to vary.”

Debt Terms

If the nations and investors agree, payments could be deferred for the rest of 2020 and eventually repaid over three years starting in 2022, after a one-year grace period.

Nations, however, must still convince investors to meet minimum participation thresholds in order ensure fair burden sharing, according to the IIF. They may still need to go through the more traditional legal process of rescheduling debt.

Local currency debts, central bank and financial-market transactions will not be covered under the initiative. Any advancement to pay obligations due this year will have the same repayment terms as the deferred amounts.

The Paris Club of official creditors has already signed off on a payment suspension for five countries. The initiative is being led by the G-20 group of industrialized nations, the International Monetary Fund and the World Bank.

Despite the progress, and a recovery in investor risk appetite as countries ease lockdown measures across the globe, the voluntary nature of the proposal may mean it falls short of easing the unsustainable burden carried by some developing nations, according to Jubilee Debt Campaign, an advocacy group.

“A country desperately needing to stop debt payments now could end up paying far more in the medium term due to accrued interest,” said Tim Jones, head of policy at Jubilee. “The G-20 agreement in April and the IIF proposal today go nowhere near responding to the unprecedented nature of the coronavirus debt crisis.”

(Adds IIF comments in fourth paragraph, advocacy group in ninth and tenth)

To contact the reporters on this story:
Sydney Maki in New York at smaki8@bloomberg.net;
Alonso Soto in Abuja at asoto54@bloomberg.net

To contact the editors responsible for this story:
Carolina Wilson at cwilson166@bloomberg.net

Marton Eder, Srinivasan Sivabalan

© 2020 Bloomberg L.P. All rights reserved. Used with permission.