Investors Spell Out Hurdles to Achieving Global Debt Relief Plan

Private creditors have articulated the problems that will have to be overcome for them to support debt relief for the world’s poorest nations as they counter the coronavirus pandemic.

Legal and financial limitations will probably force investors to waive debt payments case by case, the Washington-based Institute of International Finance said in a letter to the leaders of the International Monetary Fund, the World Bank and the Paris Club of creditors.

It was published after the IIF, a group of financial institutions, coordinated discussions on debt relief for emerging markets with more than 100 firms that manage almost $45 trillion in assets. They’re discussing how to expand financial aid to countries facing $730 billion in debt maturities this year.

READ: Why There’s a Looming Debt Crisis in Emerging Markets: QuickTake

“Many will have fiduciary duties to their own clients, and contractual obligations around specific lending and investment vehicles are often complex,” the letter stated. “Similarly, there are many different sovereign borrowers included in the initiative, and their respective positions are each unique. Any effective approach to voluntary creditor/lender participation must take this into account.”

The initiative is part of a broader push to help the world’s poorest nations. The Group of 20 leading economies has agreed to suspend debt-service payments from such countries until the end of the year, while the IMF is disbursing funds and working to prop up their finances as the virus brings economies to a standstill.

Even as private creditors pledged to continue discussions, they cited a number of hurdles to agreeing to relief, including maintaining countries’ market access for future funding, avoiding knock-on effects on sovereign credit ratings and triggering default.

The initiative will apply to sovereign loans and debt securities issued in foreign currencies. Local debt, as well as transactions with central banks will be outside its scope.

“Discussions with private and other international creditors and lenders indicate widespread willingness to support the aims of this initiative, subject to further clarity on the key issues,” the IIF said.

(Updates third paragraph with debt maturities.)

--With assistance from Paul Wallace and Robert Brand.

To contact the reporters on this story:
Marton Eder in Budapest at meder4@bloomberg.net;
Alonso Soto in Abuja at asoto54@bloomberg.net

To contact the editors responsible for this story:
Alex Nicholson at anicholson6@bloomberg.net

Aline Oyamada, Philip Sanders

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