Some more details on lack of action on private creditors - RE: C20 Finance WG reaction to the G20 Communique
The G20 woefully fell short of ensuring that private creditors (lenders and bond holders) also suspend the debt servicing payments, let alone debt relief and restructuring. The only mentioning in the communiqué of the G20 finance ministers and governors on their 7 April meeting is: ”We reiterate our call on the private sector, when requested by eligible countries, to take part in the DSSI on comparable terms.” The role given by G20 last year to the Institute of International Finance (IIF), the largest financial lobby group, to engage the private creditors to act, has not been mentioned any more. Clearly, the IIF’s engagement and IIF documents on voluntary DSSI participation by private creditors did not deliver, as SOMO explained in its blog last week here . SOMO research has found that on the one hand the IIF has developed documents and in-country investor committees to deal with ”fair debt restructuring” which were not used, and on the other hand that many private creditors are not member of the IIF, so the IIF cannot be a spokesperson for the private creditors let alone have leverage on them to act responsibly.
Regarding further debt relief and restructuring, again vague wording regarding the private creditors: “We stress the importance for private creditors and other official bilateral creditors of providing debt treatments under the Common Framework on terms at least as favorable, in line with the comparability of treatment principle. We reiterate the importance of joint efforts by all actors, including private creditors, to continue working towards enhancing debt transparency. “
In the annex II “Update on the G20 Action Plan” regarding vulnerable countries (pillar 3), there is a total lack of measures being announced, only stating “We will further examine ways to improve the architecture for sovereign debt restructuring involving private sector creditors.” So there is complete political unwillingness ??
This lack of pressure on debt holders was echoed in an opinion piece in the Financial Times, which warns about the inaction on emerging market debt traps (also attached). As NGOs have pointed out, this inaction means public debt relief will be paid out to private creditors and will have many negative impacts. The G20 is also incoherent by calling for more private financing for infrastructure and through the World Bank Group (blended finance), i.e. taking on more debt. At the same time, the private sector through the IIF is promoting a profitable business model by issuing more debt and financial instruments (up to derivatives) related to climate-related , environmental and socially sustainable finance: the lobby towards the G20 Venice Climate Summit on 11 July is to be watched!
Regarding debt transparency, the update of the G20 action plan and the communique mention that the IMF and WBG have also been working on their proposal of a process to strengthen the quality and consistency of debt data and improve debt disclosure. A new voluntary self-assessment of the implementation of the G20 Operational Guidelines for Sustainable Financing, should indicate if improvements have been made.
Debt transparency by the private creditors have of course also been a major problem, apart from the non-disclosure clauses in Chinese debt contracts. The 7 April G20 communiqué only mentions to “look forward to further updates on the implementation of the Institute of International Finance Voluntary Principles for Debt Transparency.” There is however no mentioning any more about the OECD’s offer to host the debt data deposit, which the IFI/IIF Working Group on Implementation of the Voluntary Principles for Debt Transparency discussed regarding the governance, capacity, continuation, the adherence and distribution, the financing and reporting system. The IIF itself, in its letter of 9 April, mentions that it is “delighted to be partnering with the OECD in launching the repository for debt disclosures for the private sector Voluntary Principles for Debt Transparency and improving the dissemination of such data.” It call for other debt transparency initiatives, including about borrowers’ and official sector creditors’ transparency to improve and integrate.
Although the shorter the better the C20 comment, I have made some comments to strengthen the C20 statement on the lack of action on private creditors.
Also, I added to the draft C20 document a short comment on the newly re-established Sustainable Finance Working Group: it should not slow down efforts in some countries or regions like in the EU, by working towards global standardization (which is of interest to the global business sector) nor only focus on climate but also on inequality.
For more information about the SOMO research about private creditors and the IIF, do not hesitate to contact me (as some of you have already done).
Hoping to be useful,
- Vander Stichele
SOMO – www.somo.nl
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