Mr. Malpass, the Covid crisis has exacerbated the debt problems of the poorest countries to such an extent that 60 percent are or are about to default.

Should rich countries accept a haircut?

Winand von Petersdorff-Campen

Economic correspondent in Washington.

  • Follow I follow

Yes, of course.

We have three groups of creditors: richer countries, private banks like bond investors, and the big new player China with government and commercial lenders.

All three groups must find ways to bring relief to poor countries.

So a haircut?

Yes.

For low-income countries, it is not enough to simplify repayment modalities.

The debt must be reduced by a fair haircut.

Poor countries need light at the end of the tunnel.

Investors are now reluctant to invest in poor countries because of the high debt overhang.

However, investments are urgently needed to give the countries hope for growth.

What would it cost rich countries to reduce poor countries' debt to sustainable levels?

It won't cost governments or taxpayers much.

Each country is of course different.

However, compared to the budgets of the industrialized countries, the poor countries only have small mountains of debt.

The debt initiative of the G-20 countries that you called for is stalling.

Are you disappointed?

I've been frustrated by the weak participation in the so-called Debt Service Suspension Initiative, which temporarily relieved poor countries of debt service.

Because private creditors were free to participate.

Not even all public lenders were asked to cooperate.

In the end, only half of the expected debt relief was achieved.

The G20's debt relief plan also leaves much to be desired.

For reasons of fairness, it is crucial that the different lender groups all participate.

Otherwise the temptation is too great for a believer to trick the system.

The G20 must redouble its efforts.

China is now one of the largest lenders.

What do you expect from the country?

In fact, China is the world's largest sovereign lender to poor countries, larger than the rest of the world combined.

The government has signaled that it wants to help.

Isn't the real problem that China has lent a lot of money, hardly anyone knows how much it is and under what conditions it was given?

Right.

In order to be able to relieve poor countries, we need a transparent list of all debts.

Unfortunately, China has so far not been willing to participate.

Not only do we need to know how much money is owed and to whom.

We also need transparency about what guarantees have been promised to creditors and whether they have secured special access rights to payments.

In practical terms, you want to know if China can take a port in Sri Lanka if the country defaults?

It's even more complicated.

In Uganda, China has said it has not secured a claim to the airport on a loan.

However, it turned out that the airport's proceeds went into an escrow account that China had access to.

It was similar in Ecuador 2020.

What if we don't solve the debt crisis?

Is a financial crisis threatening to spill over into rich countries?

Unlike the Latin American debt crisis or the Asian crisis, I don't see any major risk of contagion for the richer countries.

Rather, my great concern is that people are impoverished, starving, malnourishing and fleeing.

I fear that education and healthcare will collapse.

We are already seeing this in the poorest countries.

With the Debt Service Suspension Initiative ending, poor-country governments are paying debt services to rich lenders instead of spending the money on their citizens' health and nutrition.

We're talking about $35 billion in annual debt servicing, right?

Yes, we have determined that.

And almost everything goes to rich lenders.

How much does that compare to aid going to poor countries?

The World Bank's poor countries division is the International Development Association IDA.

We have managed to get industrial and emerging countries to donate 23.5 billion dollars to the relief fund over the next three years.

We quadruple the sum to $93 billion through various leverage methods.

Even so, poor countries will pay more money to service their debts than they get from us.