China available to forgive debt - Plataforma Media

China available to forgive debt

In a context of global recession resulting from the Covid-19 pandemic, African countries have multiplied calls for debt service cancellation, restructuring or forgiveness, which was accepted at the last G20 summit (of which China is a part). However, the conditions under which China provides financial support follow its own rules and the last word lies in Beijing on the way forward.

China negotiates loans differently from that followed by the International Monetary Fund (IMF) or the World Bank (BM); it is in Beijing that it is determined whether or not debtors are susceptible to debt forgiveness.

An analysis published this week in The Diplomat explained that the criteria for debt forgiveness are defined by a joint body from the Ministries of Finance and Trade, the Development Bank of China and the entity that finances support for imports and exports, the China Exim Bank. The same entities that approve the granting of loans.

The fate of the African debt to China depends on the analysis of that four-party entity. With an important detail: many of the loans have associated trade clauses and in a time of international recession – and a significant retraction of the Chinese Gross Domestic Product (GDP) in the first quarter of 2020 – any fall in exports will not be seen in Beijing as a desirable scenario.

What prompted a Chinese diplomacy spokesman earlier this week to leave a careful response to a Reuters question about the feasibility of a Chinese pardon on African debt. “The origin of the debt is complex and the profile of the debtor countries is very varied (…). We are available to study this possibility together with the international community,” he said.

Chinese reluctance stems precisely from “the need to get some return on investment,” an analyst at Overseas Development Bank tells Reuters to explain Beijing’s reluctance. “No substantial forgiveness is to be expected,” he admits.

IMF Director-General Kristalina Georgieva said last week that Beijing was taking a “constructive” approach, recognizing that the Chinese had been available to address the issue. But only from a few countries and within the framework of bilateral understandings, a spokesman from Beijing would later clarify to Reuters, and not any global solution between G20 members and debtors.

Chinese realism is not new. In 2018, he recalled the text of The Diplomat, a Chinese official, in a situation not as complex as the current one, underlined: “even when Africans do not pay us, we still have commitments to fulfill”.

Chinese reluctance to forgive African debt may have repercussions on the behavior of Western and Japanese creditors, the Wall Street Journal stressed at the end of last week. Why would these creditors forgive debts if the funds so freed up could be channeled to debtors to service debt to China, the American daily wrote.

As a rule, when Beijing forgives certain debts, that forgiveness is selective. The Diplomat’s text explains that most debt forgiven to African countries, until 2018, was of interest-free loans or whose payment term had expired. And of low amounts: the equivalent of 5 percent of total loans up to that year.

An analysis by the Brookings Institute, published earlier this week, underlined precisely this point, recalling that, in 2018, President Xi Jinping himself announced the forgiveness of interest-free debt on intergovernmental loans.

The debt review process applies to each loan on its own and not to a country’s total debt. A complex process, as loans do not have a single source. In addition to official entities, there are other types of institutions, such as banks and companies, that lend funds to African governments. With specific parameters for the renegotiation of loans.

Thus, according to the analysis by the Brookings Institute, in a perspective that agrees with the majority of observers, faster than a simple debt forgiveness, China’s restructuring and recourse to other credit conversion mechanisms should be seen. Even for a very simple (but important) reason that other creditors in African countries cannot be indifferent: the liability of debtors.
The Brookings text reads: “Simple debt forgiveness would not encourage responsible borrowing by African countries for China” and today’s Chinese losses would “turn into more African debt in the future”.

Related posts

USA condemns and calls for investigation into attack on “Canal de Moçambique”


Malian military plans to remain in power for three years and free Keita


Mass tests control coronavirus in Vietnam


Indonesians sunbathe to protect themselves from coronavirus

Subscribe to our Newsletter.