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G20 moves to salvage debt relief for poor nations

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The world’s leading economies are struggling to agree on how to save a debt-relief programmeme for poor nations hit hard by the coronavirus pandemic.

The Group of 20 this week will likely assess a proposal by the International Monetary Fund (IMF) to strengthen the so-called Common Framework, a plan to reorganise loans that has been plagued by delays and a lack of interest from debtor countries since its inception in November 2020.

The talks come two weeks after G-20 finance ministers failed to publicly consent to a debt standstill within the programme, according to six people familiar with the discussions. The standstill is needed to provide support for poor countries whose debt bills are set to return to pre-pandemic levels of $47 billion next year, when a previous suspension on payments is set to expire.

Higher commodity prices, a stronger rebound in the global economy and newly allocated IMF funds have reduced the appeal of the common framework. But the IMF has warned the programme is still needed because low vaccination levels are likely to hit the recovery of poor countries, mostly in Africa, which are already struggling with the highest debt loads in at least a decade, according to IMF presentations seen by Bloomberg.

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The IMF press office declined to comment on the presentation, citing its policy not to comment on leaked documents.

Modeled on the rules of the Paris Club — a group of wealthy, mostly Western borrowers — the framework was seen as a breakthrough in efforts to bring China, the world’s biggest lender to developing countries, and private creditors together to avert a debt blowout in the wake of the pandemic.

Implementation problems
The programme, though, has been marred by implementation problems. The IMF highlighted that talks have dragged on for several months in Chad and Ethiopia, with little participation from private lenders. Those two countries, along with Zambia, are the only ones out 73 eligible nations to apply for the framework.

To make the programme more attractive and expedite existing talks, the IMF proposed incorporating the standstill on a conditional basis. But many G-20 members, most notably China, objected to including that option in the group’s Oct. 13 communique out of concern it may weaken commitments by developing countries to fix their debt problems, three of the people said. China’s Finance Ministry didn’t respond to questions seeking comment.

Although not explicit, the wording of the G-20 communique allows for a standstill to be proposed on a case-by-case basis during negotiations, said one of the people involved in the talks. It’s still possible for the group to back such a mechanism at a later date, the person added.

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