Finance firms might profit $30 billion by postponing debt relief
4 Min Read
Five heavily indebted countries will give the world's biggest financial companies a $30 billion paycheck.
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A man sells chickens in Sholla Market in Addis Ababa, Ethiopia on Saturday, September 10, 2022. (AP)
According to a report by The Guardian, some of the world's largest financial firms stand to benefit up to $30 billion by opposing rising pressure to offer debt relief for five deeply indebted countries.
According to Debt Justice, private-sector creditors' stance is impeding progress in easing the financial burdens of Ethiopia, Ghana, Sri Lanka, Suriname, and Zambia, which might help reduce poverty.
Both the IMF and the World Bank have urged private creditors, the largest of which is the US asset management firm BlackRock, to hasten debt reduction under the common framework established by the G20 group of wealthy and developing countries in 2020.
So far, only Chad has benefited from debt relief under the shared framework, which brings together multilateral creditors such as the World Bank, sovereign creditors such as China, and private investors. Under the project, Ethiopia, Zambia, and Ghana have sought debt relief.
Debt Justice claimed that private creditors were holding out to maximize profits on bond holdings, and urged the government to enact legislation to compel private creditor involvement in debt relief. English law governs somewhat more than half of the bonds in private ownership.
BlackRock stated that it has a long history of being a "responsible and constructive" partner in debt restructuring and that it shared the goal of reaching an agreement.
According to a spokesperson, “BlackRock is a long-term investor in emerging market sovereigns on behalf of our clients. As a fiduciary, the money we invest on their behalf is not our own – it is predominantly the money of ordinary people saving for retirement, and we have to act in their best financial interests at all times. For that reason, we cannot unilaterally forgive sovereign debt.”
According to a Debt Justice investigation, private investors who purchased Ethiopian, Ghanaian, Sri Lankan, Surinamese, and Zambian bonds when they were initially issued stand to profit $20 billion if they are paid in full.
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Private creditors would earn $30 billion if the bonds were purchased at present low prices and paid in full. "Private lenders are having their cake and eating it," said Heidi Chow, executive director of Debt Justice. They've already benefitted from charging higher interest rates to cover their risk, and now when nations are unable to pay, they want to profit from full payment.
“With essential public services at stake, like healthcare and education and fighting the climate emergency, lenders must be forced to negotiate debt cancellation, and new legislation can do just that.”
The campaign organization suggested that the government consider revising the 2010 law that barred creditors from requesting more than they would have gotten in a previous phase of debt relief, known as the Heavily Indebted Poor Countries (HIPC) project.
According to a government spokesperson, “The UK has consistently pushed the importance of private creditor participation in debt restructurings at the international level and we are working closely with industry partners to reinforce that approach.
“We remain focused on building awareness of UK-led reforms to strengthen private debt restructurings and encourage financial institutions to take up these provisions.”
Poor countries forced to cut public spending: UK Debt Justice
Research published in June 2022 revealed that the lack of an effective debt relief scheme is forcing some of the world's poorest countries to cut public spending in order to make payments to their creditors.
The most indebted countries are expected to cut public spending by 3% on average between 2019 and 2023, despite the need to offset the impact of rising food and energy prices, according to a report by Debt Justice.
Using IMF data on debt and public spending, the campaign group stated that the disparity between high and low-debt countries highlighted the need for more comprehensive relief. Between 2019 and 2023, low-debt countries will increase their spending by an average of 14%.
