According to a Wall Street Journal article from earlier this week, China is in talks with other significant creditors regarding a compromise approach that could help break the impasse in negotiations for debt relief for struggling developing countries.
The Journal reports, citing individuals familiar with the negotiations, that if the new plan is approved, China may abandon its demand that multilateral lenders such as the World Bank and the International Monetary Fund share losses in any debt-restructuring deals, a demand that has prevented workouts for countries such as Zambia and Ghana.
According to the Journal, this return would be in exchange for clearer commitments to provide new low-cost financing, including grants, from multilateral lenders and regional partners such as the Asian Development Bank and the African Development Bank.
The new concept, according to the sources, could serve as a model for multibillion-dollar debt-relief agreements with other developing nations in financial crisis, and it could help break a stalemate that has prevented China and other government creditors from renegotiating Zambia’s obligations.
Then, the particulars of Zambia’s debt restructuring, such as extending repayment deadlines and lowering interest rates, could be negotiated. According to sources familiar with Beijing’s decision-making, China continues to oppose incurring losses on the nominal value of its loans.
This week, for the first time in three years, senior Chinese officials will personally attend the spring meetings of the World Bank and the International Monetary Fund in Washington due to COVID-19 restrictions.
On Wednesday, representatives from around the globe will convene to discuss sovereign debt, and China is expected to be well represented.
The U.S. Treasury announced on Monday that Secretary Janet Yellen will advocate for prompt action on requests to restructure national debt from Zambia and Ghana, as well as measures to complete a debt treatment for Sri Lanka.
