WASHINGTON (Reuters) – China on Thursday urged the World Bank to allow its poorest borrowers to suspend their debt payments as they face the coronavirus pandemic, saying the world’s largest multilateral development bank should “lead by example”.
Chinese Finance Minister Liu Kun said in a statement to the World Bank’s Development Committee that all parties should participate in joint actions agreed by the Group of 20 to address debt vulnerabilities amid the pandemic. , including official commercial, multilateral and bilateral creditors.
Liu said the suspension of debt service by the International Development Association’s branch of the World Bank Group would be “net present value neutral” and would not hurt his credit rating.
If the World Bank Group “does not participate in collective actions aimed at suspending debt service payments, its role as a world leader in multilateral development will be seriously weakened and the effectiveness of the initiative will be compromised”, Liu said.
On Wednesday, the major G20 economies agreed to suspend bilateral public debt service payments to the world’s poorest countries until the end of the year, a move quickly followed by a group of hundreds of private creditors. It was to release more than $ 20 billion that countries could devote to tackling the coronavirus epidemic.
“As a responsible bilateral creditor, China will actively engage in bilateral consultations with borrowing countries to implement the debt service suspension arrangements agreed by the G20 by consensus,” Liu said.
World Bank President David Malpass, who has advocated for the G20 debt initiative, told a meeting of G20 finance officials that multilateral banks’ debt abstention from development would require them to maintain their solvency.
“The suspension of repayments to MDBs, if not fully offset by new shareholder contributions, would risk harming the poor both in the short term, by reducing our capacity for initial assistance, and in the long term,” by reducing our leverage capabilities, ”Malpass said in a statement.
CHINA SUPPORTS SDR ISSUE
People’s Bank of China Governor Yi Gang said in a separate statement to the International Monetary Fund’s steering committee that China supports a general allocation of new special drawing rights, which would increase liquidity for member countries.
US Treasury Secretary Steven Mnuchin on Thursday dashed any hope of such a new IMF currency reserve issuance right now, saying it would help poorer countries little and most of the benefits would go to richer countries who don’t need it.
Sources familiar with the IMF’s deliberations on the matter told Reuters this week that the United States was also opposed to the fund providing new resources to Iran and China unconditionally.
“We also support a timely allocation of Special Drawing Rights (SDRs), which has proven to be an agile and effective measure in responses to previous crises,” Yi said.
In 2009, the IMF allocated $ 250 billion in new SDRs to its members, which helped increase liquidity at the height of the last financial crisis.
Reporting by David Lawder; additional reporting by Andrea Shalal; edited by Sandra Maler and Leslie Adler