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G20 criticised for inaction on Sovereign Debt - expert comment

Comment by Dr Stephen Connelly, Associate Professor of Law and Dr Celine Tan, Reader in Law, Co-Directors, Centre for the Law, Regulation and Governance of the Global Economy (GLOBE), Warwick Law School:-

"The lack of new commitments and policy proposals for tackling the sovereign debt crisis in developing countries by the G20 is disappointing and will have widespread ramifications not only for the indebted countries but for the global community.

"The G20 Finance Ministers and Central Bank Governors meeting ended on Saturday, 18 July with no progress on debt relief for low and middle-income countries facing the worse economic recession in the post-war period. This inaction undermines the G20’s commitment ‘to use all available policy tools to safeguard people’s lives, jobs and incomes, support economic recovery, and enhance the resilience of the financial system’.

"The meeting ended with no commitments to extend or expand the Debt Service Suspension Initiative (DSSI) for low-income countries agreed in April 2020, no mandate to compel private creditor participation in debt relief mechanisms, no proposals to deal with middle-income or emerging market debt, and no discussion of sovereign debt write-downs.

"This lack of action comes in the context of reports by debt campaigners that despite over 40 countries participating in the DSSI, developing countries continue to owe up to US$33.3 billion in debt service repayments through to the end of 2020, and that international public finance is being used to repay debt owed by developing countries to private creditors.

"Official debt relief is intended to free up resources for countries to support health, humanitarian and social and economic measures during the COVID-19 pandemic. Yet instead those resources must be used to service debts owed to commercial creditors, who in effect are receiving a COVID-19 windfall. The cost of this diversion falls not only on the countries facing the debt burden but also on the global community as it makes containment of the pandemic and its associated social and economic consequences much more difficult.

"There needs to be an urgent global plan to deal with the sovereign debt crisis that is fast, effective and sustainable. This includes a standstill on public and private debt repayments for indebted countries to allow for health mitigation measures and economic recovery, and a commitment to an equitable and sustainable sovereign debt restructuring mechanism.

"Under the auspices of The IEL Collective Law and Finance Working Group, we have proposed legislation in the UK to suspend enforcement of debt service owed by private creditors of DSSI-eligible countries. While the proposal is limited in its scope to deal comprehensively with the current sovereign debt crisis, it will nonetheless offer an emergency measure that will enable fiscal breathing space for countries to deal with the ongoing pandemic and its economic fallouts.

"Our proposal demonstrates that there are straightforward legal and policy mechanisms available to deal with sovereign debt crises that place people before profit. There now needs to be a corresponding political will among the global community to do enact them."

20 July 2020

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