NewsLatin AmericaThe UN asks to alleviate the debt of 54 countries to avoid the risk of bankruptcy

The UN asks to alleviate the debt of 54 countries to avoid the risk of bankruptcy

With the end of the expansive monetary policy, and with an already palpable contraction in global economic activity, a concern that made headlines in the 2008 financial crisis returns to the economic debate: the indebtedness of countries. As many as 54 developing countries need urgent debt relief due to the cascade of global crises, according to a report released Tuesday by the United Nations Development Program (UNDP). These states, which account for 18% of the world’s population, are at significant risk of going bankrupt. Failure to act, UN experts point out, “could have a brutal cost.”

The report, titled Avoiding ‘Too Little Too Late’ on International Debt Relief (Avoiding ‘Too Little, Too Late’ in International Debt Relief) points out that, of these 54 countries, up to 19 developing economies are paying more than ten percentage points on the US bond to finance themselves, which is driving them out of the debt markets. States borrow money from investors —which can be state or private— at an agreed interest rate. These lenders ask for more profitability the greater the risk of default. Most of the economies included in the study have a high volume of debt at high interest rates.

Bonds from countries included in the report, such as Sri Lanka, which went into receivership at the beginning of the year, and Ghana, whose rating has been downgraded, are paid at 27 and 43 cents per dollar, respectively. “When emerging market bonds trade at 40 cents on the dollar, private creditors suddenly become more open to negotiation,” said George Gray Molina, UNDP chief economist, in the report’s videoconference presentation. “The missing ingredient, at the moment, is the financial guarantees from the main creditor governments to close a deal.”

The most vulnerable countries

Somalia, Chad and Sao Tome and Principe head a list in which Ukraine stands out and also includes Argentina, ravaged for decades by an endemic debt crisis. More than half are in sub-Saharan Africa and the rest are mainly concentrated in Latin America and the Caribbean. In addition, up to 28 of them are among the 50 most vulnerable states in the world to the climate crisis. The study includes a list of those that, although not yet at high risk, are borderline, such as Moldova or Angola. Gray has singled out Pakistan, Sri Lanka and Tunisia as three of the economies most urgently in need of interventions.

“Although they represent half of the poorest population in the world, these [54] countries only account for 3% of the world economy”, defended the administrator of the UNDP, Achim Steiner. “Debt relief would be a small effort for rich countries, but the cost of inaction is brutal for the world’s poorest. We cannot afford to repeat the mistake of providing too little relief, too late, in managing the debt burden of developing economies,” he adds. According to the report, the richest economies have the resources to end this crisis, to which they have contributed in part with their own monetary policies.

The document points to the poor results of previous initiatives to mitigate sovereign indebtedness and proposes that the G-20 Common Framework for the Treatment of Debt focus on several key areas: the analysis of its sustainability, the coordination of state creditors, the participation of private parties, and the use of state clauses that allow their weight to be reduced when economic setbacks occur or, for example, natural disasters. According to the UNDP administrator, “the debt problems that many of these countries have are not the result of irresponsible internal policies.” For Steiner, it is a sum of shock: the pandemic, the inflation caused by the war in Ukraine and the bottlenecks in trade, the rise in interest rates to alleviate the increase in prices and the climate crisis.

This week the finance ministers of the G-20 will meet in Washington just before the annual meetings of the World Bank and the International Monetary Fund. “The meetings will focus on interest rate hikes but the conversation should focus on debt restructuring,” Gray said. The economist has insisted that the conditions are right for creditors and debtors to start debt restructuring talks within the Common Framework of the G-20 and avoid a long-term crisis. “We must act now, before the situation gets worse,” Gray concluded.

Source: EL PAIS

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