TWN Info Service on Finance and Development (Oct20/03)
16 October 2020
Third World Network

G20 Finance Ministers fail to meaningfully address South’s debt distress

15 October 2020 (Bhumika Muchhala, New York)

The Group of 20 (G20) announced a six-month extension of the Debt Service Suspension Initiative in their communiqué released on 14 October. The period of debt suspension is also lengthened from four to six years. The extension concludes in spring 2021, at which time the G20 will “examine” if the financial and economic situation of indebted low-income countries requires another extension of six months.

Unfortunately, the cancellation of external debt is not on the table. Many debt-distressed low-income countries require debt cancellation in order to place life above debt in the midst of a global pandemic. The crippling impact of debt on public health services is demonstrated by some low-income countries who repay creditors sums greater than their national healthcare budget.

While a debt suspension is a constructive crisis response in the immediate term, suspensions keep the debt itself intact, accumulating interest with time. This could become a direct pathway to insolvency and debt default when the suspension lifts and repayment with interest come due between 2022 and 2024. The short-term and fragmented approach of six-month intervals also creates uncertainty and insecurity for domestic economies.

The absence of participation by private creditors in the Debt Service Suspension Initiative (DSSI), or other initiatives to address developing country debt, is lamented by both the G20 and the IMF. Given the scale and size of private sector debt in developing countries, their intransigence to participate blunts the effectiveness of the debt moratoria.

The G20’s key announcement is the establishment of a ‘Common Framework for Debt Treatments beyond the DSSI.’ The details of this ‘Common Framework’ are to be mapped out in November ahead of the Riyadh G20 Leaders’ Summit in November 2020.

The lack of transparency and inclusion of a G20 framework fails to include the majority of developing countries, while the vague nature of the proposal and lack of stated principles invites the influence of vested interests in the financialised global economy.

The G20 missed a key opportunity this week to call for a sovereign debt workout mechanism grounded in an international legal framework. Arguably the most serious deficit or missing link in the international financial architecture, such a mechanism would provide systematic support for states to cancel or restructure their debts in order to prioritise financing for public services and systems in the midst of a pandemic.

The open letter generated by the Global Week of Action for Debt Cancellation campaign (10 to 17 October 2020) was supported by over 500 organizational and individual signatories across the world. It calls for a workout mechanism to be established under the auspices of the United Nations and not in lender-dominated arenas.

It also calls for unconditional cancellation of public external debt payments by all lenders, including bilateral, multilateral and private lenders.

Importantly, the letter proposes that national and global reviews and changes in lending, borrowing and payment policies and practices should aim at preventing the re-accumulation of unsustainable and illegitimate debt, strengthening democratic institutions and processes, and upholding human rights and peoples’ self determination.

Without the systematic coherence provided by a multilateral debt workout mechanism, the approach thus far is piecemeal and riddled with the instability of creditor disputes. In a context where public money deficits risk human survival and economic recovery, such additional costs in debt crisis resolution are both unfair and unconstructive.

The IMF has stated several times that the world economy is in the deepest economic recession since the Great Depression. In this urgency, every missed opportunity to address debt distress implies that the interests of creditors supersede the rights of people who are enduring the twin crises of health and economy.

Communiqué of the G20 Finance Ministers & Central Bank Governors Meeting, 14 October 2020, [Virtual]:

Global Week of Action for Debt Cancellation – open letter: