Heads of state, top officials meet at UN to discuss changes to international financing system

“This group that met today is not the decision making group. We are saying what we believe needs to be done, and the truth is that it’s starting to have an impact: the SDRs were a taboo; now the SDRs are on the table,” said UN Secretary-General António Guterres speaking at a press conference during a high-level meeting on international debt architecture and liquidity on Monday. “We have been putting all the serious problems on the table and I believe those who are crucial in the decision-making process are listening and are starting to move in the right direction,” he said.

Prime Ministers Justin Trudeau of Canada and Andrew Holness of Jamaica, and Secretary- General António Guterres organized a meeting of heads of state and other representatives “to urge the international community to take additional and urgent action….to provide liquidity and address debt vulnerability” in order “to ensure a robust recovery” from the Covid-19 pandemic and strengthen action towards long-term sustainable development. This meeting “follows the meetings and roundtables held in 2020…to mobilize action to assist the economic recovery from the pandemic”.

Last spring, a combination of the G20 decision to suspend bi-lateral debt repayments, which has suspended an estimated $5 to $6 billion in debt payments from 40 of the word’s poorest countries; IMF emergency financing to 85 countries and debt relief to 29 countries; and other bi- and multi-lateral initiatives opened up crucial fiscal space for some countries – mainly low-income ones already experiencing debt distress – to respond to the immediate public health and economic crises of the Covid-19 pandemic.

Although widely welcomed, there were inherent structural weaknesses to these initiatives: some multilateral institutions and no private sector organizations were not included in the G20’s initiative, and middle- income countries including those that experienced steep economic contractions and increases in public debt were not eligible for debt relief under this framework.

Secretary-General Guterres framed the economic situation and its long-term implications for countries in his opening remarks at the meeting: “Six countries have already defaulted. One-third of emerging market economies are at high risk of fiscal crisis. And the situation is even worse for the least-developed and low-income countries. They face a painfully slow recovery that will put the 2030 Agenda for Sustainable Development and the Paris Agreement completely out of reach”. He also pointed out that even before the pandemic, the world was not on track to implement the UN Sustainable Development Goals (SDGs) by 2030.

Prime Minister Holness at the press conference urged the  “the global community to cooperate and to act in an enlightened fashion” to address “the emerging debt crisis”.

Although much was discussed and innovative “reforms to the international debt architecture” proposed – such as President Pedro Sanchez of Spain’s proposal of a new sustainable development fund at the IMF – there are several core initiatives that serve to anchor the next phase of economic recovery with varying degrees of probability: a second round of Special Drawing Rights (SDRs) allocation totaling $650 billion and the “recycling” of unused SDRs from the previous allocation; an extension of the G20 Debt Service Suspension Initiative (DSSI) until the end of 2021 (some called for it to be extended a whole year); and an expansion of the DSSI and now “The Common Framework for Debt Treatments beyond the DSSI” to include middle-income countries facing debt distress – the “Common Framework” focuses on debt restructuring tailored to a particular country.

Since “private commercial debt is playing a much greater role in our [low- and middle- income countries’] sovereign debt obligations,” private sector participation in these global initiatives is important, said Prime Minister Holness. There are also calls to increase transparency for SDR allocation and debt treatment under the framework. Finally, many countries expressed the need for development finance organizations to be “strengthened” in part through their recapitalization.

“In the G7, the G20 and in the boards of the international financial institutions, the IMF and the World Bank, our ideas are starting to germinate,” commented Secretary-General Guterres. Just over a week ago, G7 finance ministers expressed their support for a new allocation of SDRs, Reuters reported on March 19.

Today’s meeting was also an opportunity to discuss broader issues of inequality tied to pandemic response and recovery: “Until all countries have the fiscal space or international support to invest in a global recovery, including for vaccines, climate action and biodiversity, inequalities will continue to worsen. Now is the time to provide a bridge to recovery and re-design international sovereign debt architecture for a more efficient allocation of capital,” wrote the hosts leading up to the event.

At the meeting, one representative cited the importance for countries to be able to participate in the digital transformation in order for countries not to be ‘left behind’ economically. For others, the ability to increase resilience to climate change would prevent them from being “wiped out,” said the representative of Small Island Developing States.

Other representatives pointed out that if countries, in particular the most vulnerable, are unable to vaccinate their populations, build back their economies, invest in health and education, and address climate change, the rest of the world would not be rid of Covid-19 or be secure because of the potential for instability and unrest, which could lead to increases in conflict and migration.

President Lazarus Chakwera of Malawi and Chairperson of the Least Developed Countries said that although the enormous debt owed to countries long “plundered” was incalculable, the measures taken to alleviate debt burdens and restructure international financing could at least begin to reverse the direction of debt flows, which now flow from poor to rich countries.

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