“Recent calls for international solidarity point in the right direction,” said Richard Kozul-Wright director of UNCTAD’s globalisation division that produced the report, “but have so far delivered little tangible support for developing countries as they tackle the immediate impacts of the pandemic and its economic repercussions.”
UNCTAD outlines three key steps to translate the calls into action:
Step 1: Automatic temporary standstills…
Such standstills would provide macroeconomic “breathing space” for all crisis-stricken developing countries requesting forbearance to free up resources, normally dedicated to servicing external sovereign debt.
The standstills, if long and comprehensive enough, would facilitate an effective response to the COVID-19 shock through increased health and social expenditure in the immediate future and allow for post-crisis economic recovery along sustainable growth, fiscal and trade balance trajectories.
Step 2: Debt relief and restructuring programmes …
The programmes would ensure the “breathing space” gained under the first step is used to reassess longer-term developing country debt sustainability, on a case-by-case basis.
On April 13, the IMF cancelled debt repayments due to it by the 25 poorest developing economies for the next six months. This debt cancellation is estimated at around $215 million.
On 15 April, leaders of the Group of 20 leading economies (G20) announced the suspension of debt service payments for 73 of the poorest countries from May to the end of this year.
However, more systematic, transparent and coordinated measures towards writing off developing country debt across the board are urgently needed, the report says. It suggests that a trillion dollar write-off would be closer to the figure needed to prevent economic disaster across the developing world.
Step 3: An international developing country debt authority …
To take the first two steps forward, the UNCTAD report proposes the establishment of an International Developing Country Debt Authority (IDCDA) to oversee their implementation and lay the institutional and regulatory foundations for a more permanent international framework to guide sovereign debt restructurings in future.
This could follow the path of setting up an autonomous international organisation by way of an international treaty between concerned states. Essential to any such international agreement would be the swift establishment of an advisory body of experts with entire independence of any creditor or debtor interests.
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