G-20 Pivots as Emergency Aid Focus Turns to Developing World

(Bloomberg) -- Economy chiefs from the Group of 20 nations, which accounts for about 90% of global economic output, are switching focus to the need to assist developing nations trying to cope with the impact of the coronavirus pandemic.

At a virtual meeting on Tuesday, G-20 finance ministers and central bankers said they’d look to address debt vulnerabilities in developing nations to allow them to focus their efforts on fighting the outbreak, according to a statement. They also committed to working with other organizations to “swiftly deliver the appropriate international financial assistance” to lower-income countries.

As the epidemic appears to crest in Europe and with stimulus efforts picking up across advanced economies, the success of the global effort to halt the pandemic might come down to the defenses of developing nations. More than 800,000 have been confirmed infected and 39,000 killed as of Tuesday, according to the World Health Organization. The outbreak spread from the Chinese city of Wuhan to more than 180 countries and territories since late January — affecting every continent except Antarctica.

IMF Support

Before the G-20 call, France said it would propose that the International Monetary Fund increase its special drawing rights by $500 billion as part of an aggressive push to assist developing nations. That would offer quick support to countries expected to face severe difficulties, particularly in Africa, French Finance Minister Bruno Le Maire said on a telephone conference with journalists.

He also said he’d propose a new rapid credit line to supplement swaps between central banks, and a doubling of emergency automatic drawing rights for developing countries.

“We need now to prepare a response to the economic crisis that could be extremely violent in developing countries,” Le Maire said. “We want massive and immediate aid.”

A debt moratorium could be a first step to help some countries, Le Maire said. “The major concern is to avoid the weakest states of the world being the primary victims of the coronavirus crisis,” he said.

On a call Thursday with G-20 leaders, IMF Managing Director Kristalina Georgieva had said the world’s biggest economies should provide more support to keep the international monetary system from seizing up due to the pandemic. It sought backing to create a sizable quantity of reserve assets, or SDRs, as it did in the 2009 global financial crisis.

The move, which would require backing from the IMF’s membership, would immediately boost the liquidity of all IMF members once approved. The fund also asked for support to expand the use of swap-like instruments.

Debt Worries

On Friday, JPMorgan Chase & Co. said that the IMF’s pandemic aid process should also ease some loan rules for developing nations to avoid saddling them with unsustainable debt.

Many of the 81 countries seeking IMF assistance will likely confront challenging financial markets and large fiscal deficits that may put them in a precarious debt position, JPMorgan analysts led by Nora Szentivanyi wrote. The IMF would have difficulty lending more than a fraction of its $1 trillion capacity without diluting its normal lending standards, they said.

In its statement following Tuesday’s call, the G-20 said it welcomed the World Bank’s “readiness to deploy as much as $160 billion over the next 15 months to support its member countries to respond to the COVID-19 pandemic.” The G-20, along with the World Bank, IMF and other international institutions, are discussing ways to support financial stability and alleviate liquidity constraints in developing economies, it said.

©2020 Bloomberg L.P.