Paris Club Sees Private Creditor Relief Varying in G-20 Plan

(Bloomberg) -- Debt relief provided by private creditors for the world’s poorest nations under a Group of 20 restructuring plan will hinge on each borrower’s situation and might not necessarily reduce any money owed, according to the chair of the Paris Club.

Emmanuel Moulin, the head of the French Treasury, said in an interview on Wednesday that debtor countries participating in the so-called G-20 common framework will need to get private lenders to take a hit too. “Very limited and specific exceptions” could be agreed on a case-by-case basis, he said.

The Paris Club, a longstanding informal grouping of 22 mostly rich western government creditors, is coordinating the G-20 plan. A surprise request for help by Ethiopia last month rattled investors worried they could be dragged into a wave of debt restructuring in Africa after a decade-long borrowing splurge.

“The debt treatment will be adapted to the situation of the country,” Moulin said. “A debt treatment under the Common Framework will require private creditors to provide an effort at least as important as the one provided by official bilateral creditors. But it doesn’t necessarily entail a reduction in net present value terms; you can also have re-profiling.”

The framework is the second phase of the G-20’s Debt Service Suspension Initiative, aimed at averting a debt crisis in developing countries ravaged by the economic fallout of the coronavirus pandemic. Chad and Zambia have also applied to join the arrangement, which is open to over 70 poor nations.

Short on cash to deal with the pandemic more African countries will likely seek to rework their debts under the plan, said Vera Songwe, executive secretary of the United Nations Economic Commission for Africa.

Ethiopia’s eurobonds dropped to nine-month lows since the Horn of Africa nation announced on Jan. 29 that it wants to restructure borrowings. Fitch Ratings downgraded its rating on Tuesday, saying the debt relief raised the risk of default.

To appease investors, Ethiopia said it may only approach private creditors for talks after reviewing liabilities with official lenders, a hint that bondholders could be exempted. Fitch said past Paris Club agreements show comparable treatment among creditors is not always enforced.

China Membership

The G-20 framework aims to bring all participants on board, including Chinese banks and private lenders, who between them have become the biggest creditors across the developing world. Success could pave the way for China to formally join the Paris Club, a move long seen as necessary given that it has surpassed the group to become the world’s largest official creditor. China is currently only an ad hoc member.

“In the long term, the common framework could be the antechamber of China joining the Paris Club as a full member,” said Moulin.

To further ease the strain on poor countries, Moulin said France is aiming to secure an increase of the International Monetary Fund’s resources at its Spring meetings. The new U.S. administration has added momentum to issuance plans for $500 billion in its reserve assets, called special drawing rights, or SDRs.

President Donald Trump’s administration last year had blocked such a move, criticizing the plan for not targeting poor countries. The U.S. is the IMF’s largest shareholder and has a veto over any increase.

“A number of countries in Europe and beyond are in favor of a new allocation of SDRs so we will work hard to make it happen, the earlier the better,” Moulin said.

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