EXCLUSIVE groups urge G20 to embrace Brady-style debt-climate swaps
- So far, debt relief has focused on the poorest of the 72 countries at risk
- G20 urged to include middle-income countries in debt relief
- The new bonds would be guaranteed by a facility supervised by the World Bank
- IMF managing director says green debt swaps make sense
WASHINGTON, June 28 (Reuters) – Three think tanks will unveil a proposal on Monday to avert a looming debt crisis and help heavily indebted countries accelerate their move towards more sustainable growth and a low-carbon economy while that they are recovering from the COVID-19 pandemic.
The “Debt Relief for a Green and Inclusive Recovery” proposal is modeled on the so-called Brady bonds issued by Latin American countries in the late 1980s which allowed commercial banks to swap their claims on developing countries. development into negotiable instruments and reduce their debt. leaves.
The plan, developed by the Boston University Global Development Policy Center, the Heinrich Boell Foundation and the Center for Sustainable Finance at SOAS University in London, calls on the Group of 20 major economies to establish a new global facility to secure new obligations which could be exchanged by private creditors for old debts at a significant discount.
The coronavirus pandemic and the associated economic fallout have exacerbated high debt levels in many low- and middle-income countries, hampering their ability to respond to the health and economic crisis and protect their economies from climate change.
So far, the G20’s response has focused on the poorest countries, leaving out 22 of the 72 countries considered to be at high risk of debt distress. And private sector creditors have largely failed to adhere to the G20 freeze on debt service payments and the broader common framework for dealing with debt.
Debt levels continued to rise in emerging markets, reaching a record high of over $ 86 trillion in the first quarter, according to the Institute of International Finance.
As major economies use COVID-19 stimulus funds to launch a green pivot, it has proven difficult to reconcile the urgent need for debt relief with the pressure to make economies greener – especially for them. resource-based savings.
“The G20 must be bold and it must act now. Past experience shows us that delaying the response to debt crises leads to worse outcomes and higher costs for debtors and creditors,” the groups said. in their report.
They urged G20 finance officials, who will meet on July 9 and 10, to expand the debt treatment framework to include middle-income countries and support Brady-style credit enhancements for new bonds that could be exchanged for old debts, albeit with write-offs, to ensure private sector participation.
The guarantee facility should be overseen by the World Bank and the plan should require countries receiving debt relief to align their policies with the Paris climate agreement and the 2030 Agenda for Sustainable Development. , according to the report.
Countries that fail to repay the debt on the new bonds would see the collateral released to private creditors, and the missed payment would have to be repaid by the country at the collateral facility, he added.
The International Monetary Fund and the World Bank should also conduct in-depth debt sustainability analyzes that take into account climate risks and spending needs to build climate resilience, and the fund should condition its programs on a restructuring process that includes private creditors.
The groups’ detailed proposal comes months after IMF Managing Director Kristalina Georgieva said green debt swaps could accelerate action on climate change, and pledged to present an option for such instruments. by November.
Reporting by Andrea Shalal; Editing by Karin Strohecker and Muralikumar Anantharaman
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