This reply talks a lot about events that took place 10-20 years ago, but less about the present. It does not respond directly to our call for legislation in the UK to make private lenders take part in debt relief.
The most relevant part of the response is:
What they say: “More recently, to deliver a long-term, sustainable solution in delivering lower-income country debt vulnerabilities, the G20 and the Paris Club endorsed the Common Framework. Members, the UK included, pledged to co-operate on debt treatments for 73 countries eligible for the DSSI at their request. I am aware of recommendations from the IDC regarding the Common Framework and I will be sure to follow developments regarding the IDC’s inquiry closely. Furthermore, I shall pass on your concerns to my ministerial colleague if you wish.”
What we say: Although the Common Framework requires private creditors to take part, it lacks a process to ensure this. Progress has been painfully slow: over two years since it was established, only four countries have so far applied, Chad, Ethiopia, Ghana and Zambia, and none have yet seen any debt cancelled. Chad has completed the process, but the only debt relief it received was a few payments to its private creditors – a consortium led by oil trader Glencore – moved into the future. Glencore delayed the process while continuing to get paid in full on its high interest loans.
The lack of cooperation of private creditors appears to be both blocking progress on the countries that have applied, and discouraging others from applying. Many of the most indebted and climate-vulnerable countries are excluded from applying on grounds of income level; some including Sri Lanka and Suriname are negotiating debt restructurings outside the Common Framework.
The main block to current debt relief processes is the failure of private lenders to take part in debt relief. The proposed legislation would have a huge impact on increasing the power of debtors, and reducing the power of private creditors, in debt relief negotiations.
If we have clear systems to cancel government debts to a sustainable level when crises arise, this will incentivise lenders to be more responsible with their loans, taking greater care over whether they can be repaid. This will reduce the amount of debt crises, and so the need for debt relief in the future.
On the other things the response says:
What they say: “As outlined the International Development Committee’s recent report, there is no doubt that the events of the Covid-19 pandemic and Russia’s illegal and unjustified invasion of Ukraine have compounded the debt crisis. In response, the global community acted swiftly in establishing the Debt Service Suspension Initiative (DSSI) by the G20 in May 2020. This initiative saw international governments agree to temporarily suspend debt repayments owed to them by 73 low- and lower middle-income countries that requested the suspension. Running from May 2020 to December, 48 out of 73 eligible countries participated in the initiative, providing approximately $12.9 billion of temporary fiscal space to enable the world’s poorest countries to respond to the crisis.“
What we say: Countries which applied to the Debt Service Suspension Initiative (DSSI) had on average just 23% of debt payments suspended. This was primarily because private creditors refused to take part, and only suspended 0.2% of what was owed to them. The DSSI came to an end in December 2021.
The debt suspension was only implemented by governments, and not by private lenders of multilateral institutions. As the largest governmental lender, China suspended the largest amount of debt payments. China is now reluctant to go further on debt relief because western private lenders did not take part in the suspension. Making private lenders take part in debt relief is a key part of encouraging other lenders like China to also go further on debt relief.
What they say: “In the 1990s, the International Monetary Fund and the World Bank developed schemes to help low-income countries with unsustainable levels of debt restructure or eliminate debts, including the Heavily Indebted Poor Countries (HIPC) initiative. Set up in 1996, the HIPC was the first significant international initiative to tackle global debt, aiming to strengthen the links between debt relief, poverty reduction and social policies. I am encouraged that the UK has provided debt relief worth £650 million through this scheme.
“In addition to being a significant contributor to the HIPC, I can assure you the UK has consistently championed debt relief in recent decades and has taken a leading role in many international debt relief schemes and initiatives. Indeed, the UK exercised its influence at key international meetings to advance the Heavily Indebted Poor Countries (HIPC), such as the UK’s presidencies of the G8 and the European Union in 2005. Furthermore, by promoting the 100 per cent of eligible debt relief by multilateral institutions, the UK led international efforts to create the Multilateral Debt Relief Initiative (MIDR) and has provided debt relief worth £1.4 billion. Collectively, under the HIPC and MIDR, around US$130 billion in debt was cancelled for 26 countries between 1998 and 2010.”
What we say: The debt relief scheme of the 2000s did successfully cancel a significant amount of the debt of 36 countries (not 26). However, because measures were not introduced to prevent crises occurring, many countries (some who qualified for the 2000s debt relief scheme, many who didn’t) are now in severe debt crisis. The 2000s debt relief scheme is of no use to them as it does not apply to debts contracted in the last 20 years.