Thu. Jul 7th, 2022

Gillian Tett has missed a couple of points in describing the unsustainable debt of poor countries (“Argentina deal is a wake-up call on EM debt”, Opinion, February 4). In particular, the Paris Club framework does not need to be overhauled to give China a seat at the table. The Paris Club was eager more than ten years ago to have China become a full member instead of participating only as an observer.

The other point is that the debtor countries have leverage; they can stop paying creditors selectively or comprehensively. We no longer live in a world where creditors will send in the marines and take over the customs house to make the creditors whole.

This is not to discount the suffering of the population when a country stops paying its creditors. But it explains why negotiated solutions have eventually been arrived at in all cases in the past 50 years. China will adjust to this reality sooner or later.

Finally, Indonesia has useful experience with debt workouts and some terrifically capable finance officials, but it is unrealistic to expect Indonesia – even as chair of the G20 forum – to fix the problem.

The G20 adopted a modified workout process a year ago: the “common framework”. The key players in making this process generally operational are the IMF, the Paris Club secretariat, China’s finance ministry and whoever emerges to drive the private sector creditors to a deal.

And please do not blame the IMF for the mess in Argentina more than the Argentines. Argentina’s government has defaulted repeatedly on its foreign debt over the past 100 years. It holds the Olympic gold medal for sovereign defaults.

Lex Rieffel
Washington, DC, US

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