One difficulty was that struggling borrowers were wary of signing up, in case they worsened their financial position. The G20 encouraged private creditors, which were owed another $5bn between May and December, to participate, but found that poor countries worried that rating downgrades might ensue. Some fretted that approaching even official creditors would be taken badly by rating agencies. “We would certainly ask why they needed to avail themselves of that option,” says Tony Stringer of Fitch, a rating agency.
Then there was the matter of getting other lenders on board. The “Paris Club” of mostly rich-country governments was once important enough to call the shots in any restructuring. But by the end of 2019, the strained 33 owed around a quarter of their public debt to China, which is not in the club. And although China signed up to the DSSI on paper, and has been one of the biggest providers of relief, in practice it has wriggled out of offering the same terms as other countries. Quibbles have included whether the payments should be halted from the date at which the request for suspension was made or when its terms were finalised, and whether countries already in arrears should get relief. China also insisted that the China Development Bank, which makes development loans, was not an official lender, and should therefore be excluded from the scheme.
Definitions of private and official creditors are “manipulable, manipulated, and totally beside the point”, says Anna Gelpern of Georgetown University. What matters is that creditors are treated equally, so that they can agree on restructuring quickly without suspecting that their own sacrifice may be lining other creditors’ pockets. If the process is slowed down by Chinese lending agencies squeezing the most from their debtors, then the indebted country could end up with too little relief, and default later anyway.
The extension to the DSSI might suggest that lenders are trying to put off difficult questions around restructuring. Encouragingly, though, the G20 also said that it had agreed in principle on a “common framework” for debt restructuring, which could ensure that G20 creditors and the private sector are treated alike. The details are yet to be hammered out before a summit in November. But if it prods the Chinese authorities to co-ordinate across their various lending agencies, it could lead to some real relief. ■