IMF Chief and Yellen visit Zimbabwe
2023.01.23 08:53
IMF Chief and Yellen visit Zimbabwe
By Kristina Sobol
Budrigannews.com – This week, two of the most powerful finance officials in the world are in Zambia. This shows that Western officials are increasingly concerned about how China and other creditors are handling Zambia’s debt.
Despite increasingly urgent appeals to China and private sector creditors to reach a deal, Zambia’s request for debt relief under the Group of 20 Common Framework nearly two years ago has made little progress.
U.S. Treasury Secretary Janet Yellen and IMF Managing Director Kristalina Georgieva arrived in Zambia on Sunday for separate visits, frustrated by the delays. Both see the establishment of a brand-new sovereign debt roundtable at the end of last year as a means of moving forward with long-stalled debt restructuring procedures.
A Treasury official stated that, despite the coincidental overlap, the two will meet informally while in Lusaka.
While on her way to Zambia, Yellen told Reuters that she supported the roundtable as a venue for discussing general debt relief principles.
“I think that’s a helpful approach,” Yellen stated, “hoping the specific cases will be easier to deal with.”
When the roundtable meets for the first time next month in India on the sidelines of the Group of 20 finance officials, Georgieva and Yellen will both be present. The particular date and guest list are still to be determined.
This month, Georgieva, who co-founded the roundtable with World Bank President David Malpass, told reporters that it was not meant to take the place of the current Common Framework but rather to address broader issues like transparency, treatment timing, and how to set loan cutoff dates.
The World Bank’s chief economist, Indermit Gill, stated to Reuters, “The roundtable is a good idea, but the expectations should be kept very modest.” He stated that it could assist in increasing trust between parties, particularly Chinese officials, who are struggling to come up with a common strategy among disparate lenders.
According to Mark Sobel, a former senior Treasury official, the roundtable could bring parties together for talks, but it was still unclear whether it would produce results.
He stated, “The leaders of the roundtable need to have a focused agenda with clear goals and timelines, build a collective spirit, and then keep the pressure on all parties to deliver results.” He also stated that the Common Framework had been “a flop” thus far, but that it remained “the only game in town.”
When she met with Chinese Vice Premier Liu He in Zurich on Tuesday, Yellen told reporters that she had emphasized the urgent need to reduce the debts of heavily indebted nations. She warned that failing to do so would impede the development of poor nations and increase the likelihood of war, fragility, and conflict. She stated during a Lusaka briefing that restructuring Zambia’s debt was crucial.
According to Gill of the World Bank, Zambia is suffering as a result of the delay in debt treatment: About 60% of people now live in extreme poverty, and per capita income has fallen from middle-income to low-income status.
He stated that Zambia had experienced “all the bad things that happen when a country declares default.”
On Monday, Zambian President Hakainde Hichilema urged creditors to quickly agree on the terms of a debt restructuring and warned that if no agreement was reached quickly, efforts to recover the economy might be distorted.
Gill draws parallels to the late 1970s, when the Federal Reserve raised interest rates to control inflation, triggering the worst recession since the Great Depression in the early 1980s for the United States economy.
The “Lost Decade” in Latin America was ushered in by high interest rates in the United States, which led to many countries defaulting. Gill stated, “To some extent, a similar event could occur right now.”
However, Yellen pointed out that inflation was not out of control and that rates were nowhere near what they were under Volcker.
“We’re in a higher interest rate environment,” Yellen stated, “and that’s something that’s linked to the strong dollar and weaker currencies for many emerging markets, Japan and other countries.”
