China has been giving out loans to many low-income nations. It has led to their infrastructural developments. But there is a concern that China would become a loan shark.
This was reflected in the latest meeting of the Paris Chair, when its chair Emmanuel Moulin, also the head of the French Treasury, expressed his concerns.
He said that the bilateral borrowing risks between those countries are disrupting the pandemic recovery.
China is increasingly being the dominant lender for low-income nations. They approach China because they are better, compared to the western world. That is the factor that deters these countries from asking for debt relief.
They fear that asking so would stop the flow of funds from China. This is leveraged by the former, as they are being more dominant in their local politics.
He has spoken in the light of increasing indebtedness among the low-income nations since the pandemic.
Caused by the increasing healthcare and other service costs, it is also compounded by a global recession hitting the output and government receipts.
This has led to the creation of an international initiative called the Debt Service Suspension Initiative or DSSI.
Launched last April by the G20 members, its objective is to postpone the interest payments from low-income countries owed to official bilateral creditors.
The extension was due to expire at the 2020 end. It was extended twice with the latest ending on 31st of December this year.
Despite the initiative’s goal, out of 73 eligible countries, only 42 applied for it. The actions of DSSI might have reduced their confidence since only $12.7bn out of an estimated $20bn.
But Moulin blames China for the lack of interest among the nations towards the initiative.
China is the largest lender to the eligible countries, which also account for two-thirds of its bilateral debts. This naturally shows how much the former influences the latter.
Some who feared the creation of a problem with China decided not to join the final extension of DSSI. Some decided to talk with the Chinese and other lenders about the new money instead of joining it.
But the biggest contribution for the DSSI comes from China. According to analysts China has deferred payments of $5.7bn, while only $4.5bn was deferred by Paris Club. The club is a union of creditor nations formed in 1956.
China has not joined it because of disagreement over certain terms and classifications. But it has agreed to mirror the Club when it comes to DSSI, even though there is allegation over its unfair implementation.
DSSI has also called debtor nations to take a similar stance to commercial creditors. Once again, fear of loss of credit forces these countries to be quiet. The participating countries should make up their money over four to six years.
An alternative framework to help them is under development.
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