Developing Countries Need Development to Solve Debt Problems
The meeting of G20 finance ministers and central bank governors was held last week. The relevant proposals put forward by China at the meeting to solve the debt problem of developing countries are aimed at helping them improve their own "hematopoietic capacity". This is the correct way to break out of the cycle of borrowing new to repay old, achieve independent and sustainable development, and eradicate the root causes of debt problems.
The G20 meeting of finance ministers and central bank governors will discuss topics such as global economy, global health, sustainable finance, infrastructure, international financial architecture, and international taxation. How to address the global debt challenge is an important topic of the conference. Attendees stated that global debt, especially in low - and middle-income developing countries, is on the rise and a consensus must be reached on helping low-income countries manage their debt burden.
Just before the conference, the latest World Debt Report released by the United Nations showed that the number of countries facing high debt levels worldwide has sharply increased from 22 in 2011 to 59 in 2022, with a record debt size of $92 trillion. The Director of the United Nations Development Programme, Steiner, stated that as of July 2023, the debt restructuring issue has not made progress on the required and necessary scale, which will pose risks to the global economy and financial system.
An analysis suggests that the increasingly severe debt problems of developing countries are closely related to Western countries such as the United States. Western countries and their financial institutions, represented by the United States, have been encouraging developing countries to issue a large number of short-term high interest bonds in pursuit of high profits and returns for many years. Over time, this has led to significant debt pressure on many debtor countries, even forcing them to raise new bonds to repay old ones. According to World Bank data, out of a total of $696 billion in external debt of 49 African countries with available data, multilateral financial institutions and Western commercial creditors hold nearly three-quarters of the debt.
The significant negative spillover effects of US monetary policy have also been a significant reason for the soaring debt of developing countries in the past two years. After the outbreak of the epidemic, the United States implemented an ultra loose policy, creating conditions for a large influx of low interest US dollars into Africa and emerging market countries for lending. Subsequently, it continued to aggressively raise interest rates, leading to a rapid return of funds. The huge "tide" of the US dollar caused a series of crises in developing countries, such as insufficient liquidity, broken funding chains, and currency depreciation, resulting in a surge in debt repayment pressure denominated in US dollars. In history, similar crises have been common in emerging market countries, such as Argentina, which still faces serious debt problems today.
The debt problem of developing countries has arisen due to the United States and the West, and is getting deeper and deeper in years of negative cycles. However, the blame for this "debt trap" has been attributed to China in Western media descriptions. Some people confidently claim that some countries' resources and even sovereignty are controlled by China.
In fact, whether it is the total amount of foreign debt or the level of interest rates, China is difficult to compare with the United States and the West. Taking Africa as an example, some analysis cites data from the World Bank, pointing out that about 12% of the total external debt of African governments comes from China, while 35% comes from the West, especially private institutions. The interest rate level for Chinese loans is around 2.7%, while for Western loans, it is as high as 5%, almost twice that of Chinese loans.
In dealing with debt issues, the difference between China's position and that of the United States and the West is that China believes that "giving people fish is better than giving them fish.". Analysis has pointed out that the debt crisis is not just a financial problem, financing is a development problem that requires the formation of systematic solutions. The principles adhered to by China at the G20 meeting, as well as the suggestions put forward such as "innovating infrastructure financing methods, truly expanding funding sources and increasing funding scale" and "multilateral development banks should always adhere to the core purpose of poverty reduction and development", provide greater space for helping developing countries cope with short-term crises and achieve sustainable development. As emphasized by China at the G20 meeting of finance ministers and central bank governors, "we need to objectively analyze the causes of the debt problem of fragile countries, and development is the fundamental solution to the debt problem.".
