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The Necessity of a Global Debt Standstill that Works

G20 governments recently agreed to suspend bilateral official loan repayments from 76 of the world’s poorest countries until the end of 2020. But, to enable emerging and developing economies to withstand the economic shock of COVID-19, the debt standstill must also include all private creditors.

LONDON/NEW YORK/GENEVA – Faced with an unprecedented economic crisis due to the COVID-19 pandemic, policymakers in rich countries have adopted a “whatever it takes” approach to save their economies from meltdown. But, confronted by an even worse crisis in the rest of the world, the same policymakers have echoed US President Herbert Hoover’s administration at the onset of the Great Depression, essentially saying that nothing more can be done. The result is trillion-dollar rescue packages for the advanced economies and crumbs for everyone else.

The tragedy is not just that the economic costs of social distancing are likely to be higher in emerging markets. It is also that the enormous rescue efforts in rich countries make it much more difficult for poorer countries to combat the pandemic.

Countries with sufficient borrowing capacities, such as the United States, have been able to raise huge amounts at rock-bottom rates. But those funds come from emerging-market investors seeking safety and from US investors liquidating their foreign holdings. In other words, some of the financing that the United States and other advanced economies rely on comes from emerging economies with much more pressing financial needs.