I welcome the FT’s thoughts on the scenario we could face if there were a series of developing country debt defaults (“Sri Lanka’s problems are a wake-up call for emerging markets” , FT View, June 2), but I think that overstates the extent to which the fate of the response is in China’s hands.
Without an effective process to link private creditors to debt restructurings, we will see, not only in China but among all official creditors, a monumental erosion of support for debt relief. It would not be long before the precarious sovereign debt restructuring mechanism currently in place, which relies heavily on the leadership of public sector creditors, collapses. A severe blow to the global financial system would result.
That’s why Jubilee USA applauds the recent introduction of the New York Taxpayer and International Debt Crises Protection Act in that state’s legislature. This bill would limit judicial relief for sovereign debt holders to the same proportion as that received by public creditors participating in an international debt relief initiative.
Conducted in a jurisdiction that governs more than half of outstanding sovereign bonds, the initiative promises considerable reach, but also needs the complement of similar ones in other key jurisdictions such as London.
At their Schloss Elmau summit in Germany later this month, G7 leaders can pledge to work together to promote similar national laws in their countries.
If fears of multiple debt crises in low- and middle-income countries materialize, China’s willingness to share the losses will undoubtedly play a significant role in shaping the response.
But G7 countries can positively influence China’s approach by sending an unequivocal signal that private creditors taking advantage of debt relief from China – or any other public creditor – will not be tolerated.
Senior Director of Policy and Strategy
Jubilee USA, Washington, DC, USA