Ghana’s default, letter on Sri Lanka calling for debt cancellation and Pakistan doubly victimized

11 January 2023 by Iolanda Fresnillo

Anti-government protest in Sri Lanka on April 13, 2022 in front of the Presidential Secretariat, AntanO, Wikimedia Commons,

Ghana suspended payments on most of their external debts on december 19th, a week after reaching an agreement with theIMF for a US$3bn loan. Ghana has, according to Reuters, reached out to the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

for an “expedited” Common Framework debt restructuring. When we met the Paris Club secretariat in late november they said that the only way for Ghana to get debt treatment from them was through the Common Framework. In a rather quick move, Ghana’s bondholders created a creditor committee already in december, including Abrdn, Amundi, BlackRock, Greylock Capital Management and Ninety One. Around 45% of Ghana’s US$28.4 billion external debt is with bondholders, according to data from the Bank of Ghana, and only 13% with bilateral creditors (US$ 1.7 billion with China and US$ 1.9 billion with Paris Club creditors). Ghana is also implementing a domestic debt exchange program, and facing lawsuits by domestic bondholders.

As Sri Lanka should be advancing in debt negotiations, a group of 182 economists and development academics from around the world have published a letter calling for debt cancellation, as the only chance of recovery for Sri Lanka. The letter was covered, thanks to Debt Justice press release, by The Guardian (focusing on the role of private creditors and hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. in holding up debt relief for Sri Lanka), Bloomberg, the Daily Mirror in Sri Lanka or the Hindu in India.

Pakistan is also facing a complex situation, particularly after the floods in October. The international community has only pledged US$9bn of the $16.3bn of estimated needs for flood relief. “The country’s foreign exchange reserves have dwindled to $5.6bn, down from $10bn in June and covering just one month’s worth of imports, according to official figures.” The talks about debt default risks continue while the country is in negotiations with the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
to release the next US$1.1bn tranche of its lending to the country. The fund has withheld the payment waiting for Pakistan to adopt austerity measures, including cutting spending and raising prices on subsidised gas and energy. Antonio Guterres, UN Secretary General, has called again for a reform of the international financial architecture in a conference about support for Pakistan in becoming climate resilient: “Pakistan is doubly victimized by climate chaos and a morally bankrupt global financial system. That system routinely denies middle-income countries the debt relief and concessional funding needed to invest in resilience against natural disasters. And so, we need creative ways for developing countries to access debt relief and concessional financing when they need it the most.”

And finally, also right before the Christmas holiday, Kristalina Georgieva, IMF MD, explained that they are setting up a roundtable to discuss global sovereign debt with a wide variety of stakeholders, including China and private sector creditors. We’ll have to ask the fund if borrowing countries are also invited to the roundtable.

Iolanda Fresnillo

is a member of La PACD (Plataforma Auditoria Ciudadana de la Deuda) and Eurodad.

Other articles in English by Iolanda Fresnillo (7)




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