On 14 October, G20 finance ministers and central bank governors (FMCBG) greenlit a six-month extension of the Debt Service Suspension Initiative (DSSI) through 30 June 2021. While the extension was widely expected, more significant may be that the FMCBG also announced an agreement, in principle, on a “Common Framework for Debt Treatments beyond the DSSI”. Spearheaded by the G7 and the Paris Club, the ‘common framework’ is supposed to be published at an extraordinary meeting ahead of the November G20 heads of states and governments meeting. While private sector participation under the current DSSI will remain voluntary, it may become mandatory for any debt restructuring under the suggested framework, at least if last month’s G7 statement is anything to go by.
Unsurprisingly, decisions taken during the meeting revolved around the lowest common denominator, including the odd compromise at the expense of third parties. Extending the DSSI by another six months was the minimum option. African finance ministers and the UN Economic Commission on Africa (UNECA) had asked that the DSSI be extended until end-2021, though the G20 signaled that another half-year extension may be approved around the time of the World Bank/IMF 2021 Spring Meetings. The latter two institutions, whose respective heads had been agitating for more private sector participation ahead of the meeting, were in turn “encouraged” to provide additional multilateral resources to DSSI-eligible countries themselves. But despite pushing for greater burden-sharing, the FMCBG unsurprisingly refrained from providing international financial institutions (IFIs) with any additional firepower, instead kicking the can concerning the IMF quota reform debate further down the road to a December 2023 review meeting.
Meanwhile, the FMCBG were “disappointed by the absence of progress of private creditors’ participation in the DSSI, and strongly encourage them to participate on comparable terms when requested by eligible countries.” This position does not constitute any material change from the July statement, which used similar wording. Yet the ’disappointment’ expressed could indicate that the proffered “Common Framework for Debt Treatments beyond the DSSI” will include language that will try to obligate private sector creditors to participate in any further debt restructuring. Arguably, this would also make it difficult for China to maintain its distinction between wholly and partly state-owned banks, which has been a bone of contention in the implementation of the DSSI. Against this background, the fine print of the final document will be important to scrutinize.
As analyzed earlier, the G7 had proposed a common framework for debt restructuring beyond the DSSI initiative’s current scope. The proposal has meanwhile received the backing of Paris Club members as well, including G20 members Australia, Brazil, Korea and Russia. According to last month’s G7 statement, additional debt restructuring should thus be negotiated on a case-by-case basis “in the context of a full-fledged IMF program” and “ensure fair burden sharing among all official bilateral creditors, and debt relief by private creditors at least as favorable as that provided by official bilateral creditors.”