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Economy1 hour ago (Sep 20, 2022 01 1pm EST)

© Reuters. FILE PHOTO: Chinese yuan banknotes are seen in this illustration image taken on April 25, 2022. REUTERS/Florence Lo/IllustrationU.S. Treasury official criticizes China's 'unconventional' debt practices U.S. Treasury official criticizes China's 'unconventional' debt practices

Andrea Shalal

WASHINGTON (Reuters) – Senior U.S. Treasury Secretary Janet Yellen China’s drag on debt relief could burden dozens of low- and middle-income countries with years of debt-servicing problems, slowing growth and underinvestment, advisers warned on Tuesday.

Yellen’s adviser, Neiman, criticized China’s “unconventional” debt practices and failure to advance debt relief at a Peterson Institute for International Economics event.

“China’s massive size as a lender means its involvement is critical,” Neiman said in a speech first reported by Reuters, citing estimates that China has $500 billion to $1 trillion in official loans outstanding, mostly to low- and middle-income countries.

Many of these countries are borrowing heavily to fight COVID-19 and their economies After the impact, they are facing debt distress. Now Russia’s war in Ukraine has sent food and energy prices soaring, while rising interest rates in advanced economies have sparked the biggest net capital outflows from emerging markets since the global financial crisis, Neiman said.

He said a systemic debt crisis had not yet materialized, but economic stress and domestic vulnerabilities were increasing and could get worse.

China has a unique responsibility when it comes to debt because it is the world’s largest bilateral creditor with more claims than the World Bank, IMF and IMF, Neiman said. The sum of all official creditors of the Paris Club.

Neiman’s criticism of China’s debt practices marks the latest attack by Western officials and leaders of the World Bank and International Monetary Fund, who are tired of delays and delays by China and private lenders Breach of promise.

As many as 44 countries each have debt equivalent to more than 10% of their total domestic assets to Chinese lenders, Neiman said, but Beijing has been unable to Countries write down debt when they need help.

On the contrary, China has chosen to extend the maturity or grace period, and in some cases such as DRC in 2018 even led to an increase in its net loan value. The restructuring effort meant debt to China was “systematically excluded” from multilateral surveillance.

Beijing was signed by the G20 and the Paris Club at the end of 2020, but it delayed the formation of the creditor committees of Chad and Ethiopia, which were seeking under the framework Two of the three countries helped.

In July, it said it and other official creditors would provide debt processing for a third country, Zambia, but delays prolong uncertainty, which could deter others, Nieman said. State seeks help.

He said he hoped Zambia’s creditors would complete a memorandum of understanding by the end of the year.

All three cases should be resolved as soon as possible, he said, adding that some middle-income countries such as Sri Lanka also needed urgent debt restructuring.

Neiman warned that countries should not use IMF financing to repay selected creditors and called for more transparency in reporting and tracking of financing guarantees.

He noted that China engaged in an “unconventional” practice of allowing the IMF to move forward without securing standard financing guarantees.

He cited China’s past actions on Ecuador’s 2020 debt and its refusal to restructure its debt service to Argentina, although Paris Club creditors may do so.

“In many of these cases, China is not the only creditor hindering the rapid and effective implementation of typical (debt restructuring) strategies. But in the area of ​​international lending, China lacks participation in coordinating debt relief is the most common and the most important.”

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