US-led West should take more responsibility in debt restructuring
Published: Apr 10, 2023 10:04 PM
Illustration: Tang Tengfei/Global Times

Illustration: Tang Tengfei/Global Times

As central bankers, policymakers and academics from many countries around the world gathered in Washington for the World Bank Group-IMP Spring Meetings, which will run until Sunday, the global debt crisis and debt restructuring will perhaps be a key issue to be addressed. World Bank President David Malpass said in a blog post on Sunday that resolving the impasse in debt restructurings, especially for the world's poorest countries, is going to be at the center of discussions.

The so-called China debt trap narrative has emerged once again as some Western media have been hyping the false proposition of how China hinders the process of global debt restructuring. Bloomberg reported on Monday that one proposal by Malpass is to share the joint World Bank-IMF debt sustainability analysis for nations with all creditors involved in discussions at the same time, but "China, the biggest sovereign creditor to developing nations, has raised questions about the institutions' assumptions, slowing the process."

It is easy to see that such reports contained inaccuracies. Facts have repeatedly shown that Western investors, often in the forms of commercial creditors and multilateral financial institutions, are the largest creditors of developing countries. Western countries have played a key role in aggravating a global debt crisis and triggering competitive currency devaluation, with developing countries bearing the brunt, but the US-led West refuses to take responsibility for the damage created by their toxic loans, which always come with political and economic conditions. On the contrary, they have sought to shift the blame onto China by hyping the fabricated "China debt trap" theory and pressured China to address and tame debt risks caused by the West. The Western geopolitical logic is like this: Even if the West causes problems for the world, China should bear the blame. 

In the wake of the COVID-19 pandemic, global debt has surged. According to an article published last year on the World Bank blog, 58 percent of the world's poorest countries are in debt distress or at high risk of it, and the danger is spreading to some middle-income countries as well. "High inflation, rising interest rates, and slowing growth have set the stage for financial crises of the type that engulfed a series of developing economies in the early 1980s," the article said.

History tells us that the US expansionary monetary policy, the accumulation of risks generated by financial innovation, and Wall Street's malicious short-selling attacks are always factors when it comes to global debt crisis. Now, the situation becomes even worse, as a strong US dollar has become a hazard for global economy. At present, around half of cross-border loans and international debt securities in the offshore markets are denominated in the US dollar. The US' irresponsible monetary policy and the resulting strong dollar could make it more expensive for developing countries to meet their dollar-denominated debt obligations, and thus further aggravate a global debt crisis.

We believe officials and economists in the West have been aware that global debt crisis has become a looming disaster that cannot be ignored, but in the past two years, the world has made slow progress in cutting and reducing debt risks and beefing up fiscal consolidation. Why? What Western lenders offer is just lip service, and instead, they shift focus onto China. For a long time, Western lenders have not become the focus of global attention for debt relief because many people in the world have been deceived to believe that China, not the West, is the biggest sovereign creditor to developing nations, as they claim China poses a threat to the world with the so-called China debt trap. 

That is flat-out wrong. To help address the debt crises in emerging economies, the West, particularly the US, should change irresponsible monetary policies and take on more responsibility in global debt relief. 

China has worked with relevant countries and international financial institutions to jointly play a positive role in navigating the situation, easing developing countries' debt burden and achieving sustainable development. Now, in face of a global debt crisis caused by factors like strong dollar, the US-led West should take more responsibility in resolving an impasse in debt restructuring. 

The author is a reporter with the Global Times.