There’s good news, too, perhaps:
- So far, global financial markets have not gone into free-fall. Let’s take this as a sign of systemic resilience in China, and a degree of responsibility among major players rather than an indication of collective denial. IMF
- It could also be, as it has been put by leading experts, that debt distress is concentrated in economies that are too marginal to affect global markets. Al Jazeera
- China has been just as hard-nosed with internal as with external debtors. In other words, there is certainly discipline and an adherence to principles – though they are clearly not the same we’d call best practice in the West. Reuters
Sadly, most of the news is bad, much of it dismally so:
- Global debt has ballooned since 2000:
- China has been by far the largest lender to EMDEs over the past decade, and close to two thirds of its borrowing countries are in distress:
- The debt burden is hampering growth and much needed investment in development:
- China has been accused of treating a solvency crisis like a liquidity crisis; I would argue it is a governance crisis that has been brewing for the past two decades.
- China has also been blamed for “debt-trap diplomacy”: lending expecting debtors to default, to gain influence. This is clearly not the sole, stated or primary goal, but there are examples. The Economist
- As the upcoming IMF / WBG Annual Meetings in Marrakech will highlight, we are still in the thick of a multi-dimensional crisis IMF EO23 WB IDR22
- As ever, this multi-dimensional crisis requires
- A shared view of the challenges and the underlying causes;
- Agreement on the most effective solutions;
- Transparent mechanisms to ensure a fair sharing of burdens;
- Implementation mechanisms that minimize waste and moral hazard, and maximize impact;
- Underlying all of the above – a genuine willingness to communicate and cooperate.
- Sadly, none of the above currently exist, nor are they likely to in the foreseeable future. Thus, Carmen Reinhart’s conclusion in her Global Economy Lecture at the OeNB seems likely: If history is any guide, the unfolding debt crisis in many EMDEs will take years to resolve. OeNB GEL23