George Soros advocates debt standstill for EMEs

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April 18, 2020 4:00 AM

Giving a road map for the debt relief to EMEs, Soros and Canavan argued that, the simplest way was to push back by a year all debt repayments due in the next 12 months and to require creditors to forgo one year’s interest income.

The Reserve Bank of India said in early January 2020 that India’s external debt has increased since 2017-18 mainly due to external commercial borrowings (ECB), non-resident deposits, and short-term trade credits. The Reserve Bank of India said in early January 2020 that India’s external debt has increased since 2017-18 mainly due to external commercial borrowings (ECB), non-resident deposits, and short-term trade credits.

Stating that the COVID-19 pandemic is “a one-two financial punch” for emerging market economies (EMEs), billionaire investor George Soros has suggested a comprehensive debt standstill for them to tide over the crisis.

“Developing countries, even those considered middle-income countries, must be allowed to defer all debt-service payments to all international creditors — official and private — for at least one year,” Soros opined, in an article he wrote for BloombergQuint, along with Chris Canavan, managing director at Lion’s Head Global Partners, a financial advisory firm.

“Group of 20 leaders, in their April 15 communique, acknowledge the need for debt relief. But they call for it only for the poorest countries and only from official lenders. Private lenders are asked to consider giving poor countries a break on debt payments, but they are under little pressure to oblige. This does not go far enough…” the two wrote.

Giving a road map for the debt relief to EMEs, Soros and Canavan argued that, the simplest way was to push back by a year all debt repayments due in the next 12 months and to require creditors to forgo one year’s interest income. This, they insisted, would be a one-time-only arrangement, and should not set a precedent for the future. Nor should it constitute permanent debt relief. “Some government borrowers may need their foreign obligations to be reduced for good, but those negotiations must await more normal times”.

“Without a standstill, debtor countries will be forced to impose harsh austerity measures, relegating their economies to a lost decade or more, compromising the health of their citizens and, in turn, the health of the rest of the world. In this scenario, many countries will opt to default, precipitating a debt crisis far more serious than the one in Latin America during the 1980s and the one in Asia during the 1990s. The wave of sovereign defaults in the 1930s may be the closest historical parallel,” Soros and Canavan wrote.

The Reserve Bank of India said in early January 2020 that India’s external debt has increased since 2017-18 mainly due to external commercial borrowings (ECB), non-resident deposits, and short-term trade credits. At the end of September 2019, the country’s external debt stood at $557.5 billion, up $14.3 billion or 2.6% over the level at end-March 2019. India’s external debt has been hovering around 20% of GDP since 2017-18.

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