US and China are in discussions to prevent emerging market sovereign defaults, considering measures like extending loan periods to ease the annual debt service burden of over $400 billion for poor countries and exploring alternatives to high market borrowing rates.
The United States and China are talking about new ways to prevent many poorer countries from being unable to pay back their debts. This is a significant effort for the two rival superpowers to work together on economic issues.
The discussions involve ideas like extending the time countries have to repay their loans before they miss payments, which could help ease the heavy burden of over $400 billion in debt payments these countries face each year.
Another focus is finding alternatives to the high interest rates these poorer nations currently deal with when borrowing money in the financial markets.
In addition to longer repayment periods, the talks include thoughts on getting more financial support from organizations like the World Bank and other international banks.
The main goal is to introduce these measures before a country reaches a point where it can’t pay back its debts, which would usually lead to formal negotiations with creditors.
If the U.S. and China come up with a joint plan, it would need support from the Group of 20, the International Monetary Fund (IMF), and the World Bank. These organizations have been struggling to find solutions for global debt issues since the pandemic began.
The success of such a proposal would also depend on getting agreement from private creditors, who now play a more significant role in lending to emerging market countries and expect to have a bigger say in negotiations.
China has expressed that it takes the debt issues of developing countries seriously and that discussions with the U.S. on this topic happen through various channels.
In summary, the U.S. and China are working together on strategies to help poorer countries manage their debts more effectively, including extending repayment periods and seeking financial support from international organizations. Success in this effort would require broad support from global forums and private creditors.
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