(Bloomberg) — Sri Lanka and major creditors have formally launched talks to restructure the nation’s debt without China, its biggest bilateral lender, a sign of growing frustration with Beijing’s approach to the world’s debt problems in development.
Bloomberg’s Most Read
Finance chiefs from India, Japan and the Paris Club of sovereign creditors held a joint briefing Thursday night in Washington with the International Monetary Fund to mark the start of the restructuring.
The event was aimed at injecting fresh momentum into Sri Lanka’s debt talks mired in a standoff between China and other lenders over how best to deal with the island nation’s debt woes, people familiar with the matter said. They declined to be identified because the conversations are private.
“Sri Lanka remains mired in a deep debt crisis and rapid debt resolution is needed to bring Sri Lanka out of its crisis as quickly as possible,” said IMF Deputy Managing Director Kenji Okamura. “We hope that all official bilateral creditors can participate and that the negotiations can move quickly.”
Other officials at the briefing also called for the participation of all creditors, without mentioning China by name. Kenji added that his goal is to complete debt reworking for the nation’s first IMF program review which is expected around September, according to the fund’s rules.
It comes a day after China agreed to soften some of its demands during a roundtable convened by the International Monetary Fund and the World Bank to draw up broader guidelines for providing debt relief to low-income countries. Those discussions should continue in the coming months, with important issues still unresolved.
Overlaying those broader talks has been concern over China’s role in negotiations involving countries like Sri Lanka and Zambia, which are facing growing economic tensions due to slow progress in resolving their debt problems.
Chinese share
Both Sri Lanka and its creditors have said they would like China to participate in restructuring discussions. But people familiar with the talks said they are also anxious not to let Beijing delay negotiations further.
A person familiar said Sri Lanka had pledged not to negotiate a separate debt deal with China, which has been a concern for other creditors. Thursday’s move was also intended to ensure that Beijing had no leading role in the creditors’ committee’s governing talks, they said.
It is not clear if China was asked to participate in the launch of talks on Thursday to restructure Sri Lanka’s debt. The Chinese embassy in Washington did not immediately respond to a request for comment.
Japanese Finance Minister Shunichi Suzuki said the framework for the Sri Lanka talks had been negotiated by Japan, India and France as the traditional representative of the Paris Club of rich creditor countries.
“In relation to China, the basic idea of this is to involve many related countries. So, of course, it is appropriate if China joins in,” Suzuki told reporters on Wednesday. But, he added, “it is unfair for any nation to hold bilateral talks and secure its own benefits before others. Equity is a basic idea for this.”
support sought
Sri Lanka wants China to support its effort to restructure its debt, central bank governor Nandalal Weerasinghe has said.
“It is in the interest of both China and Sri Lanka to complete this process soon and we can repay our distressed obligation,” Weerasinghe said in an interview. “We have to make sure we do it as soon as possible.”
Paris Club members, including Japan, account for $4.8 billion, or more than 10% of Sri Lanka’s foreign debt, according to IMF data. That’s slightly higher than China, which sits at $4.5 billion, while India is owed $1.8 billion.
“Given the relationship between Japan, India, the Paris Club and China, and that none of them have that much of a stake in the game, the chances of China joining a group led by them were slim to none,” David said. Loevinger. , sovereign analyst at TCW Group Inc. and former US Treasury Department senior coordinator for China affairs. Beijing “is unlikely to accept the dictates of smaller creditors,” he said, adding that it “will probably go its own way in dealing with Sri Lanka.”
The IMF approved a four-year, $3 billion bailout for Sri Lanka on March 20 and has urged a quick resolution of debt restructuring talks.
The emerging market debt overhang and cooperation among creditors has been a key topic at this week’s IMF and World Bank meetings in Washington. Much of the attention has focused on the role of China, which in recent years has become the world’s largest sovereign creditor.
test case
Sri Lanka’s bailout efforts have been a test case of China’s willingness to work with other creditors to alleviate debt.
In February, Paris Club creditors, as well as Hungary and Saudi Arabia, called on China to join the international effort to relieve Sri Lanka’s debt. The call for financial backing from the world’s second-biggest economy came amid fears that China’s unilateral stance could delay and even complicate Sri Lanka’s bailout, just as it did in Zambia.
The rift between Beijing and the Paris Club, as well as multilateral institutions, has set back efforts to ease the debt burden of developing economies struggling to recover from the pandemic and repay loans, even as a US dollar more Strong debt and higher interest rates increase debt service costs. China has said it wants multilateral lenders to provide debt relief as well.
Last month, Sri Lanka took a key step to win the cooperation of its external bondholders to restructure $84 billion in debt by agreeing to include local currency bonds in the program.
The exercise, which will include shorter-term Treasury bills held by the nation’s central bank and also some longer-term Treasury bonds, on a voluntary basis, is intended to reduce the burden on foreign trade creditors.
–With assistance from Asantha Sirimanne and Ye Xie.
(Updates with IMF comments in fourth paragraph.)
Bloomberg Businessweek Most Read
©2023 Bloomberg L.P.