NEW YORK – The COVID-19 pandemic has pushed humanity toward the worst global recession in modern times. Pressure on public finances has become enormous, particularly in developing countries that were already highly indebted. How Will the Great Cessation End? PS OnPoint Olivier Douliery/AFP via Getty Images How to Develop a COVID-19 Vaccine for All Xinhua/Zhang Yuwei via Getty Images Previous Next The World Bank, the International Monetary Fund, and the United Nations have
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NEW YORK – The COVID-19 pandemic has pushed humanity toward the worst global recession in modern times. Pressure on public finances has become enormous, particularly in developing countries that were already highly indebted.
The World Bank, the International Monetary Fund, and the United Nations have launched various initiatives to relieve the public debt burden in this extraordinary situation. As a first step, the G20 countries agreed to grant a moratorium on official bilateral debt of the world’s 76 poorest economies.
This moment poses the ultimate test of the international financial architecture. “Sustainability” is a term that is now ubiquitous in global finance and investment, and for good reason. The principles it embodies – such as in the UN Sustainable Development Goals – speak to building a better world. And those principles are deeply relevant when it comes to the sovereign debt of struggling developing countries.
Against the backdrop of this global emergency, Argentina is spearheading its public debt-restructuring process in a constructive manner, in good faith, and with the support of all domestic political sectors. Since 2016, when the country regained access to international markets, external creditors made a bet by acquiring debt with high coupons, but compatible only with extremely robust growth rates that did not materialize. In February, before the COVID-19 crisis became acute, the IMF concluded that Argentina’s public debt is “unsustainable.” There is consensus that the debt is unaffordable, with interest payments having doubled as a share of government revenue. To be blunt, the cost of refinancing has become excessively high.
A renegotiation requires the commitment of all parties. Argentina has presented its private creditors a responsible offer that adequately reflects the country’s payment capacity: a three-year grace period with a minor cut in capital and a significant cut in interest. The proposal is in line with the IMF’s technical analysis, which states that substantial debt relief from Argentina’s private creditors will be needed to restore debt sustainability with high probability.
Debt relief is the only way to combat the pandemic and set the economy on a sustainable path. Before the crisis, the World Bank estimated that urban poverty in Argentina stood at 35.5%, and child poverty at 52.3%. The UN now regards the impact of the shock on the country as among the worst in its region, with the IMF projecting a 5.7% contraction in GDP in 2020.
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Creditors are being asked to trim the revenue stream but would still receive reasonable interest rates in the future. Argentina has ratified its willingness to service the...