Debt initiatives and liquidity surpluses in a changing world

Chairman of Nest Investments Group (Holding)
Chairman of World Trade Center Qatar

The United Nations Economic Commission for Africa raised a loud voice, calling for immediate assistance to the poorest developing countries, in light of their financial bottlenecks resulting from the COVID-19 pandemic. The issue relates to a request to extend the term of the initiative to suspend the payment of their debt service until the end of the year 2022, considering that the resistance of poor and developing countries will collapse if global financial policymakers remain indifferent or hesitant to take decisions in this regard. The G20 had agreed to extend the freeze on official bilateral debt payments last October, based on the initiative to suspend debt service, to the first half of this year. The finance ministers of the Group of Twenty, who met in mid-October, announced that they had heard the committee’s voice and were studying ways to take measures that would reduce the debt burden on the countries of the South. However, the result was disappointing. As a result of their consultations, they only launched the Debt Service Suspension Initiative, which the G20 and the Paris Club had launched in April / April 2020, and ignored the basic demands of countries under the burdens that threaten to collapse their financial systems with All the political, economic, social, life and living repercussions.

The “Debt Service Suspension Initiative” would ease the process of internal financial flow to the public budgets of developing countries, so that they benefit from that in terms of financing their current and investment spending, but it will not be sufficient to face the state of emergency imposed on developing countries, a pandemic that has exhausted economies, burdened private sectors, paralyzed the movement and disrupted Hundreds of thousands of employees and workers are in their homes, and poverty rates have increased to levels not seen before, as we have indicated in previous articles. On the topic of "Debt Service Suspension Initiative", we must review the following: The solution proposed by the creditors is related to extending the deadline of bilateral debt service for a short period of time, after adding unpaid amounts to the amount due at the new maturity, and it is limited to 73 developing countries only, which constitutes half the number of developing countries, and excludes countries classified in the category of deficit such as Sudan Argentina and Venezuela. The debt rescheduling agreement includes a stipulation that rescheduling is conditional on the advance payment of arrears owed by developing countries that owe the IMF and the World Bank, as well as ratification by the debtor countries of a structural adjustment plan under the auspices of the International Monetary Fund; Noting in this regard that this plan only covers debts of $ 20 billion out of about $ 275 billion, which is less than 1% of the total external public debt of developing countries.

China and private-sector creditors, such as banks and investment funds, did not participate directly and effectively in this initiative. Rather, they attended the meetings as observers, so to speak, after receiving invitations from the regulators, so that observers fear that this class of creditors will take measures against the lagging countries. The payment, the most important and the most dangerous of them, is to reduce its sovereign rating, which negatively affects its capabilities and potential to borrow again and leads to a sharp decline in its foreign direct investment. Data from the International Finance Institute showed that global debt rose by more than $ 17 billion last year, to $ 275 billion, amid pressures from the Covid-19 pandemic, supported by a sharp accumulation in total global government borrowing, to 105% last year from 90% in 2019. At a time when it can be said that the foreign debt stranglehold is severe in developing and poor countries, we see that the markets of developed countries are overflowing with cheap and strongly available money, due to zero interest rates, and "opportunity hunters" from the market such as investment funds, hedge funds, etc., looking for safe-havens.

Safe to invest money and to reap quick and high profits, not being amazed. Bubbles can be created hovering over everyone's head, and they may explode at any moment. There are many examples in this area, as we refer to the rise in the price of Bitcoin, for example, to more than 40 thousand dollars, and the rise in the market value of "Tesla" for American electric cars in late November to more than half a trillion dollars, which did not She is over seventeen years old ... and examples are growing. "The performance of the global economy during the years 2020-2021 may be less bleak," said Kristalina Georgina, Director of the International Monetary Fund, "thanks in particular to the economic recovery in the third quarter, which came as a surprise" in terms of size ", warning of the widening gap between rich and poor countries during the recovery from the Corona pandemic.

The gap between rich and poor countries actually widens and deepens during and after the recovery period, in a phenomenon that leaves deep scars on the human body, without real initiatives that alleviate the suffering of more than two-thirds of humanity, but rather arrangements and agreements aimed at addressing the scales without addressing the depth and essence of the crises. Solutions require sacrifice for what is good for the sustainability of the global economy as a unit.