Since the Covid-19 crisis began, central banks and governments in Western countries have used an unprecedented amount of monetary and fiscal stimulus to support their economies through the economic turmoil. In contrast, poorer countries have been unable to use anywhere near the same scale of stimulus measures. Because their currencies and government finances are perceived to be weaker, they are unable to undertake the same level of ‘quantitative easing’ and domestic borrowing without triggering currency devaluations and high inflation.
All creditors need to take part in debt payment cancellation to help developing countries through the current crisis. The possibility of not being paid in full is always a risk when you lend money. Bilateral lenders can fund the cost of writing off the debt payments owed to them. Private lenders lent at high interest rates on the basis that the loans were risky. Now that lower income countries have been hit by an unprecedented set of economic shocks, private lenders should accept – and be made to accept – that their risky speculation has failed and that debt payments must be cancelled.
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This briefing focuses on the role that the IMF can play in helping to tackle the debts owed by poorer countries to the IMF, World Bank and other multilateral institutions. It argues that these debts could easily be paid using funds from two sources: profit from IMF gold sales, and use of rich country proceeds from an IMF issuance of Special Drawing Rights.