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Debt Crisis Will Delay Global Recovery

AP

(AP)

May 26, 2020

The COVID-19 pandemic will spark hugely damaging debt defaults in developing countries, hampering rebuilding and recovery. Many emerging markets borrowed heavily both from official governmental lenders, as well as from international private sector investors, mostly in U.S. dollars. Now they are confronted by rising debt service costs at a time of rising economic difficulties and capital flight. We must start planning for this right away. 

How can we best mitigate the emerging markets debt crisis? The International Monetary Fund requires additional resources as it now faces immediate requests for fast-disbursing loans from a record 102 countries and will face a deluge of follow-on loan requests in coming months. It estimates 40% of low-income nations are wrestling with debt distress.

The United States has resisted an increase in IMF Special Drawing Rights, which is needed to increase the capital available for lending. That may leave the institution unable to respond on the scale required. President Donald Trump’s administration is forgetting that the fund performs an essential emergency response role at an extremely low cost to taxpayers and is much less costly than permitting crises to cascade or relying on bilateral responses...

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