As dominant creditor, China must ‘step up’ on debt restructuring, Indonesia’s Indrawati says

As the world’s dominant creditor, China must demonstrate leadership in addressing the growing debt problem facing many low-income and emerging market countries around the world, this year’s leader of the Group of 20 finance officials told Reuters. Indonesian Finance Minister Sri Mulyani Indrawati, speaking in an interview on Friday, welcomed news that China would join a creditor committee for Zambia, one of three countries that has sought debt relief under the G20 Common Framework agreed with the Paris Club of official creditors. Indrawati said there was still work to do to move forward with Zambia’s long-stalled debt process, and other countries would also need debt relief and restructuring in the future.

“There will more cases coming,” Indrawati said. “At some point China has to recognise that they need to step up to actually take that kind of leap, and providing the platform for all creditors to be able to discuss … how this restructuring is going to be real.” International Monetary Fund Managing Director Kristalina Georgieva on Thursday said China had committed to joining Zambia’s creditor committee amid complaints from Zambia’s finance minister about delays to its debt restructuring. Zambia became the first COVID-19 pandemic-era default in 2020 and is buckling under a debt burden of almost $32 billion, around 120% of its gross domestic product. Georgieva, U.S. Treasury Secretary Janet Yellen and others have called for moves to accelerate the debt restructuring process and make it more efficient.

Ethiopia and Chad also signed up to the Common Framework more than a year ago and have yet to receive debt relief. China, which has become the world’s largest creditor, has been reluctant to move forward with restructuring deals, according to Western officials. Indrawati said G20 members made clear their concerns about the need to jump-start the slow-moving debt restructuring process during this week’s spring meetings of the IMF and World Bank members, with some 60% of low-income countries now in or at high risk of debt distress. “After a lot of the discussion, especially about the role of China, in the end they agreed to make the creditor committee,” Indrawati said. “That’s progress.” Because they are becoming very important and dominant, they also need to have the ownership as well as leadership on how this kind of situation needs to be solved,” she added. Indrawati said the Paris Club could provide a reference, but it was up to current creditors – including China – to agree on how to treat countries that can no longer service their debts. She said she was optimistic that G20 members would make progress on adjusting the Common Framework to become more effective over the course of the year.