Lhe proliferation of situations of financial distress among developing countries has put the collective system of public debt relief to the test. A better balance must be found between three competing objectives: speeding up debt renegotiations, substantially reducing the burden on States, and ensuring fair treatment of all creditors. This fair treatment, called “comparability of treatment”, must be made clearer and more explicit.
The succession of crises since the great financial crisis of 2007-2008 has increased public debts in an unprecedented way outside of wartime. Advanced countries, which benefit from credible central banks, have been able to avoid, to date, the alarming symptoms of financial distress: allocation of a considerable part of the budget to interest charges; inability to refinance debt on affordable terms…
Developing countries have not been so lucky. The signs of distress have been multiplying for two years, and accelerating for a few months. Argentina, Ecuador, Lebanon, Chad, Ethiopia, Suriname, Zambia… and now Sri Lanka have had to resign themselves to negotiating with their creditors to ease their debt burden.
“Common Framework for Debt Treatments”
This debt rescheduling process is based on a delicate balance: the debts must be easily renegotiable so as not to condemn States to cruel financial agony; but not so easily as to encourage debt reductions “capricious” which would make the future financing of these economies unnecessarily onerous.
The international community, under the aegis of the G20, took a very important initiative in 2020: the “common framework for debt treatment”, relying on the analytical and logistical infrastructure of the Paris Club, this informal group of countries, mostly Western, which have been orchestrating debt negotiations for developing countries for more than sixty years.
The new major public creditors China and, to a lesser extent, India and Saudi Arabia also participate. The “common framework” was supposed to make possible and accelerate the process of debt renegotiation, after two decades during which these new emerging powers lent massively to developing countries, particularly in Africa.
The problem of treatment duration
In 2022, this process is defeated. No proven case of successful restructuring according to the “common framework” has been listed to date. The process is long and tortuous, despite the energy deployed by the French Treasury, which has chaired the Paris Club since its inception.
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