Rethinking Debt: Financing the Future Amid Crisis

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Rethinking Debt: Financing the Future Amid Crisis

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On April 7th, the World Bank invited several leading experts to explore perspectives on a new global financial architecture for debt. Speakers discussed lessons from past restructuring efforts, the private sector’s role, and the increased need for debt transparency.

Zainab Haruna of Nigeria began the conversation by explaining how government debt can affect the lives of everyday people. Angolan Finance Minister Vera Daves spoke with World Bank Group President David Malpass about how the economic fallout from COVID-19 has affected her country’s revenue and debt levels. Kevin Watkins, Chief Executive Officer of Save the Children, and K.Y. Amoako, President of the African Center for Economic Transformation, described how unsustainable debt can hold back the progress of countries, diverting resources that could otherwise be used to invest in health, education, and more. Citi’s Julie Monaco and World Bank Chief Economist Carmen Reinhart both referenced the debt crises of the 1980s and 1990s—and the lessons that this challenging era can offer.

Reducing unsustainable debt requires diverse solutions and a commitment to help countries focus on building a green, resilient, inclusive economy. If you missed the discussion, watch the replay, and tell us what you think in the comments or by using #Debt4Dev on Twitter.

 

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This event replay is available with captions in multiple languages. You can select the language of your choice in the video above OR you can use the following links to watch the event with translated audio in Arabic, French and Spanish.

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  • 00:00 [UPBEAT MUSIC]
  • 00:29 2021 Spring Meetings day two
  • 00:32 [LIVE: WASHINGTON, DC]
  • 00:32 and we're live once more from the World Bank group headquarters
  • 00:34 in Washington, DC.
  • 00:36 [SRIMATHI SRIDHAR; WORLD BANK GROUP]
  • 00:36 I'm Srimathi Sridhar and we're about two minutes away
  • 00:39 from our headline event on debt.
  • 00:41 But before we launch into that, here's my colleague, Paul Blake,
  • 00:43 with a quick look at what you can expect from today's live event
  • 00:46 and how you can get involved.
  • 00:48 [UPBEAT MUSIC]
  • 00:53 The World Bank group IMF meetings are virtual once more
  • 00:57 and while our buildings are relatively empty when compared to past years,
  • 01:00 you, connecting wherever you are,
  • 01:02 have more opportunity than ever to take part.
  • 01:05 For weeks we've been convening and recording in-depth conversations
  • 01:09 with some of the world's leading experts
  • 01:11 on the most urgent development issues of our time.
  • 01:15 Now for these Spring Meetings, we're proud to bring you four events
  • 01:19 that will play out over four days and cover four important themes,
  • 01:23 economic recovery, debt, climate, and vaccines.
  • 01:27 And while the main events are recorded,
  • 01:29 our subject matter experts are standing by live online right now,
  • 01:33 to answer your questions and share your comments.
  • 01:37 Hi I'm Nish Mescher, as each event plays
  • 01:39 my colleagues and I will be answering your questions
  • 01:42 in English, French, Spanish, and Arabic in the live chat at live.worldbank.org.
  • 01:47 And while you're here, please vote in our poll.
  • 01:49 There will be a new question every day.
  • 01:51 And after each event, we'll be back here live
  • 01:54 from our headquarters in Washington, DC.
  • 01:56 And on this socially distant set,
  • 01:58 we'll be putting some of the most popular questions that have come in online
  • 02:02 to senior World Bank Group leaders and experts.
  • 02:05 So what are you waiting for?
  • 02:06 Find all the details and share your perspective, live.worldbank.org.
  • 02:15 [JOIN THE CONVERSATION: #DEBT4DEV]
  • 02:15 And to have your say in today's event, use the hashtag "debt4dev."
  • 02:19 Now I'll be back here in about an hour's time
  • 02:21 for a live discussion with World Bank Group president David Malpass,
  • 02:24 featuring your questions.
  • 02:25 And I'll also share the results of today's poll and much more.
  • 02:28 I do hope you'll stick around for that.
  • 02:30 [MOMENTS AWAY: RETHINKING DEBT: FINANCING THE FUTURE AMID CRISIS]
  • 02:30 But now let's jump into today's program,
  • 02:32 Rethinking Debt: Financing the Future Amid Crisis
  • 02:36 hosted by the World Bank Group's Paul Blake.
  • 02:38 [UPBEAT MUSIC]
  • 02:40 [SPRING MEETINGS 2021 VIRTUAL WORLD BANK GROUP INTERNATIONAL MONETARY FUND]
  • 02:45 [MOUNTING DEBT]
  • 02:48 [RISK TO RECOVERY]
  • 02:52 [NEW SOLUTIONS]
  • 02:58 [RETHINKING DEBT: FINANCING THE FUTURE AMID CRISIS]
  • 03:06 [PAUL BLAKE; WORLD BANK GROUP]
  • 03:06 Hello everyone, welcome to Washington, DC.
  • 03:09 And welcome to the second day of our Spring Meetings in 2021.
  • 03:12 I'm Paul Blake coming to you from the atrium
  • 03:14 of the World Bank Group headquarters.
  • 03:16 And today the spotlight is on how we can help developing countries
  • 03:20 handle debt financing.
  • 03:22 Now, one year in, COVID-19 has aggravated debt distress
  • 03:25 in the poorest countries,
  • 03:26 and that could hurt their ability to finance their future.
  • 03:29 Reducing debt would allow countries
  • 03:31 to focus resources where they're really needed,
  • 03:33 on building a green, resilient, inclusive recovery.
  • 03:37 So what's the best way to do this?
  • 03:38 And how can governments finance development
  • 03:40 without sinking deeper into debt?
  • 03:42 And what can we learn from the past?
  • 03:44 Now over the next hour, we'll be joined by some top level guests
  • 03:47 and hear from people around the world directly affected by these issues.
  • 03:52 [UPBEAT MUSIC]
  • 03:53 [VIRTUAL SPRING MEETINGS 2021 COMING UP]
  • 03:56 [WHY UNSUSTAINABLE DEBT MATTERS, ZAINAB HARUNA; ONE YOUNG WORLD AMBASSADOR]
  • 04:01 [RETHINKING DEBT: SUSTAINABLE SOLUTIONS FOR INCLUSIVE GROWTH]
  • 04:07 [VERA DAVES DE SOUSA; FINANCE MINISTER, REPUBLIC OF ANGOLA]
  • 04:12 [RETHINKING DEBT: THE PRIVATE SECTOR PERSPECTIVE]
  • 04:15 [JULIE MONACO; MANAGING DIRECTOR, CITI]
  • 04:18 [RETHINKING DEBT: THE IMPACT ON FUTURE GENERATIONS]
  • 04:23 [KEVIN WATKINS; CHIEF EXECUTIVE OFFICER, SAVE THE CHILDREN]
  • 04:30 [TOWARD EFFICIENT DEBT REDUCTION]
  • 04:32 [K.Y. AMOAKO; PRESIDENT, AFRICAN CENTER FOR ECONOMIC TRANSFORMATION]
  • 04:35 [CARMEN REINHART; CHIEF ECONOMIST, WORLD BANK GROUP]
  • 04:39 Now before we dive in,
  • 04:40 a reminder that there are lots of ways for you to get involved in this event.
  • 04:44 We're streaming in English, French, Spanish, and Arabic
  • 04:47 [LIVE.WORLDBANK.ORG]
  • 04:47 on World Bank live and across our social media channels.
  • 04:50 World bank live is also where you'll find our experts
  • 04:53 poised to answer your questions in the live chat.
  • 04:55 And you can also upvote your favorite questions.
  • 04:58 We'll be putting some of those
  • 04:59 to the president of the World Bank Group, David Malpass,
  • 05:01 straight after this event.
  • 05:03 [#DEBT4DEV]
  • 05:03 So share your comments at any time using the hashtag "debt4dev."
  • 05:07 Before our first discussion, let's take a look at how government debt
  • 05:10 can affect the lives of everyday people for better or for worse.
  • 05:14 Here to explain is One Young World ambassador, Zainab Haruna.
  • 05:17 She's the founder of Decipher Solutions, a youth led social enterprise
  • 05:21 in her home country of Nigeria.
  • 05:26 [ZAINAB HARUNA; ONE YOUNG WORLD AMBASSADOR, FOUNDER, DECIPHER SOLUTIONS]
  • 05:26 When you or I need to buy a house,
  • 05:28 you might apply for a loan,
  • 05:30 Governments do the same and borrow money from different lenders
  • 05:34 to build roads, schools, and hospitals.
  • 05:37 It adds up to an enormous amount of money,
  • 05:40 but that's not necessarily a bad thing.
  • 05:43 How countries invest and handle their debts
  • 05:46 can determine whether their people thrive or languish.
  • 05:50 Let's look at why that is.
  • 05:53 Meet Emma, a young girl who lives in a rural village.
  • 05:57 Her country is not rich, but the government is investing in its people.
  • 06:02 Her school has got a new computers and hired skill teachers.
  • 06:06 Emma likes coding and discovers her talents for programming games and websites.
  • 06:11 She wins a scholarship and goes to college.
  • 06:14 After the degree in computer science, she gets a loan and starts a business.
  • 06:20 Her company thrives and employs dozens of people.
  • 06:24 What made it possible for Emma to succeed?
  • 06:28 Every step of the way the government invested in the future.
  • 06:32 It supported Emma and others like her with a robust education budget
  • 06:37 that paid for her teachers, technology, and scholarships.
  • 06:41 The country had to borrow from different lenders, but the investment paid off.
  • 06:46 It led to growth, jobs, and prosperity for its people, like Emma.
  • 06:52 It's when a country is burdened with unsustainable levels of debt
  • 06:56 that problems begin.
  • 06:58 Developing countries had a record $55 trillion in debts
  • 07:03 even before COVID-19 hit.
  • 07:05 That sustainability is a growing concern as countries respond to the pandemic,
  • 07:11 struggling with urgent financing needs.
  • 07:13 Now imagine Emma's life again.
  • 07:17 Her country borrows to fund an ambitious agenda,
  • 07:21 taking out loans from private predators and all of us who are eager to lend.
  • 07:25 But interest rates are high
  • 07:27 and the amounts and terms of the loans are not transparent.
  • 07:32 This kicks off a cycle of mounting bills
  • 07:35 with less money to spend on projects, including education.
  • 07:40 Then the pandemic derails the budget.
  • 07:43 Because the country now has a high debt burden,
  • 07:46 norms for regular citizens also come with higher interest rates.
  • 07:50 Emma's school never gets the extra investment in teachers and computers
  • 07:54 and she never learns to code.
  • 07:57 Without a scholarship, she misses the opportunity to attend college.
  • 08:01 She can't take out a loan and never starts a business.
  • 08:04 Emma and her family stay poor.
  • 08:07 It's a story of unfulfilled potential
  • 08:09 that's all too common in many countries around the world.
  • 08:13 When countries can finance the future in a sustainable way
  • 08:17 and invest in their people, everyone wins.
  • 08:21 That's why debt matters for every single one of us.
  • 08:27 [BISHKEK, KYRGYZ REPUBLIC]
  • 08:27 I am Julie in Bishkek Kyrgyz Republic,
  • 08:30 and you're watching the World Bank Group IMF Spring Meetings.
  • 08:35 Well as Zainab explained, how governments manage debt
  • 08:38 is an issue that affects all of us well into our future.
  • 08:41 Many developing countries were struggling with debt even before COVID-19,
  • 08:46 but the pandemic has made a bad situation worse.
  • 08:49 Low-income countries in particular
  • 08:51 now face debt levels that simply aren't sustainable.
  • 08:54 World Bank Group president David Malpass invited three important thought leaders
  • 08:58 to share their ideas on how to better manage debt crises quickly and efficiently
  • 09:03 to get the world back on track for resilient recovery.
  • 09:06 For the first in this series of flagship conversations on rethinking debt
  • 09:10 he spoke to Angolan finance minister, Vera Daves.
  • 09:13 [RETHINKING DEBT: A CONVERSATION WITH VERA DAVES DE SOUSA]
  • 09:18 [FINANCE MINISTER, REPUBLIC OF ANGOLA]
  • 09:23 Thank you very much, Paul.
  • 09:25 [DAVID MALPASS; PRESIDENT, WORLD BANK GROUP]
  • 09:25 I'm here with our first guest,
  • 09:27 Minister Daves De Sousa, the finance minister of Angola.
  • 09:33 Vera, very nice to see you.
  • 09:36 Angola has gone through a reprofiling of its debt.
  • 09:39 I wondered if you could describe the impact of debt on the people of Angola.
  • 09:44 Why was the reprofiling important?
  • 09:46 and some of the... how did it go?
  • 09:48 What were some of the challenges?
  • 09:52 [VERA DAVES DE SOUSA; FINANCE MINISTER, REPUBLIC OF ANGOLA]
  • 09:52 Thank you very much, President Malpass.
  • 09:55 Thank you, David, for this opportunity for being here
  • 09:57 and to share with you and with audience our experience.
  • 10:05 Yes, we were suffering the consequences of the pandemic.
  • 10:13 Of course, we were coming from a starting point that was not easy.
  • 10:18 We were dealing with the recessions for so many years
  • 10:22 and the pandemics just make it worse for the Angolan economy.
  • 10:27 And, as you know, highly dependent on oil,
  • 10:31 so anything that affects the oil sector hits us very, very hard,
  • 10:39 and that reflects on our stock off the debts
  • 10:45 because it reflects on the different indicators.
  • 10:49 The growth, decrease even more our international reserves,
  • 10:56 decrease even more with impact on the exchange rate
  • 11:01 and impact on the debt that is linked to the exchange rate.
  • 11:07 So a set of events put us on a very stressful situation
  • 11:13 that required from our side to work on different fronts
  • 11:22 on the revenue side, on the expenditure side, but also on the debt side.
  • 11:27 We got important assistance from institutions as World Bank and IMF.
  • 11:35 The G20, the DSSI initiative was very useful,
  • 11:40 but also we talk with our main creditors
  • 11:44 to find a solution that enables us to have more breathing space
  • 11:49 on the medium term and to release these financial resources
  • 11:54 to address the social needs on health and on financial support to the families.
  • 12:03 As you know, with your support,
  • 12:06 we had implemented a program to provide financial assistance
  • 12:11 to the families that are more vulnerable.
  • 12:14 So everything that gives us breathing space, that gives us more financing space
  • 12:21 to address the social needs of our population,
  • 12:24 we are doing, and we are doing with your help.
  • 12:30 Thank you, and so the stock of external debt
  • 12:34 went up from some $33 billion to over $50 billion, so it's a sizeable amount.
  • 12:40 I wonder about the interest rate on that and what will happen.
  • 12:44 So you're having some temporary relief now.
  • 12:48 Does that run out and what will be the consequences
  • 12:51 or what's the interest rate that you expect over the coming decade?
  • 12:57 Yes, we can look at the external position and the overall picture of the debt.
  • 13:08 Regarding the external position, we've increased almost $18 billion since 2015.
  • 13:15 But if we look to the, all the debt, we will see that from 2017 to 2020,
  • 13:25 we see a decrease from 88 billion to 68.8 billion.
  • 13:32 So we still have challenges to manage, but we think we are on the right path,
  • 13:40 especially because we are seeing since 2018
  • 13:44 the gross financing needs also decreasing.
  • 13:47 We are being able to pay more expenditures with our tax collection.
  • 13:51 That is good news since 2018, 60% of...
  • 13:57 we see 60% of reductions on our gross financial needs.
  • 14:04 So I think we are on the right track, we did well expanding the tax base.
  • 14:09 We need to keep working on improving the quality of expenditure.
  • 14:15 We need to keep working on building the confidence
  • 14:19 on the macroeconomic indicators, on the commitment of the government,
  • 14:26 with the reforms to make sure
  • 14:30 that the perception of risk of the country decreases.
  • 14:36 That it's important also to decrease the interest rates.
  • 14:40 And we are also intending to continue negotiating with our multilateral partners
  • 14:48 to give privilege on concessional loans,
  • 14:53 to address the financial needs that we still need to address.
  • 14:59 But we really believe that...
  • 15:04 to deal with all these challenges in a sustainable way,
  • 15:11 is to make sure that we diversify our economy,
  • 15:15 that we break our dependency on oil, that we grow in a inclusive manner
  • 15:22 to make sure that we see more jobs coming, we see more tax collection coming,
  • 15:28 and we also increase our ability
  • 15:32 to ask less financing lines even in concessional terms,
  • 15:38 that we are able to collect more money to fund our activities.
  • 15:44 And if that happened, the interest rates we will decrease,
  • 15:48 so that's a medium-term goal, but we need to keep working on that
  • 15:54 to make sure that in the short term with solutions like the common framework
  • 15:59 that will be very useful.
  • 16:03 We can deal with this situation in the short term
  • 16:07 and in the medium term with the economy growing,
  • 16:10 we can be able to get access to more funds
  • 16:15 without increasing our stock, the debt stock.
  • 16:22 Very interesting.
  • 16:24 What a big part of your debt stock is collateralized oil financing.
  • 16:31 But I understood you to say, as you diversify the Angolan economy,
  • 16:36 I imagine it will be important...
  • 16:39 How you can have commercial bank financing for businesses
  • 16:43 via the shorter-term kinds of financing?
  • 16:47 How is that going, your relations with commercial banks?
  • 16:51 Are they staying engaged or is that a challenge as well?
  • 17:01 We feel that they still engage.
  • 17:05 We often receive a lot of proposals to finance specific projects.
  • 17:12 It's our initiative to say come down.
  • 17:18 We want to prioritize,
  • 17:24 to give more importance to the private sector to the direct investment.
  • 17:29 And we want to take off our foot from the accelerator regarding financial lines.
  • 17:36 So yes, we feel that the commercial banks
  • 17:38 are still interested to give financing to Angola,
  • 17:44 but Angola wants to move on with a strategy
  • 17:48 of combining getting funds from the private sector
  • 17:54 to engage with us and participate with us
  • 17:59 on the grow, on exploring the opportunities that we have in our country,
  • 18:05 and to find funds through concessional terms
  • 18:12 that sometimes are not acceptable to commercial banks.
  • 18:17 So it's a process that in somehow it's painful
  • 18:24 because it's a different mindset and a different strategy
  • 18:31 that some of our partners start understanding,
  • 18:39 but at the beginning it was not easy to negotiate on those terms,
  • 18:45 but we still committed with that.
  • 18:47 We still committed with the private investment.
  • 18:49 We still committed with getting financing on concessional terms,
  • 18:53 and we are resisting to sign contracts on commercial terms
  • 19:01 that we understand will add stress to our debt situation.
  • 19:09 I understand.
  • 19:10 And so these are very challenging times for countries because of the pandemic,
  • 19:15 because of the slowdown in the global economy
  • 19:17 or worse, the deep recession for many countries.
  • 19:20 And then the challenge of rebuilding into the future
  • 19:24 in ways that will make it all sustainable.
  • 19:27 So I want to really thank you for joining today
  • 19:32 and good luck with all of the challenges facing Angola.
  • 19:36 Thank you, Vera.
  • 19:40 A big thank you to David and Minister Vera Daves for our first discussion.
  • 19:44 We've got lots more great speakers lined up,
  • 19:47 but now here's another chance for you to get involved.
  • 19:50 We're asking you to vote in our special poll,
  • 19:52 and we want to get a sense of how you're responding to the pandemic.
  • 19:55 So our question is, following the COVID-19 crisis,
  • 19:59 what is your biggest financial priority?
  • 20:01 Is it A, to save for the future
  • 20:04 or B, make wise investments?
  • 20:07 Or is your priority to C, take out a loan,
  • 20:10 or lastly, will you be focusing on D, paying off debts.
  • 20:15 Now let's go through that one more time.
  • 20:16 Following the COVID-19 crisis, what is your biggest financial priority?
  • 20:21 Is it A, to save for the future?
  • 20:24 B, make wise investments?
  • 20:26 Is your priority to C, take out a loan,
  • 20:30 or lastly, will you be focusing on D, paying off debts?
  • 20:34 You can cast your vote at live.worldbank.org.
  • 20:38 And my colleague, Sri Sridhar, and I
  • 20:39 will be revealing the results of the poll live
  • 20:42 at the end of this program.
  • 20:43 Now, as we heard earlier from Angola,
  • 20:45 governments today are grappling with how to finance their future development
  • 20:49 while also supporting their economies through the current crisis.
  • 20:52 Everyday citizens face similar challenges.
  • 20:55 We wanted to hear from you.
  • 20:56 How are you financing your future?
  • 20:59 How does your government's debt
  • 21:00 affect your ability to achieve your financial goals?
  • 21:03 Young leaders and entrepreneurs from all over the world,
  • 21:06 sent us videos sharing their thoughts.
  • 21:08 Let's take a moment to hear what they have to say.
  • 21:13 [RONIC NGAMBWE; STUDENT, UNIVERSITY OF MARY WASHINGTON, USA]
  • 21:13 If I could finance my future,
  • 21:14 [D.R. CONGO]
  • 21:14 I would pursue a graduate degree and invest in a home.
  • 21:18 [VIKTOR MITEVSKI; CO-FOUNDER, ASSOCIATION FOR RESEARCH AND ANALYSIS (ZMA)]
  • 21:18 If I could finance my future, I would keep on investing in my own business.
  • 21:23 [ANOKA PRIMROSE ABEYRATHNE; SUSTAINABILITY SPECIALIST]
  • 21:23 I would be supporting more women entrepreneurs
  • 21:26 [ONE YOUNG WORLD AMBASSADOR, SRI LANKA]
  • 21:26 through my extended business to empower themselves.
  • 21:30 [EGSHIGLEN ERDENEBAT; PROPERTY MANAGER, MONGOLIA]
  • 21:30 I will be able to open my business
  • 21:32 which will provide my family a better lifestyle and income.
  • 21:36 [KHERLENTUYA KHUKHUU; HR SPECIALIST, MONGOLIA]
  • 21:36 I would travel as many places around the world.
  • 21:39 [SANTIAGO CRESPO; ENTREPRENEUR, ARGENTINA]
  • 21:39 I would expand my business to create new jobs for others.
  • 21:43 [AMY MELKI; RESEARCH ANALYST, LEBANON]
  • 21:43 I would have peace of mind
  • 21:44 in overcoming the current Lebanese economic crisis.
  • 21:47 [JASON PAREJA JAUREGUI; ENGINEER AND ACTIVIST, ONE YOUNG WORLD AMBASSADOR]
  • 21:47 I would get a student loan with a low interest rate
  • 21:50 [PERU]
  • 21:50 in order to afford my MBA studies.
  • 21:53 [EKIN KORKMAZ; BUSINESS DEVELOPMENT AND SALES SPECIALIST, BEAM TECH COMPANY]
  • 21:53 Right now, my biggest financial goal is to save more.
  • 21:55 [SERGIO DAVID SILVA GUTIÉRREZ; IMPACT ENTREPRENEURSHIP ADVOCATE, COLOMBIA]
  • 21:55 It's to pay off my student loans.
  • 21:58 [JUBILANTÉ CUTTING; FOUNDER, DIGITIAL MEDIA ADVOCATE, GUYANA]
  • 21:58 To buy a home, a car, to save more and invest more.
  • 22:06 Now in his first interview,
  • 22:07 President Malpass heard about the challenges facing Angola
  • 22:10 as it battles with the pandemic,
  • 22:12 while also dealing with a very heavy debt burden.
  • 22:15 For his second conversation, he wanted to hear from the private sector
  • 22:19 and how it's responding to this challenge.
  • 22:21 Julie Monaco is the managing director of CITI.
  • 22:23 [RETHINKING DEBT: A CONVERSATION WITH JULIE MONACO; MANAGING DIRECTOR, CITI]
  • 22:33 Hi, I'm here with Julie Monaco, a managing director of CITI bank.
  • 22:37 She has a wealth of experience, decades in the field of international finance.
  • 22:44 And I wanted to really explore and understand better CITI's interaction
  • 22:49 as we explore the overall debt crisis.
  • 22:53 [WASHINGTON, DC, USA; MARYLAND, USA]
  • 22:53 So, Julie, I know you're an advisor to sovereigns
  • 22:57 or that's one of your roles.
  • 22:59 I wonder if you could go through the various roles
  • 23:01 or connections that CITI bank as a whole has with developing countries
  • 23:06 and especially with the poorest countries.
  • 23:09 [JULIE MONACO; MANAGING DIRECTOR, CITI]
  • 23:09 So David, we at CITI are the largest provider
  • 23:13 of debt underwriting for the EM sovereigns around the world.
  • 23:16 That is an area of great expertise and leadership from CITI for many decades.
  • 23:23 So we have tons of experience in working with sovereigns through restructurings.
  • 23:27 We have a sovereign rating advisory and a sovereign debt advisory team
  • 23:31 that gets involved with sovereigns that are facing debt distress.
  • 23:35 And we will work and we have had many, many years...
  • 23:38 My team, I should say, has, and the collective CITI team,
  • 23:41 has many years of experience of working in parallel
  • 23:44 with the IMF and with a sovereign and negotiating with private creditors.
  • 23:49 Most recently, we were in that position with the Ecuador restructuring.
  • 23:53 So as it relates to commercial bank lending, as you know,
  • 23:57 there is not a lot of traditional commercial bank lending
  • 24:01 from organizations like CITI or our peer institutions
  • 24:05 into the emerging market sovereigns.
  • 24:07 That is because of what happened in the '80s and '90s.
  • 24:10 Most of the commercial lending that would go...
  • 24:13 commercial bank lending that would happen with sovereigns
  • 24:16 is related to projects.
  • 24:18 And again, it's also tied to EIF type funds financing,
  • 24:23 where there is high alignment with the official community.
  • 24:25 Our lending portfolio into sovereigns
  • 24:28 is mostly focused on FX lines, trade lines,
  • 24:33 as well as EAF, which is export agency finance-backed lending
  • 24:39 from the official community, where the private sector and the public sector
  • 24:43 are very much aligned in that type of lending.
  • 24:46 So that is very different.
  • 24:47 And I think that the bank lending is very small
  • 24:51 compared to the overall official lending as well as the bonds market.
  • 24:57 That was great, and...
  • 24:59 People are very interested in the details of that.
  • 25:02 So as you think about Ecuador, it faced different types of debt
  • 25:05 and they were able to reprofile or restructure some parts of that debt.
  • 25:13 How does the change in contracts affect the country's ability
  • 25:19 or the outcome of those discussions?
  • 25:23 For example, in terms of either collateral or in terms of non-disclosure clause,
  • 25:28 what's changed over recent years in that regard?
  • 25:31 The role that CITI played in Ecuador...
  • 25:34 we were an advisor along with an independent advisor.
  • 25:38 We negotiated with the official creditors
  • 25:42 and we worked in parallel with the IMF and we worked with the bond holders.
  • 25:47 And I think that, I think that situation...
  • 25:52 I think Ecuador is a perfect example that the current process can work.
  • 25:57 And that when you look at a situation
  • 26:01 where the bond holders are willing to take a haircut, as they did.
  • 26:06 They are willing to do that when there is a level of transparency,
  • 26:10 when there is goodwill and the ability to show there are going to be changes
  • 26:16 and reforms and they get confidence in the data
  • 26:19 on how the country is going to move forward.
  • 26:21 I think we've seen time and time again, David,
  • 26:23 that there has been 17 Paris Club restructurings since 2010.
  • 26:28 Twelve of those involved mandatory inclusion of bond holders
  • 26:33 and bond holders are very willing to come to the table
  • 26:37 and restructure debt as long as there is that...
  • 26:41 One is that because of the way
  • 26:42 the more and more uptake of collective action clauses
  • 26:47 has made it easier to make those structurings happen on the bond side.
  • 26:51 Also, what you have is just an expectation.
  • 26:55 I think that it's understood in the bond markets
  • 26:58 that this type of restructuring is part of this asset class in the EM.
  • 27:03 And so I think that there's a level of acceptance there.
  • 27:05 But it also requires goodwill around how that restructuring gets done.
  • 27:10 It's different.
  • 27:12 The mechanism for restructuring the commercial bank debt
  • 27:16 is very different than the bond debt.
  • 27:19 And, as you know, in Ecuador, we restructured Ecuador.
  • 27:23 The bond holders took a cut,
  • 27:24 but nobody touched the official debt under that restructuring.
  • 27:27 And I actually, in preparation to talking to you about the benefits
  • 27:32 of the G20 common framework,
  • 27:34 I actually asked my team would that framework have changed anything
  • 27:39 about how we approached the restructuring in Ecuador?
  • 27:42 And the answer I got back was that potentially the G20 framework,
  • 27:48 because you have all the official creditors at the table
  • 27:52 and key official creditors that are not under the table
  • 27:54 under the Paris club like China,
  • 27:56 that potentially it could have sped up some of the negotiations
  • 28:01 on the official side.
  • 28:04 Let's stay on... Thank you for all of that.
  • 28:07 Let's stay on the common framework.
  • 28:09 So it's aimed at countries in debt distress
  • 28:14 and countries that are lower income than Ecuador.
  • 28:24 And so the constructive part that you described,
  • 28:26 that it brings together Paris Club creditors,
  • 28:29 the non Paris club official creditors, and also the private sector.
  • 28:33 So we're working currently with Chad, with Ethiopia,
  • 28:38 with Zambia who have requested common framework treatment.
  • 28:42 How do you see that playing out?
  • 28:43 Will it work, I wonder?
  • 28:48 I think, it certainly has the potential to work,
  • 28:52 and I think theoretically the common framework does make it better
  • 28:57 because... but there's conditions to that, right?
  • 29:00 There has to be better transparency.
  • 29:04 And there has to be complete transparency to build that goodwill.
  • 29:07 And again, you have to look at does it work?
  • 29:11 And how you're defining, "does it work?"
  • 29:13 You have the debt principle,
  • 29:16 that we go into these restructurings with any sovereign
  • 29:20 is you want to maintain as best you can access to commercial credit
  • 29:25 and to market credit after the restructuring, right?
  • 29:31 For entities that are on the lower end of the income
  • 29:35 that do not... that have lost...
  • 29:37 If a sovereign has already, in such a dire situation,
  • 29:43 that they've already experienced market exclusion,
  • 29:47 then obviously this type of restructuring under the G20 framework
  • 29:55 is something that is going to help them, right?
  • 29:58 They have nothing to lose by going through this type of framework.
  • 30:02 I think where we have to be careful with the framework
  • 30:05 is around sovereigns that may have a decent economy.
  • 30:10 They have the ability to reprofile the debt
  • 30:14 in a way that allows them not to lose access, right?
  • 30:18 To either bank credit or to the capital markets.
  • 30:22 And that's what we want to make sure.
  • 30:24 And that's why we're very encouraged.
  • 30:26 I just want to say, one statement is that,
  • 30:28 we are very encouraged by the way the G20 and the Paris Club
  • 30:31 has engaged the private sector on the G20 framework.
  • 30:35 And we believe that's going to be critical to make sure that it works
  • 30:39 in terms of having the private sector at the table early.
  • 30:42 Julie, how do you think about the short-term
  • 30:44 versus long-term trade-offs for countries?
  • 30:47 You could think about it as a liquidity problem
  • 30:50 versus the longer-term sustainability or solvency issues
  • 30:54 that the people of the country face.
  • 30:57 Are those incentives all in line...
  • 31:00 It seems to me that creditors have a large incentive
  • 31:04 to see the liquidity problem solved,
  • 31:06 meaning the short-run problem, and then maybe do it again.
  • 31:10 You mentioned all of the high number
  • 31:12 of Paris Club reschedulings that have already been underway.
  • 31:18 Yeah, I think that in terms of the trade-offs,
  • 31:20 you're trading off immediate relief with long-term access.
  • 31:25 And the funding growth needed, right?
  • 31:28 So when you think about how a country that goes through that process
  • 31:33 is going to have to balance that
  • 31:35 against their desire to finance their SDGs.
  • 31:38 And all of that... And there's not going to be enough official money to do that.
  • 31:43 So I think that the trade-offs that you're constantly trying to balance
  • 31:47 when you go through one of these negotiations
  • 31:49 is how to do it in a way that doesn't cut off a country
  • 31:53 from the additional private sector funding that's going to be needed for them.
  • 31:58 You know, because as we know, there's trillions of dollars of gap
  • 32:02 that the private sector have to fill
  • 32:04 on helping these countries achieve their SDGs.
  • 32:07 So you don't want to be in a situation where they don't have access to funding,
  • 32:11 or you have to look at the, like I said, the bond market,
  • 32:13 the mechanism of the bond market and the bank market are very different.
  • 32:16 On the bank side,
  • 32:18 if commercial banks are forced to take a restructuring
  • 32:23 that is going to have long-term implications for the country
  • 32:26 because credit committees, regulatory constraints...
  • 32:30 It's one of the reasons why there's very little traditional commercial credit
  • 32:35 from large institutions like CITI right now.
  • 32:39 So you see that there is long tail risk
  • 32:43 associated with forcing commercial bank restructuring.
  • 32:46 So you have to be very careful on that.
  • 32:48 And there's also implications where it's not just lending that gets impacted.
  • 32:52 It's the FX lines, it's the trade lines, and other impacts.
  • 32:56 So you have to be...
  • 32:58 So I think when we say under the framework,
  • 33:01 and I think the devil's in the details,
  • 33:02 that everything has to be done on an equal basis.
  • 33:05 If we apply the same methodology to the bond holders
  • 33:09 that we do to commercial bank credit,
  • 33:11 That's not necessarily going to work because they're very different mechanisms
  • 33:14 and very different considerations that we have to take when we're advising.
  • 33:18 And one final question, does collateral...
  • 33:21 More of the lending has been done with collateral
  • 33:25 and also with non-disclosure clauses in it by...
  • 33:29 Not by CITI, but by others.
  • 33:31 Does that change the dynamic of the reprofiling or of the restructuring?
  • 33:36 Yes.
  • 33:38 So I think that when we talk about the transparency principles,
  • 33:41 disclosures of liabilities are key.
  • 33:44 And what we're seeing is there are indirect pledges of central bank reserves.
  • 33:51 Even the banks ownership of its, their own bank repo agreements,
  • 33:56 their long-term commercial commitments with set-offs, right?
  • 34:00 And that's very common with countries that are oil exporting countries
  • 34:04 and have SOEs that are oil companies.
  • 34:06 So those are points of concern.
  • 34:09 And I think that we have to figure out through the transparency principles...
  • 34:13 Those aren't considered as they're not included in the transparency requirements
  • 34:18 and we have to move to get there.
  • 34:20 And I think one of the most...
  • 34:23 I think we at CITI have very much been a supporter
  • 34:28 of the transparency principles that the IMF has put forward in 2019.
  • 34:33 I think a lot of great solutions to transparency
  • 34:36 were in the World Bank report that you did in the fall.
  • 34:41 And I think that we need to address these transparency issues
  • 34:45 if we're going to get there because it is problematic as you go into these.
  • 34:49 And I can tell you that it's a forensics exercise
  • 34:55 to get access to all this information when you're doing a restructuring.
  • 34:59 And without going into the details,
  • 35:01 I can tell you that it was a forensic exercise as we approached it in Ecuador.
  • 35:06 And it will be the same thing in other countries.
  • 35:08 So I think the IIF has recently gotten...
  • 35:14 The IIF recently has asked the OECD
  • 35:18 to take implementing the transparency principles
  • 35:21 because they've been out there for a few years and haven't really been taken up.
  • 35:24 And if the OECD gets backing from the G20
  • 35:27 and it's actually implemented, and we build upon that,
  • 35:30 I think that's going to be critically important
  • 35:32 to make these restructurings work better.
  • 35:36 Thank you very much, Julie.
  • 35:37 Very interesting conversation, I appreciate it.
  • 35:42 [LOMÉ, TOGO]
  • 35:42 I'm Eric Keglan in Lomé, Togo,
  • 35:45 and you're watching the World Bank Group IMF Spring Meetings.
  • 35:51 A reminder that President Malpass will be joining us again
  • 35:53 to answer your questions in a special live show, following this event.
  • 35:57 So be sure to stick around.
  • 35:58 And in the meantime, you can upvote your favorite question
  • 36:01 [LIVE.WORLDBANK.ORG]
  • 36:01 at live.worldbank.org.
  • 36:03 That's also where our experts are already answering your questions
  • 36:06 in English, Arabic, Spanish, and French on our live chat.
  • 36:10 That's all at live.worldbank.org.
  • 36:13 And if you've just joined us, welcome.
  • 36:14 I'm Paul Blake and you're watching our Spring Meetings event on Rethinking Debt.
  • 36:18 Now it's fair to say that in this debt crisis,
  • 36:20 children are among those hardest hit.
  • 36:23 Kevin Watkins, chief executive officer of Save the Children,
  • 36:26 knows from experience how debt crises can hurt future generations.
  • 36:30 He joined President Malpass for the final segment
  • 36:33 in today's series of conversations on Rethinking Debt.
  • 36:36 [RETHINKING DEBT: A CONVERSATION WITH KEVIN WATKINS, CEO, SAVE THE CHILDREN]
  • 36:46 [WASHINGTON, DC, USA; LONDON, UK]
  • 36:46 Hello, I'm here with Kevin Watkins.
  • 36:48 Kevin, you've been involved in development for a long time, for decades.
  • 36:53 I wonder if you have reflections on debt itself
  • 36:56 and how it interacts with countries.
  • 36:59 What are your thoughts in general?
  • 37:02 [KEVIN WATKINS; CHIEF EXECUTIVE OFFICER, SAVE THE CHILDREN]
  • 37:02 Thanks David, and it's great to be here with you.
  • 37:05 Well, I think my most immediate reflection is,
  • 37:08 when I look back to when I started in Oxfam, which was back in the early 1990s,
  • 37:15 it was really at the tail end of what had been a lost decade for Latin America.
  • 37:21 And what was the start of the second lost decade for Sub-Saharan Africa.
  • 37:28 And of course, debt wasn't the only problem driving these last decades
  • 37:33 for some of the poorest parts of the world, but it was a significant part.
  • 37:38 And looking back on that episode now, I think there are a couple of lessons
  • 37:44 that have an important bearing on the work that the World Bank
  • 37:48 and you personally are leading, which is first of all,
  • 37:52 a mistake was made both in Latin America and in Africa,
  • 37:56 which was to treat what was a solvency problem as a liquidity problem.
  • 38:03 And so we had a succession of failed initiatives
  • 38:07 until, in the case of the low-income countries, we had the HIPC initiative,
  • 38:12 which of course the bank played a central part in framing and driving through,
  • 38:18 but it really took us the best part of two decades to solve the problem.
  • 38:22 And I think the second lesson that comes out of that period
  • 38:26 is that it's really critical that all creditors participate
  • 38:30 in solving the problem.
  • 38:33 And again, there were a lot of delays in those early stages
  • 38:36 of getting all creditors together and to treat that in a coherent way.
  • 38:43 And of course there was a lack of transparency in the system.
  • 38:46 For many countries it was very difficult to work out where the debt was held
  • 38:51 and how much that was held by who.
  • 38:53 When you say solvency and liquidity...
  • 38:55 So liquidity is looking at the shorter term
  • 38:58 and recognizing that the country is out of cash
  • 39:00 and solvency is the idea of how do you have sustainable debt.
  • 39:04 And so do you think the system has improved over these decades?
  • 39:10 Are we in a better position now to tackle that specific dichotomy
  • 39:15 that the temptation of creditors is to say,
  • 39:18 "well, as long as I get paid over the next three years, I should be okay."
  • 39:23 Versus the longer-term goals of the country
  • 39:26 are to have children grow up with enough food, with enough healthcare.
  • 39:31 How are we in a better place now?
  • 39:35 Well, I think that's a great question
  • 39:37 and you're quite right to draw attention to the human dimension of this.
  • 39:42 What concerned me most about that when I was working in Oxfam
  • 39:47 back in the '90s and the early 2000s
  • 39:50 was the impact that it was having in diverting investment
  • 39:56 that could have been going into nutrition,
  • 39:59 into education, into child health, to creditors
  • 40:02 in a way that was holding back the progress of countries.
  • 40:06 Now as to whether the system is more transparent
  • 40:10 and clearer now than it was back in those days,
  • 40:14 I think that's an open question because if you look at what happened after HIPC,
  • 40:19 of course, a lot of money was saved, about just under 2% of GDP actually
  • 40:24 for the 37 countries covered on average.
  • 40:28 A lot of that money did go into healthcare and education,
  • 40:32 but unfortunately, many of the countries that benefited from the HIPC initiative
  • 40:38 off the back of the commodities boom that happened after 2007
  • 40:45 started taking on credit on terms, which we now look back
  • 40:51 and say was probably not affordable in the case of a lot of sovereign debt.
  • 40:57 And in the case of debt that was incurred,
  • 41:00 in particular from China, was very nontransparent.
  • 41:04 This was debt that was often collateralized against productive assets,
  • 41:08 much of which was held off the books, as it were, in parastatal enterprises.
  • 41:14 And we're now coming to terms with the fact that,
  • 41:17 even before the COVID-19 pandemic struck,
  • 41:22 about half of countries eligible for IDA lending,
  • 41:26 were either back in that distress or in danger
  • 41:30 of falling back into that distress.
  • 41:32 And so I fear not enough lessons were learned from that earlier period.
  • 41:37 And it's absolutely critical that we now do take on board those lessons
  • 41:42 as we work to make the debt sustainability initiative work.
  • 41:48 One of the lessons is the need for transparency,
  • 41:51 for much deeper understanding of what the contracts are,
  • 41:54 what the terms are, what the collateral might be.
  • 41:57 We're working hard on that at the World Bank,
  • 41:59 including our international debt statistics system.
  • 42:04 To have it have more scope and to include more types of debt
  • 42:09 because the creditors are quite skillful at finding ways
  • 42:14 that debt doesn't count in the statistics, and yet it still bears the burden.
  • 42:20 So I think we can make progress on transparency,
  • 42:23 but there still is a tendency or there is an increasing tendency
  • 42:28 to have non-disclosure clauses and collateral, as you say,
  • 42:32 which makes it all difficult.
  • 42:34 At the core of the G20 common framework
  • 42:37 is the idea of trying to have comparable treatment for all creditors.
  • 42:44 And one of the challenges, and I wonder if you'll comment,
  • 42:46 is on the makeup of the international financial system or the legal structure.
  • 42:52 Is it given...
  • 42:54 Is there really a way to have comparable treatment
  • 42:58 that includes private sector creditors?
  • 43:02 Well, I think it's absolutely critical, David,
  • 43:05 that private sector creditors are part of the deal here.
  • 43:08 And both in the common framework and actually in the DSSI framework,
  • 43:14 it's absolutely clear that the expectation
  • 43:16 is that all creditors will participate
  • 43:20 in providing debt relief and supporting the moratorium.
  • 43:25 The reality is you just have to look at the simple arithmetic of debt servicing.
  • 43:30 The Paris Club,
  • 43:31 which is the main group of creditors that have provided debt relief so far,
  • 43:36 account for something in the order of six and a half billion in debt servicing.
  • 43:43 China and private creditors account for something
  • 43:47 in the order of over 35 billion.
  • 43:50 So if we don't have private creditors participating,
  • 43:54 if we don't have China participating,
  • 43:57 we're not going to be able to provide the support
  • 44:00 that countries so desperately need
  • 44:02 as they try to adjust to the fiscal crisis that they're now in.
  • 44:06 Yeah, that's a huge shift from your early days in the 1990s of...
  • 44:12 The Paris club used to be one of the big players within the credit,
  • 44:16 but you're saying six billion versus 35 billion of debt service.
  • 44:20 So it's become lopsided the other way.
  • 44:24 That used to be, in the 1980s, the commercial banks had a big chunk of the debt.
  • 44:31 That's less so the case now, so we have different problems.
  • 44:35 Well, Kevin, do you have other...
  • 44:39 I mean, any direct advice that you want to give to the international community
  • 44:45 on the debt problem?
  • 44:47 Is it a big problem and what could be done?
  • 44:50 One or two things that would make it move along
  • 44:53 in a better direction than in the past?
  • 44:58 Well, I think I'd have to proposition support on that.
  • 45:01 So the first is that it's very clear that for a large group of countries
  • 45:09 that debt servicing is now compromising
  • 45:13 the ability of government to provide basic services
  • 45:17 for some of their most vulnerable citizens and for children.
  • 45:21 I mean, to give one illustration of the problem,
  • 45:24 there are about 35 countries who are covered by the DSSI initiative,
  • 45:31 who are currently spending more on debt servicing
  • 45:35 than they're spending on health.
  • 45:36 This is at a time when child malnutrition is rising
  • 45:42 when child poverty is rising,
  • 45:44 when we have evidence from the World Bank
  • 45:46 the education budgets are being cut very deeply
  • 45:50 as governments respond to fiscal pressures.
  • 45:53 So surely this is an opportunity
  • 45:56 for the world to come together on behalf of children
  • 46:00 and to convert what are essentially unpayable debt liabilities in many cases
  • 46:07 into investments in human capital
  • 46:09 and in particular capital and support for children
  • 46:14 to make sure that they get the education and nutrition,
  • 46:16 the decent health that they have a right to.
  • 46:20 The second point I would make is that, in order for this initiative to work,
  • 46:26 and we really appreciate your leadership, David, in driving this initiative,
  • 46:31 it is critical that all creditors participate.
  • 46:35 It's simply not acceptable for sovereign bond holders
  • 46:38 to sit on the sidelines, to hide behind opaque deals,
  • 46:43 and to assume that they have some sort of exemption ticket
  • 46:47 from their moral responsibilities
  • 46:51 and their obligations towards the countries in question.
  • 46:54 So we would really like to see all creditors participating.
  • 46:59 We know from the experience of Bolivia.
  • 47:02 That when private creditors step up and provide relief,
  • 47:07 it can actually improve the credit rating of countries
  • 47:11 and it can certainly improve the financial sustainability prospects.
  • 47:16 So I think David they would be my two primary recommendations.
  • 47:21 Thank you, that's a great conclusion.
  • 47:23 Kevin, thank you very much for your insights.
  • 47:27 Good luck in all.
  • 47:29 Thank you so much, David. Good to see you.
  • 47:32 [UGANDA]
  • 47:32 <i>Gyebale ko.</i> I'm Kunda Esther in Uganda,
  • 47:35 and you're watching the World Bank Group IMF Spring Meetings.
  • 47:41 And a big thank you to President Malpass and all of his guests today.
  • 47:44 Let's remind you of the poll we're running throughout this event.
  • 47:47 We're asking you to vote at live.worldbank.org, and the question is
  • 47:50 following the COVID-19 crisis, what is your biggest financial priority?
  • 47:55 Is it A, to save for the future or B, make wise investments,
  • 48:00 or is your priority to C, take out a loan
  • 48:02 or lastly, will you be focusing on D, paying off debts?
  • 48:06 [LIVE.WORLDBANK.ORG]
  • 48:06 You can cast your vote at live.worldbank.org.
  • 48:09 That's also where you can dive deeper
  • 48:11 into some of the issues raised by our guests.
  • 48:13 We've put together a list of reports, blogs, and briefs,
  • 48:16 so you can learn more about the topics we're discussing today.
  • 48:19 Now it's time to turn to our final discussion.
  • 48:21 This debt crisis is unprecedented because it's linked to a global pandemic,
  • 48:26 but it sure isn't the first time that the world has confronted this challenge.
  • 48:30 In fact, there've been reccurring cycles of debt
  • 48:32 in many parts of the world throughout history.
  • 48:35 I'm joined today by two experts
  • 48:36 to discuss what we can learn from this experience
  • 48:38 to chart a better course for permanent debt reduction.
  • 48:41 [WASHINGTON, DC, USA; FLORIDA, USA; VIRGINIA, USA]
  • 48:41 Carmen Reinhardt is the World Bank Group Chief Economist,
  • 48:44 and K.Y. Amoako is the president
  • 48:46 of the African Center for Economic Transformation.
  • 48:49 Welcome to you both.
  • 48:50 Carmen, let me start with you.
  • 48:52 You've studied financial crises over the past 800 years.
  • 48:56 What's different about this crisis?
  • 49:00 [CARMEN REINHART; CHIEF ECONOMIST, WORLD BANK GROUP]
  • 49:00 Well, the list is really too long to go over, but let me highlight a couple...
  • 49:06 I mean, it started as a health crisis.
  • 49:09 Didn't have its roots in a financial bubble or financial-driven...
  • 49:17 It's a pandemic.
  • 49:19 Because it's a pandemic one of the exceptional things about this crisis
  • 49:24 is that it's really hit everyone.
  • 49:26 The synchronicity in output declines in 2020
  • 49:31 is something you have not seen historically.
  • 49:35 Another feature that makes it very different from the 2008, 2009 crisis.
  • 49:42 It's that it's a very regressive crisis.
  • 49:46 It's regressive within countries, hitting the poorest within countries,
  • 49:51 households, smaller firms, and across countries.
  • 49:56 This is different from 2008, 2009,
  • 50:00 where a big focal point of the crisis were about a dozen advanced economies.
  • 50:07 Now the low-income countries,
  • 50:10 the emerging markets are really disproportionately hurting.
  • 50:17 Okay, well, let's talk about some of those emerging economies.
  • 50:19 Over the years, Africa has been hit by cycles of debt buildups, and then crises.
  • 50:25 You've seen the setbacks when budgets become tight
  • 50:28 and payment difficulties become the greatest concern.
  • 50:31 How are people and development programs affected during those crises?
  • 50:37 [DR K.Y. AMOAKO; PRESIDENT, AFRICAN CENTER FOR ECONOMIC TRANSFORMATION]
  • 50:37 Yeah, the first point I would like to make is that [indistinct] in crisis
  • 50:43 are accompanied by high debt payments,
  • 50:46 which naturally restrict the fiscal space to respond.
  • 50:52 When countries are in that distress or a debt crisis,
  • 50:56 they spend their limited finances to pay interest
  • 50:59 rather than to invest in human capital, develop critical infrastructure,
  • 51:05 and facilitate economic growth and job creation.
  • 51:09 As a result countries already struggling to transform their economies
  • 51:13 and invest in their people, suffer further setbacks.
  • 51:19 Let me put it in the context of Africa, that I know best.
  • 51:24 Our growing young population
  • 51:26 requires governments invest in education, skills, and job creation,
  • 51:31 but we increase in debt payments
  • 51:34 and in economic downturn the amount of money countries can invest is reduced.
  • 51:40 As a result, there's a severe risk
  • 51:44 we'll be adding another generation of poorly educated
  • 51:48 and unskilled young people to the ones we already have
  • 51:52 because we have spent our limited resources on debt repayments
  • 51:56 on social protection for the most vulnerable.
  • 52:00 This in Africa would substantially, seems to me,
  • 52:04 affect our ability to transform our great youth population
  • 52:08 into the growing demographic dividend that we are looking for.
  • 52:13 So as I see it by 2020, we all know this,
  • 52:17 Africa will have more people entering the labor market than any world region.
  • 52:23 If they are not gainfully employed, we will have social and political unrest.
  • 52:28 So it seems to me, we need a robust solution.
  • 52:32 We are laying the foundations without a robust solution.
  • 52:36 We'll be laying the foundation for ascertaining the potential risks
  • 52:40 associated with these challenges.
  • 52:42 So it's real.
  • 52:45 Let's talk about some of those solutions,
  • 52:46 and you're talking about some of the risks involved.
  • 52:49 Carmen, I know you've been stressing the need for quick debt resolution.
  • 52:53 Are there examples where decisive debt reduction worked
  • 52:56 and led to better economic conditions
  • 52:58 and in particular, what about in the emerging market...
  • 53:01 emerging markets crises of the 1980s to 2000s?
  • 53:06 Well, so there are examples of quick resolutions,
  • 53:10 but they tend to be unfortunately of the more isolated, idiosyncratic variety.
  • 53:18 Meaning a country that was hit by a natural disaster,
  • 53:23 and it was able to quickly renegotiate with its creditors.
  • 53:27 But when you asked me about the 1980s,
  • 53:31 a big takeaway from the 1980s is precisely we don't want to repeat that.
  • 53:37 For the very reasons that K.Y. alluded to.
  • 53:44 You know, the burden of having resources devoted to debt servicing
  • 53:50 at a time when resource needs to recover from the pandemic crises are so dire.
  • 54:00 This highlights the importance of debt relief.
  • 54:02 But what am I afraid of right now?
  • 54:04 I'm afraid of that, so far, the move in that direction is very, very slow.
  • 54:16 We have not seen private creditor participation in DSSI as yet.
  • 54:25 And if history is any guide,
  • 54:28 unfortunately the creditors will also move slowly in granting debt relief.
  • 54:40 And we have a much more complex creditor base today than we did in the 1980s.
  • 54:50 Countries have bond holders, a variety of private creditors,
  • 54:57 a broader array of official creditors.
  • 54:59 It's complicated.
  • 55:01 So the need for speedy debt reduction is clearly there.
  • 55:08 But as I said, the problem, historically,
  • 55:14 has been a very slow movement on the creditor side.
  • 55:19 I think more transparency.
  • 55:21 Something that the bank has been really working very assiduously for some time,
  • 55:30 to increase transparency of debt and credits and terms of borrowing and so on,
  • 55:38 can increase the creditor coordination and speed things along.
  • 55:45 It won't solve the issues, but it may help speed things up.
  • 55:50 And K.Y Carmen was just talking there about the changing creditor base.
  • 55:54 And I've been reading a little bit about this.
  • 55:56 Diversifying creditor base with private creditors increasing their share.
  • 56:01 Tell us a little bit about why that is a challenge
  • 56:04 and how countries in Africa are dealing with this new challenge.
  • 56:07 Are there any lessons that can be learned from past experiences
  • 56:11 to improve debt management today?
  • 56:14 Yeah, I think both of you and Carmen are very correct
  • 56:17 that the debt situation is a lot more complex
  • 56:21 In that first part we all agree,
  • 56:23 but we also agreed that everybody wants to ensure that Africa transforms.
  • 56:29 As I say, with our growing population we must spend more
  • 56:32 on infrastructure, education, urbanization.
  • 56:35 We need smart agriculture, we need smart technology, and we need smart people.
  • 56:41 But we see that over the years,
  • 56:42 so the last few decades, China, for example,
  • 56:46 has emerged as the biggest bilateral lender to Africa.
  • 56:51 Transferring nearly $150 billion.
  • 56:55 In addition, there's much more private sector debt
  • 57:01 and Russia and Middle Eastern cities are becoming big lenders to Africa.
  • 57:07 These new players often, let's say, operate by rules
  • 57:12 that may seem less transparent.
  • 57:14 That's a fact.
  • 57:16 Making it more difficult to understand the scale of the problem.
  • 57:21 So capacity across the continent to manage debt
  • 57:24 is more robust, it seems to be, than it was in the 1990s.
  • 57:29 But after the COVID crisis,
  • 57:31 several African countries are facing debt distress or a debt crisis.
  • 57:37 But as you say, we need to learn from the past.
  • 57:40 I've just written a book about Africa and development
  • 57:43 called " If you know the beginning well, the end shall not trouble you,"
  • 57:47 from an African proverb.
  • 57:49 So we need to learn lessons from the past to inform the future.
  • 57:53 That's the essence of what I'm trying to say.
  • 57:55 So what are some of the...
  • 57:56 First national and regional debt problems are not individually events
  • 58:02 for countries with temporary liquidity shortages.
  • 58:05 They will over time have significant repercussions
  • 58:09 for global financial stability.
  • 58:12 That's one lesson.
  • 58:13 Second, negotiating ad hoc solutions with different borrowers does not work.
  • 58:20 Any solution developed must work for all lenders, official and commercial.
  • 58:27 Third point I'll make is that the process, as Carmen said, must be transparent.
  • 58:33 Covering any new financing sources
  • 58:36 and the framer for subsequent transactions between parties.
  • 58:41 Fourth and finally, by pursuing a green, strong policy reform program
  • 58:47 at the country level,
  • 58:48 putting the money in the game, and giving creditors real options.
  • 58:55 if you do so, uncertainty can be minimized and investor confidence restored.
  • 59:02 So those are some of the lessons that I think
  • 59:04 are applicable to our situation today.
  • 59:08 And Carmen three countries have applied so far for debt relief
  • 59:11 under the G20 common framework for debt treatments.
  • 59:14 Now, for those of us who might not be aware,
  • 59:16 can you tell us briefly what that is?
  • 59:18 And then can you talk to us about whether, in your assessment,
  • 59:21 this is a step in the right direction
  • 59:23 in shaping debt restructuring going forward?
  • 59:29 So, first of all,
  • 59:30 let's start out with the debt suspension initiative,
  • 59:36 the DSSI, the debt service suspension initiative.
  • 59:40 We were dealt, we have a once in a hundred year pandemic.
  • 59:45 This is an exceptional shock as we've already discussed.
  • 59:50 So the DSSI was primarily designed with the view
  • 59:56 that, during the pandemic,
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