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The World Bank President’s admission that we have to worry about a debt crisis in the developing world is very significant.
The combination of massive pandemic debt with rising interest rates and rising prices is truly toxic.
The side conversation here at the IMF and World Bank meetings is that rich countries have been telling emerging markets not to worry about borrowing to help suppress the pandemic.
Now these countries are wondering if these record debts will be written off.
Campaign groups prepare mobilizations for a pandemic debt anniversary. But so far, lenders in rich countries have been silent.
And there’s a whole new dynamic these days. The bankers to whom these sums are owed are no longer confined to the West.
China is now owed by and large as much as the entire collection of Western creditors known as the Paris Club.
How will it respond to calls for leniency on loan repayments?
World Bank President David Malpass says of China: “They have different rules, for example contracts with non-disclosure clauses, which means you cannot share the terms with others, which makes it very difficult to restructure this debt.”
China has also hedged its lending against ports and natural resources. Sri Lanka is currently a case in point.
The unwinding of all of this could be disorderly and have significant geopolitical implications.