Mozambique creditors holding 99.5% of Eurobond back debt swap plan
in file CoM
More than a dozen African countries are back in financial hot water just 14 years after the world’s poorest states were granted $40 billion of debt forgiveness. Given carrots haven’t worked, it might be time to try a stick, and aim it at creditors as much as borrowers.
The solution suggested by Jubilee Debt Campaign, a UK-based lobby group, is to require basic financing details such as repayment terms and collateral to be published if creditors want British legal protection. Jubilee estimates creditor-friendly British law underpins 90% of African sovereign-backed debt. Britain has extra leverage since it spends 0.7% of gross national income on aid, more than any other Group of Seven leading industrial nation.
African borrowers could of course head to New York or less stringent jurisdictions to escape transparency requirements. That’s not ideal for London bankers already worried about losing business because of Brexit. But countries that try to escape the obligation will pay a price, most notably in the higher interest rates demanded by creditors with less watertight protection. And they will look shifty, exposing them to backlash at home. Kenyans were outraged in January after newspapers printed what they said were extracts of an agreement showing the government had posted Mombasa, East Africa’s largest port, as collateral for a $3.2 billion Chinese railway loan.
Better disclosure would mean investors had a clearer idea of countries’ financial health, rather than worrying about hidden debts. That ought to lower borrowing costs. Tough love may be the best way to help poor countries help themselves.
– Fifty British lawmakers have written to UK Chancellor Phillip Hammond to call for the Group of 20 (G20) major developed and emerging market economies to strengthen disclosure rules around commercial, multilateral and bilateral lending to foreign governments, especially in Africa. G20 finance ministers are due to meet in Japan on June 8-9.
– The Jubilee Debt Campaign, a UK-based group lobbying for more responsible sovereign borrowing and lending, is pushing for a public register of loans to sovereign states, including their size, fees and interest charges.
– The campaign group wants failure to publish such details to result in the removal of a loan’s legal protections in its place of issue, usually Britain or the United States.
By Ed CropleySource: Reuters Breakingviews