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China gives vulnerable countries billions of dollars in ’emergency loans’

In recent years, China has provided tens of billions of dubious “emergency loans” to at-risk countries, indicating a shift towards providing short-term emergency loans rather than basic loans. long-term infrastructure.

Since 2017, Beijing has provided Sri Lanka, Pakistan and Argentina with an emergency loan of $32.8 billion, according to the report. AidData, a research lab at the College of William & Mary, which focuses on China’s global financial practices.

China has also provided emergency loans to the Eastern European countries of Ukraine and Belarus; South American countries Venezuela and Ecuador; African countries Kenya and Angola; along with Laos, Egypt and Mongolia. Follow World Bank researchers. “Chinese lenders require strict confidentiality for their debtors and do not disclose the specifics of their loans,” they wrote.

But researchers have found that the vast majority of China’s offshore lending – about 60 percent – now destined for low-income countries is now mired in debt. piled up debt, or have a high risk of it. Beijing’s pivot to short-term rescue lending highlights the country’s growing role as an emergency lender of last resort, making it an alternative to the Monetary Fund. The International Fund (IMF) is backed by the West.

Experts worry about what will happen next, as many countries receiving loans from China are facing an unusual wave of debt crises in an age of inflation and climate change. For example, a Pakistani official said just last week that the devastating flooding that covered most of the South Asian country would cost up to 10 billion dollars.

Secret Loans

Beijing’s emergency lending to at-risk countries aims to prevent default on its infrastructure loans. BRI, follow a FT report.

“Beijing has tried to keep these countries alive by providing emergency loans after emergency loans without requiring borrowers to restore economic policy discipline or pursue eradication. debt through a coordinated restructuring process with all major creditors,” said Bradley Parks, chief executive officer of AidData, Talk to FT.

Emerging economies across Asia, Africa and the Middle East have struggled to repay their BRI loans. The COVID-19 pandemic and Russia’s war in Ukraine exacerbate the food and fuel shortages of these countries, and their balance of payments crises. Nearly 70% of the world’s poorest countries will set aside $52.8 billion this year to pay off debt, with more than a quarter of which flows to China.

This means that China has become the most important official player in global sovereign debt renegotiations, the World Bank researchers said. But as Chinese creditors demand strict confidentiality for their debtors and do not publish specific details about their loans, there is a huge knowledge gap about what happens to them. China’s requirements in the event of debt and default, they wrote.

Alternative IMF

Gabriel Sterne, former IMF economist and now head of global emerging markets and strategy research at Oxford Economics, Talk to FT that China’s emergency loan was merely “delaying the reckoning date” to indebted countries that might be seeking Chinese loans and evading the IMF, which later “claims painful reform”.

Over the past few weeks, both China and the IMF signed or moved closer to relief agreements for Sri Lanka, Pakistan and other countries, in the past few weeks. Beijing, meanwhile, has commit forgive 23 interest-free loans to 17 African countries and will transfer $10 billion of IMF reserves to the continent.

There are signs that the IMF is promoting full transparency from vulnerable countries to receive funding. AidData’s Parks Talk to SCMP Last month the IMF was pressuring borrowers to disclose the details of their BRI loan agreements.

The IMF has “omitted the cash collateral clause in BRI loan agreements in order to put China’s top priority on foreign exchange in the borrowing countries,” Parks said.

Some countries have been complying with tougher lending conditions. For example, Pakistan has “shared details with the IMF… in consultation with the Chinese side,” said Muhammad Faisal, a research fellow at the Institute of Strategic Studies Islamabad, Talk to SCMP.

As difficulties grow, it remains to be seen whether the negative impact of China’s insinuations of loans will receive more attention.

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