IMF Managing Director Urges Resolution of Debt Crisis in Poor Countries at China Meeting

Kristalina Georgieva, Managing Director of the IMF, urged China, the largest creditor, to actively participate in debt relief (debt restructuring) for developing and least developed countries.

According to Bloomberg on the 30th (local time), Georgieva made the remarks at the Boao Asia Forum held in Boao, Hainan Province, China, stating, "There is an urgent need for faster and more efficient procedures for debt restructuring of vulnerable countries."

She emphasized the importance of countries in relatively stronger positions in helping the vulnerable members of the global community, saying, "Establishing a mechanism for mutual cooperation in debt restructuring will provide significant benefits to both creditors and debtors." She added, "If successful (in debt restructuring), it will remove one important source of uncertainty in the global market."

Most of the poor countries with billions of dollars in debt to China are key target countries of China's Belt and Road Initiative (BRI, 육상 및 해상 실크로드). These countries have accumulated unsustainable levels of debt by attracting massive Chinese capital during the construction of large infrastructure projects such as roads, railways, and sea routes under the BRI. Among these, the COVID-19 pandemic, severe inflation, and high interest rates acted as triggers, pushing some countries to the brink of sovereign default.

Georgieva also said she "greatly welcomes" China's participation in a joint framework for debt restructuring. This is interpreted as an attempt to encourage active participation from China, as the upcoming IMF and World Bank (WB) Spring Meetings will address the Chinese debt crisis as a major agenda item.

Earlier, the finance ministers and central bank governors of the Group of Twenty (G20) discussed a plan last month to restructure $326 billion (approximately 424.6 trillion KRW) of debt owed by developing and least developed countries to creditor countries including China, the United States, and India.

This was a follow-up to the joint framework agreed upon by G20 finance ministers in 2020 for debt restructuring of developing and least developed countries. Despite this joint framework agreement, debt negotiations have faced difficulties because China, the largest creditor and a non-member of the Paris Club (a group of 22 creditor countries that introduced debt relief measures for developing and least developed countries), has not cooperated.

As a result, the United States, the largest shareholder of the IMF, along with many Western countries, have harshly criticized the Belt and Road Initiative as a debt trap. Some argue that in the new Cold War era, China is holding debtor countries hostage, reducing the likelihood of their rescue.

At the opening ceremony of the Boao Forum held on the 30th in Boao, Hainan Province, China, Kristalina Georgieva, IMF Managing Director (left), and Li Chang, Premier of China, are shaking hands.
[Image source=Yonhap News]