Mexico and Argentina on Wednesday called for international debt relief for middle-income countries home to many of the people pushed into extreme poverty by the coronavirus pandemic.
The nations said that middle-income countries have been forgotten – squeezed between the extremes of nations able to provide monetary stimulus through zero or negative interest rates, and the poorest nations that have benefitted from the G20’s Debt Service Suspension Initiative.
The appeal came on the same day that G20 finance ministers and central bankers agreed to extend a moratorium on debt interest payments for the world's poorest nations.
Mexico and Argentina, both G20 members, said in a joint statement that middle-income countries were "forgotten" despite representing 75 percent of the world's population and 62 percent of those living in poverty. While they have access to capital markets, such nations are not able to borrow at low interest rates, they said.
The statement called for middle-income nations to be able to take advantage of the International Monetary Fund's plan to increase its allocation of special drawing rights (SDR), a type of international reserve asset, by US$650 billion.
Some G20 members also advocated for such a move during this week’s meetings, IMF Managing Director Kristalina Georgieva confirmed Thursday.
Mexico and Argentina also proposed creating an international fund to facilitate the restructuring of middle-income countries' debts and allow for a more orderly debt restructuring process.
"This will prevent the health and economic crisis from turning into a debt crisis in the medium term, allowing the vast majority of the world’s population not to transition into the forgotten majority," the statement said.
It cited the World Bank's estimate that the pandemic increased the number of people living in extreme poverty in 2020 by 120 million, mostly in middle-income nations.
IMF willing to talk
Georgieva said Thursday that the IMF would discuss ways to provide greater support to nations hit hard by the global pandemic.
The IMF chief said she’s concerned about middle-income nations that entered the pandemic with weaker economic fundamentals, higher debt levels and limited fiscal space to spend to support their economies. Tourism-dependent and small island countries may be vulnerable despite income levels that mean they’ve escaped the low-income label, she said.
While rich nations have previously used their SDRs to provide no-interest loans through the fund’s Poverty Reduction and Growth Trust, those have been limited to low-income countries.
“We will discuss with the members whether there is enough support to expand the concessionality of reallocating SDRs beyond low-income countries,” said the Bulgarian economist.
Georgieva also said that the IMF would review its interest rates as part of a periodic discussion among members. Argentina recently raised the issue in relation to its debt with the Fund.
"This is the time when these types of issues can be discussed," said Georgieva, referring to the IMF's biannual meetings. "As always, we listen to our members and then look for a path that makes sense and where there is consensus," she added.
Earlier in the week, Economy Minister Martín Guzmán supported calls for a rates review. "In the context of the pandemic, an immediate suspension of surcharges, while policies are reviewed, would help countries recover and it should be considered," he said in a statement.
Guzmán said last week that Argentina’s talks with the Fund over repayment of US$45 billion in debt won’t be finalised by May or June, despite previous optimism. The minister said that changing the terms of the previous repayment scheme, which were agreed with ex-president Mauricio Macri's government in 2018, would require the support of a number of key nations and would take time.
President Alberto Fernández has called Argentina’s US$45-billion debt to the IMF "unpayable" in its original form. The government would prefer to repay the loan over a period lasting more than 10 years, which would require the Fund to change a longstanding policy.