Shannon Brandao
From the article: "WSJ [excerpt]: #China is upending how the #international financial system handles #debt crises in the developing world. #WallStreet isn’t happy.
Large bond fund managers cried foul last month when China blocked their deal to salvage investments in defaulted Zambian debt. The smackdown came just weeks after Chinese officials brokered a private debt restructuring with Sri Lanka, outmaneuvering Western governments that were trying to do the same.
China can set its own rules because it has become the biggest lender to developing countries, outweighing Western powers that dominated such matters for more than 50 years. The new reality is rankling the old guard and making debt crises around the world longer and harder to predict.
... Western governments, investment firms and the International Monetary Fund have long decided how #emergingmarket debt gets overhauled, using a mix of formal rules and backroom deals. But China lent $1 trillion to countries in Africa, Asia and Latin America to bolster its global influence over the past decade and now many of the loans are going bad.
Longer restructuring negotiations prolong economic pain for borrower countries and their citizens. They also lower recoveries for bond funds, which don’t collect interest payments while debt is in default.
So far, the restructurings have involved small countries, including Ghana and Ethiopia. Larger nations, with greater geopolitical import—such as Argentina and Pakistan—could be next.
'If we don’t manage the [restructuring] paradigm shift well, we can move onto very dangerous ground,' said Pierre Cailleteau, a managing director at Lazard, the #investmentbank advising Sri Lanka, Suriname, Zambia and others in negotiations with lenders.
Zambia, Africa’s second-largest producer of copper, stands at the center of the power shift.
Beijing lent around $4 billion to Zambia to build airports and power plants through Chinese contractors. Many projects didn’t meet targets and Zambian officials have said some money was siphoned off by corruption.
Zambia defaulted in 2020 and the IMF agreed in 2021 to a $1.4 billion bailout, contingent on other lenders restructuring. Officials including U.S. Treasury Secretary Janet Yellen began pressuring China to engage in talks with an organization of Western countries called the Paris Club. Beijing agreed, but negotiations dragged on for nearly two years, a delay critics blamed on Chinese stubbornness.
Another potential explanation is that Westerners designed the rules of the talks—called the common framework—without accounting for Chinese practices and goals, said Alexandra Zeitz, an assistant professor at Concordia University. ...
China expects bondholders to take greater losses than official creditors and for multilateral banks to forgo some of what they were owed—a reversal of the Paris Club norm, people familiar with the matter said. Beijing didn’t formally agree to a deal until this October."
#news #business