U.S. Congresswoman Ilhan Omar on Monday joined growing demands for providing debt relief to developing countries that are struggling economically amid the coronavirus pandemic as economists warn the world could be facing the worst recession since the 1930s.
In a pair of tweets, the Minnesota Democrat called for canceling all debts that developing nations owe to the World Bank and International Monetary Fund (IMF):
We could be on the precipice of a global financial crisis unlike any seen since the 1930’s.
We need to cancel all debt developing countries owe the World Bank and IMF.
— Ilhan Omar (@IlhanMN) April 13, 2020
Omar's remarks came in response to a Washington Post report Monday that "in the weeks since the novel coronavirus stormed out of China, an unprecedented 90-plus countries have petitioned the IMF for assistance. Emerging and developing countries require at least $2.5 trillion this year to cover their bills, according to the fund."
The report noted that the spring meetings of the IMF, World Bank Group, and Group of 20 (G20) leaders are set to begin via video-conference this week, with a press conference Tuesday on the IMF's latest World Economic Outlook and events continuing through Friday. Responding to the COVID-19 pandemic will be this year's focus.
IMF managing director Kristalina Georgieva told the Post that while many countries have stocked up on foreign currency reserves following financial shocks in recent decades, they could run short this year by at least "hundreds of billions of dollars," potentially jeopardizing their abilities to cover the costs of imported goods and foreign debts.
According to the newspaper:
Georgieva—a Bulgarian economist who commands roughly $1 trillion in lending—already has secured the IMF board's approval to double one emergency funding program. And she has IMF experts racing to develop new short-term credit channels.
Much of this aid will be designed to be fast and will carry few conditions—unlike traditional IMF rescues that required poor countries to undertake wrenching reforms and often left a legacy of acrimony and distress. One new initiative would allow a country to tap a short-term credit line, repay the borrowed amount, and then borrow again.
Together with the World Bank, the IMF has proposed allowing the poorest nations to defer billions of dollars in debt payments this year that they owe to richer countries. The aim is to spare countries having to choose between paying doctors or foreign bankers.
"Going into this crisis, the low-income countries had high levels of debt," said Nancy Lee, a senior policy fellow at the Center for Global Development who estimated that rescheduling debt service payments due by the end of 2022 could free up almost $33 billion. "Now this is likely to push a number of them over the edge."
Some economists interviewed by the Post expressed concern that the IMF's efforts don't go far enough to address the crisis and called on the G20 to "step up" and facilitate further joint action. Faith leaders and other justice advocates have also recently demanded debt relief in response to the pandemic.
Last week, Bishop David J. Malloy of the U.S. Conference of Catholic Bishops and Eric LeCompte of the interfaith Jubilee USA Network called on U.S. President Donald Trump to lead the G20 in granting developing nations debt relief so they can better respond to the healthcare and economic consequences of the ongoing pandemic.
"A rescue should be put in place now, before Oxfam's dire predictions become reality."
—Phillip Inman, the Observer
"As the G20 considers a suspension of debt payments from the 76 poorest countries in the world, the United States can lead the world, again, in calling on wealthy countries, the G20, the IMF and World Bank, to suspend debt payments for developing countries," wrote Malloy and LeCompte. "Suspending debt payments, with no interest, can immediately allow countries to access funds to bolster their health systems and support needed stimulus packages in the developing world—allowing these countries to provide for their own health, safety, and security."
The letter (pdf) to Trump last week came after the United Nations Conference on Trade and Development (UNCTAD) proposed a $2.5 trillion coronavirus package for developing countries. The U.N. proposal recommends making a $1 trillion liquidity injection; canceling $1 trillion of debts owed by developing countries; and putting $500 billion in grants toward a Marshall Plan for health recovery.
"Developing countries are unprepared to deal with the economic and health impacts of the coronavirus," said LeCompte, a member of expert working groups to UNCTAD, in a statement last week. "Most of Africa only has about 50 critical care beds per country. Without action, tens of thousands of people will die because they can't access life-saving health services."
"The world's poorest countries "need total relief now so they can bolster health care and survive the economic crisis" that is being created by the coronavirus pandemic and will "likely be the greatest financial crisis since the Great Depression"https://t.co/XLiYFFy9FE
— Eric LeCompte (@Eric_LeCompte) April 13, 2020
Phillip Inman, economics editor of the Observer, argued in an op-ed over the weekend that the COVID-19 crisis demands action from G20 countries to bail out developing nations of sub-Saharan Africa.
In addition to facing the prospect of overwhelmed health systems, Inman wrote, "sub-Saharan governments are threatened by a financial collapse. Aid charities have already called for the IMF and World Bank to engineer a debt write-off to prevent such a situation arising. So far, the answer has been extra loans, albeit at low or zero interest rates, to bridge funding gaps in healthcare provision expected once the virus begins to make inroads."
Inman highlighted an Oxfam International report from last week which warned that without urgent aid, the public health crisis could throw half a billion people into poverty worldwide. As part of the efforts to help poor nations get through the pandemic, "G20 finance ministers, the IMF, and World Bank must give developing countries an immediate cash injection to help them bail out poor and vulnerable communities," said Jose Maria Vera, the group's interim executive director.
Inman concluded that "to wait for another debt default in sub-Saharan Africa will serve no one's purpose. A rescue should be put in place now, before Oxfam's dire predictions become reality."
The IMF on Monday announced that it would provide $500 million in debt service relief to 25 member countries under its Catastrophe Containment and Relief Trust, which Georgieva said "provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts."
LeCompte welcomed the move as "an incredibly positive step" but said that "while we encourage more countries to donate money to this IMF trust, the IMF also needs to use its own resources." He added that "all of the countries could benefit from more than just a six-month debt cancellation. As the poorest countries in the world, they really need full cancellation."
This post was updated with details of the IMF's debt relief announcement on Monday.