RIO DE JANEIRO, BRAZIL – In a joint statement at the spring meetings of the International Monetary Fund (IMF) and the World Bank (WB), the two Latin American countries suggested that there should be new mechanisms to benefit middle-income countries, including a fund within international institutions to encourage orderly debt restructuring.
In the framework of the G20 Finance Ministers and Central Bank Governors Meeting, they stated that it is necessary to evaluate the effect of the pandemic, as well as the scope and range of new support mechanisms, which are being discussed, to promote the economic recovery of low- and middle-income countries.
“The overall growth in debt levels in virtually all countries is a clear result of the pandemic, whether due to increased spending to promote economic stimulus, a scaling up of health services, or as a consequence of a substantial reduction in revenues,” they said.
“This situation presents different scenarios. For some countries with historically low – or even negative – rates, this has not been particularly challenging. On the other hand, poorer nations have required support from the international community, such as the debt service suspension initiative and, more recently, the new allocation of special drawing rights,” they added.
They considered that middle-income countries are “forgotten” among these two groups of nations, whose challenges are no small matter since they represent 75% of the world’s population and 62% of the population living in poverty. The World Bank estimates that 120 million people will fall into extreme poverty by the end of 2020; the vast majority of the world’s extreme poor are expected to come from precisely these countries, representing 94 million.
They recalled that middle-income countries tend to have intermittent access to capital markets but not to low interest rates. This is why they pointed out, it is crucial to:
a) examine new mechanisms so that these countries can take advantage of the new proportional allocation of the International Monetary Fund’s Special Drawing Rights, when required, and
b) analyze the possibility of creating a specific fund within the international financial institutions, which will allow the restructuring of the debt of middle-income countries, and the improvement of their financial conditions, the above, without excluding bilateral or other mechanisms to make use of the allocation of Special Drawing Rights.
“In this way, the economic and health crisis will be prevented from turning into a debt crisis in the medium term, which will allow the vast majority of the world’s population not to be displaced to a forgotten majority,” they pointed out.
“The Ministry of Finance of Argentina and the Ministry of Finance and Public Credit of Mexico will continue working during the spring meetings of the World Bank and the International Monetary Fund to generate a broad consensus among countries on these issues and promote actions that will allow us to achieve a rapid, inclusive and sustainable economic recovery”, they concluded.