Visits by two of the world's most powerful finance officials to Zambia this week showcase a reflection of the growing concern shared by Western officials about how China and other creditors are handling the African country's debt.
Zambia requested debt relief under the Group of 20 (G-20) Common Framework for nearly two years. Still, progress has been glacial at best, despite increasingly urgent appeals to China and private sector creditors to reach a deal.
Frustrated by the delays, U.S. Treasury Secretary Janet Yellen and International Monetary Fund (IMF) Managing Director Kristalina Georgieva arrived for separate visits in Zambia on Sunday.
Both see a new sovereign debt roundtable – introduced late last year – as a way to make progress on long-stalled debt restructuring processes.
While the overlap was coincidental, the two were to meet informally while in Lusaka, a Treasury official said.
Yellen told Reuters en route to Zambia she supported the roundtable as a forum for discussing general principles of debt relief. "I think that’s a helpful approach, and hopefully, the specific cases will be easier to deal with," she said.
Georgieva and Yellen will participate when the roundtable meets for the first time in India next month on the sidelines of the G-20 gathering. The specific date and guest list are still being worked out.
Georgieva, who helped initiate the roundtable along with World Bank President David Malpass, told reporters this month it aimed to resolve broader issues such as transparency, the timing of treatments, and how to set cutoff dates for loans but was not intended to replace the existing Common Framework.
"The roundtable is a good idea, but the expectations should be kept very modest," Indermit Gill, World Bank chief economist, told Reuters. He said it could help build more trust among parties, especially Chinese officials, struggling to find a common approach among disparate lenders.
Former senior Treasury official Mark Sobel said the roundtable could bring parties together for talks, but it remained unclear if it would deliver results.
"The leaders of the roundtable need to have a focused agenda with clear goals and timelines, build a collective spirit and then keep the pressure on all parties to deliver results," he said, adding the Common Framework had been "a flop" so far but remained the "the only game in town."
Yellen told reporters she had underscored the urgent need to cut debts of heavily indebted countries when she met Chinese Vice Premier Liu He in Zurich on Tuesday, warning that failure would set back development in developing countries and could lead to more war, fragility, and conflict.
The delay in debt treatment is taking its toll on Zambia, according to the World Bank's Gill: Per capita income has slipped from middle-income to low-income status, and about 60% of people now live in extreme poverty.
"All the bad things that happen when a country declares default has happened to Zambia," he said.
Gill parallels the late 1970s when the Federal Reserve (Fed) raised rates to curb inflation, sending the U.S. economy into the worst recession since the Great Depression during the early 1980s.
High U.S. interest rates ushered in what was labeled the "Lost Decade" in Latin America, landing many countries in default. "To some extent, a similar thing could happen now," Gill said.
Yellen, however, noted rates were nowhere near those seen under Volcker and that inflation was not out of control.
"We're in a higher interest rate environment, and something that's linked to the strong dollar and weaker currencies for many emerging markets, but also Japan and other countries," Yellen said.
