Stating that the COVID-19 pandemic is “a one-two financial punch” for rising market economies (EMEs), billionaire investor George Soros has recommended a complete debt standstill for them to tide over the disaster.
“Developing countries, even those considered middle-income countries, must be allowed to defer all debt-service payments to all international creditors — official and private — for at least one year,” Soros opined, in an article he wrote for BloombergQuint, together with Chris Canavan, managing director at Lion’s Head Global Partners, a monetary advisory agency.
“Group of 20 leaders, in their April 15 communique, acknowledge the need for debt relief. But they call for it only for the poorest countries and only from official lenders. Private lenders are asked to consider giving poor countries a break on debt payments, but they are under little pressure to oblige. This does not go far enough…” the 2 wrote.
Giving a highway map for the debt reduction to EMEs, Soros and Canavan argued that, the best approach was to push again by a yr all debt repayments due within the subsequent 12 months and to require collectors to forgo one yr’s curiosity revenue. This, they insisted, could be a one-time-only association, and mustn’t set a precedent for the long run. Nor ought to it represent everlasting debt reduction. “Some government borrowers may need their foreign obligations to be reduced for good, but those negotiations must await more normal times”.
“Without a standstill, debtor countries will be forced to impose harsh austerity measures, relegating their economies to a lost decade or more, compromising the health of their citizens and, in turn, the health of the rest of the world. In this scenario, many countries will opt to default, precipitating a debt crisis far more serious than the one in Latin America during the 1980s and the one in Asia during the 1990s. The wave of sovereign defaults in the 1930s may be the closest historical parallel,” Soros and Canavan wrote.
The Reserve Bank of India stated in early January 2020 that India’s exterior debt has elevated since 2017-18 primarily as a consequence of exterior business borrowings (ECB), non-resident deposits, and short-term commerce credit. At the top of September 2019, the nation’s exterior debt stood at $557.5 billion, up $14.three billion or 2.6% over the extent at end-March 2019. India’s exterior debt has been hovering round 20% of GDP since 2017-18.