As defaults loom, calls mount for G-20 to tackle debt transparency

With debt defaults in low-income countries looming, alarm is growing over the lack of transparency around the size, terms, and ownership of the loans. A new paper from the Bretton Woods Committee’s Sovereign Debt Working Group argues that the G-20 group of nations, credit ratings agencies, and international financial institutions need to find common ground for urgent reforms.

“The upcoming G-20 finance ministers’ meeting would be an obvious place to begin making progress,” said John Lipsky, former first deputy managing director at the International Monetary Fund, during an event Monday. The meeting is set for Feb. 17-18.

Transparency lowers borrowing costs by reducing risk and creates more space for rescue packages, the paper says.

“Although there is lots of data around, a lot of it is difficult to distill and to use,” said Mark Walker, a sovereign expert at Guggenheim Securities who worked on the paper. “It’s really kind of a mess.”

In some cases, borrowing nations themselves are in the dark about what exactly they owe, Walker said. The paper argues for a global consensus on what to make public, as well as for donors and global institutions to help lower-income countries develop reporting capacities.

What about China? Beijing is a major creditor to low-income countries, and the paper argues in favor of cooperation with China for a deal on transparency reporting.

“It suits China to see these countries being able to turn their economies around,” said William Rhodes, a vice chair of the committee. He added that transparency would also help Beijing “get their loans paid back.”

The urgency: The World Bank has warned of coming “disorderly defaults,” and Rhodes indicated that he is similarly concerned. While an overhaul of the system will not happen overnight, the reform process must begin “immediately,” the paper says.

“Some important progress can be made quite quickly if everyone recognizes the need to get going,” said Lipsky.