Some of the world’s biggest financial companies stand to profit by up to $30bn by resisting mounting pressure to provide debt relief for five heavily indebted countries, a campaign group has said.
Debt Justice said the hardline stance adopted by private-sector creditors was preventing progress on easing the financial burden of Ethiopia, Ghana, Sri Lanka, Suriname and Zambia that could help alleviate poverty.
Both the International Monetary Fund and the World Bank have been urging private creditors – the biggest being the US asset management company BlackRock – to help speed up debt relief under the common framework, set up by the G20 group of developed and developing countries in 2020.
So far only one country – Chad – has received debt relief through the common framework, which brings together multilateral creditors such as the World Bank with sovereign creditors such as China, and private investors. Ethiopia, Zambia and Ghana have applied for debt relief under the initiative.
Debt Justice said private creditors were holding out in order to maximise profits on their bond holdings and called on the government to legislate to ensure private creditor participation in debt relief. Just over half the bonds in private hands are governed by English law.
BlackRock said it had a strong history as a “responsible and constructive” participant in debt restructuring and had a shared interest in reaching a deal.
A spokesperson said: “BlackRock is a long-term investor in emerging market sovereigns on behalf of our clients. As a fiduciary, the money we invest on their behalf is not our own – it is predominantly the money of ordinary people saving for retirement, and we have to act in their best financial interests at all times. For that reason, we cannot unilaterally forgive sovereign debt.”
A report by Debt Justice said private investors who bought the bonds of Ethiopia, Ghana, Sri Lanka, Suriname and Zambia when they were first issued would stand to make $20bn if they were paid in full. If the bonds were bought at current depressed prices and still paid in full, private creditors would profit by $30bn.
Heidi Chow, executive director of Debt Justice, said: “Private lenders are having their cake and eating it. They’ve already profited from charging premium interest rates to cover their risk and now that countries cannot afford to pay, they also want to profit from full payment.
“With essential public services at stake, like healthcare and education and fighting the climate emergency, lenders must be forced to negotiate debt cancellation, and new legislation can do just that.”
The campaign group said the government should consider updating 2010 legislation that prevented creditors from demanding more than they would have received in an earlier round of debt relief, the Heavily Indebted Poor Countries (HIPC) initiative.
A government spokesperson said: “The UK has consistently pushed the importance of private creditor participation in debt restructurings at the international level and we are working closely with industry partners to reinforce that approach.
“We remain focused on building awareness of UK-led reforms to strengthen private debt restructurings and encourage financial institutions to take up these provisions.”
