China followed suit on 21` January 2023 and responded direct to Sri Lanka’s request on re-scheduling its Debt as a pledge to Bail Out by IMF, with an offer for a two year moratorium.
by Victor Cherubim
The annual meeting of world leaders including business leaders, at the World Economic Forum at the Swiss resort at Davos, included the usual topics of Trade, Tech and Climate Change, but this year Davos had far reaching implications, hardly contemplated.
Davos 2023 was the 53rd meeting this year, with the Forum President Borge Brende giving the closing remarks on 21 January 2023, summarising with the words: “We can shape a more resilient, sustainable and equitable future, but the only way to do so, is together.” The UN Secretary General, Antonio Guterras stressed on 18th January, “There was no perfect solution in a perfect storm.” The sense of unity was contained in the messages, from Alain Berset (President Swiss Confederation) to Sanna Marin (Prime Minister,Finland) and Andrzej Duda (President of Poland) – all of whom expressed their continued support for Ukraine.
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| World Economic Forum Annual Meeting held on 16–20 January 2023 in Davos [ Photo Credit : www.weforum.org] |
The need for collaboration is beyond Ukraine as global inter-world crises requires moral interlinked solutions, including supply chain disruption, with a looming global recession expected according to some economists later this year.
Kristina Georgieva, MD of IMF stated: “As we navigate an uncertain economic outlook about the future of work we need reskilling in order to prepare current and future workforces.
Agriculture and Food, Cybersecurity, Forests,Digital Economy, Trade and Investment also featured in the discussions among business and other leaders.
The Focus at Davos 2023
The focus was on the tension between quality and speed of action. There is the war in Ukraine, which has sent energy and food prices soaring. The resulting inflationary pressures have ignited a global cost of living crisis, leading to social unrest worldwide.
According to The Guardian, China may be forced to make friends again with the West.
This was seen at Davos, with Beijing hinting it may adopt a less hostile approach. Vice President of China, Liu He appeared at Davos to “assure foreign investors that after 3 years of COVID-19 disruption, China was open for business”. Proof of the pudding was when he stated: “We have to abandon the Cold War mentality, we must open up wider and make it work better.”
A number of themes also emerged from Davos. India’s Action, India’s Phenomenal Growth was reflected in responses from political and private leaders at Davos, this year. The Centre for Economic and Business Research (CEBR) has predicted India will become the Third $10 Trillion economy by 2035, thanks to its demographic dividend. This was
also highlighted with top priority by India’s large delegation at Davos, during India’s current G20 Presidency until November 2023.
What was not stated but is now seen happening after Davos 2023?
About a quarter of the countries of the world are in debt, distress or on the brink of it. At Davos every one of the multilateral organisations that keep tabs on the financial fragility of poor countries did express concern on debt solutions.
As countries are having trouble paying their debts amid slower global growth, rising interest rates, urgent action was canvassed. In the case of Argentina and Brazil we are told are wanting to amalgamate their currencies. A new currency, the Austral may be introduced, which it is hoped will be more stable than the Argentinian Peso. The similarities between Brazil and Argentina debt problem is only skin deep. Argentina’s debt was mostly external; Brazil’s is mostly internal. Both sought Debt Restructuring by the IMF.
In the case of Sri Lanka both, India and China were “told to?” adjust with Sri Lanka in restructuring.
India pledged confirmation of its willingness to extend financial assurances as well as freeze debt for two years. India stated in its communique: “We hereby confirm our strong support for Sri Lanka’s prospective EFF (Extended Fund Facility) Support Plan and commit to supporting Sri Lanka with Financial/Debt Relief consistent with restoring Sri Lanka Public Debt Sustainability under the IMF Support Programme ensuring that the Programme is fully financed as projected by IMF Debt Relief. It is to be provided by Export Import Bank of India”.
China followed suit on 21` January 2023 and responded direct to Sri Lanka’s request on re-scheduling its Debt as a pledge to Bail Out by IMF, with an offer for a two year moratorium.
Japan and the Paris Club have already confirmed their financial assurances.
This gives Sri Lanka the potential for a total of $5 Billion that could be generated from these multilateral lenders. Davos was not the lever to this Bail out, it was World Public Opinion and Sri Lanka’s valid and reasonable request.
Three Ways to Restructure Debt?
“As to the debt problem itself, there are only three ways out:
1) An internal adjustment economically and politically within, a nation entailing a return to the free market system.
2) An assumption of bad debt loss by the lending institutions, if a country is unable to repay its loans, or
3) An assumption of risk on the part of the governments of creditor nations (and ultimately on their taxpayers.
Victor Cherubim is a London-based writer and a frequent columnist of the Sri Lanka Guardian
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