The outgoing World Bank chief called on China to be more active in restructuring discussions for developing countries in debt crisis.
China has “become one of the world’s major lenders to developing countries so we are trying to work with them to do debt restructuring,” David Malpass said at a Council on Foreign Relations event. “They haven’t been in the habit of doing that.”
A major lender to poor nations, Malpass criticized China for including nondisclosure clauses that make it difficult to to evaluate the loan contracts.
“We have dialogue with China and we’re making some progress,” Malpass said, citing China’s participation an International Monetary Fund program to help Sri Lanka.
The Sri Lanka development comes as debt-relief talks for other vulnerable nations such as Zambia have stalled. The main sticking point for talks on several fronts has been a disagreement between China and traditional lenders led by the US on whether loans from multilateral institutions like the World Bank can be restructured.
While more participation from China on debt restructuring is necessary, “private sector creditors have also been a major factor in this debt burden.”
Malpass said investments in euro bonds, for example, generated from London and New York were made possible by low interest rates, which led to a reach for yield, as investors would put money into bonds that were going to poor countries.
“There needs to be a restructuring or rescheduling process” so that countries can get to a sustainable spot in their debt structure, Malpass said.
The comments from Malpass come as Ajay Banga, President Joe Biden’s nominee to replace Malpass, prepares to meet Wednesday with China’s finance minister, leaders of the People’s Bank of China and the president of the Asian Infrastructure Investment Bank.