(Bloomberg) — U.K. Chancellor of the Exchequer Rishi Sunak could free the poorest nations to fight the coronavirus pandemic by protecting them from “unscrupulous” private creditors, the opposition Labour Party said.
With English law governing a significant share of the sovereign debt issued by developing nations, Shadow Chancellor Anneliese Dodds called for legislation to protect those countries from being sued for debt recovery by private lenders. It’s time, she said, for the government to show leadership on debt forgiveness in the way successive U.K. governments did a decade ago following the financial crisis.
Photographer: Simon Dawson/Bloomberg
“A global debt crisis would not just undermine the fight against the virus, but drive up poverty, increase political instability and hamper efforts to address climate change,” Dodds wrote in a letter to Sunak ahead of a meeting of Group of 20 finance ministers on Wednesday.
The Treasury said Britain is pushing international partners to reach an agreed approach on debt reduction with “comparable” reductions from private creditors.
Some 73 of the world’s poorest nations could potentially benefit from $11.5 billion of savings under a program called the Debt Service Suspension Initiative, agreed by G-20 nations in April, according to World Bank estimates. The program runs through the end of the year, and the U.K. is among nations that support extending it beyond then.
“To protect the poorest countries’ ongoing access to international markets, the G-20 agreed that the private sector should take part in the Debt Service Suspension Initiative voluntarily,” the Treasury said in a statement. “We continue to strongly encourage private creditors to participate whenever requested by borrowers.”
Under the DSSI, eligible countries can ask private creditors for the same freeze as they have with sovereign ones, but only a handful have done so out of fear they could fall into default and be locked out of debt markets for years.
Labour, citing International Monetary Fund data, said English law governs 46% of the total outstanding stock of international sovereign bonds. That proportion rises to 90% of debt issued by the nations benefiting from the forgiveness program, according to the Jubilee Debt Campaign.
“A powerful show of leadership would be for the U.K. to bring forward legislation that amends English law, temporarily limiting the ability of private creditors to sue for debt recovery for the 73 countries covered by the DSSI,” Dodds said.
She pointed to existing laws introduced by Labour and passed by the Conservative-led government that succeeded it in 2010, covering the debt of 45 nations issued before 2004.
“Similar legislation for the current crisis, brought forward after consultation, would provide a lifeline for some of the world’s poorest countries and prevent so-called ‘vulture funds’ profiteering from the economic distress caused by the pandemic,” Dodds said.
(Updates with Treasury comment starting in fourth paragraph.)
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