But getting to an outcome will require a bit of flexibility from the IMF (on the technical way the NRHs are incorporated into the targets) and from the creditors (who do need to take losses given Zambia's $17b or so in external fx debt, which is too high)
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Brad Setser
@Brad_Setser
CFR senior fellow. Views are my own. Retweets are not endorsements. Writes on sovereign debt and capital flows.
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The $3b in private bonds will be a bit trickier, but the discussions are starting to get more realistic --
Think a new bond with a face of $1.6 to $1.8b, an 8% coupon and a step down in the coupon if copper tanks would likely come close to working for everyone ...
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If this is treated as a straightforward financial matter, there should be a solution --
swapping the current loans for new loans with the same face value but with a ten year plus grace period, a twenty year plus end maturity & a coupon of around 3% should do the trick.
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As by far the biggest creditor in Zambia, China Exim should have an incentive to help work out a solution -- they currently aren't getting paid on $4b in loans.
politico.com/news/2023/04/1
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If China has really dropped its (non sensical and ideological) call for MDB haircuts on already concessional lending and the non-resident holding cash flow issue can be sorted, progress might be possible --
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15% (now less) of the external debt stock (1.5-$3b of holdings) was getting nearly all the cash flow over time, which doesn't work.
cfr.org/blog/common-fr
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Fair enough --
But the way the IMF incorporated these local currency bonds in their debt service calculations means that they are sweeping up all the near term cash flow and most of the medium term cash flow
(It would help if the IMF put the actual numbers of this out)
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Hopefully the MDB issue will no longer stop all real negotiations -- the other issue is the impact of the "non resident holdings" of Zambia;'s local bonds ($3b plus a year ago, now probably $1.5-$2b in market value) on the restructuring.
Zambia wants to exclude them --
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That exclusion shouldn't be a big deal -- the MDBs are preferred creditors, and they already only get 1% on their concessional loans. If China (and the bonds) would also take 1% Zambia's debt problem would be solved.
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Those claims, and some odds and ends (including some Chinese "commercial" loans need to take a sizable NPV haircut --
While Zambia plans to follow convention and exclude $3b in already concessional MDB claims from its restructuring
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The math is pretty straight forward -- China constitutes $6b or a bit over $8b in bilateral claims (Exim alone is over $4b), and there are $3b in face of bonds in default (about $3.6b in accumulated claim) ...
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The Times story focuses on Zambia, which remains the key test case as China's policy banks (and Exim specifically) have more exposure than the bond market and Zambia clearly (imo) needs debt relief.
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There is a bit of new hope that China won't hold up progress in all sovereign debt restructuring cases with an unwarranted demand for the MDBs to restructure their already concessional lending along side the restructuring of China Exim
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., analyste à , et reviennent sur la nécessité de trouver de nouveaux canaux permettant aux pays les plus vulnérables d'utiliser les droits de tirages spéciaux excédentaires réalloués par les pays du G20.
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Wrote this on how corporation tax from American companies has flooded cash into the Irish Exchequer; the rights, the wrongs and the risks it poses to the economy.
With
#rtept
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My first (and probably only) Le Monde oped.
Thanks especially to ... though the linguistic skills of are also impressive.
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The G-20 committed to rechanneling $100bn in SDRs, which is great. But in order for this to happen, the ECB must approve of new rechanneling arrangements -- such as the SDR bond and hybrid capital proposal.
@TheoMaret, @Brad_Setser, and I in @LeMondefr: lemonde.fr/idees/article/
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Bottom line: China's exports continue to show somewhat surprising strength -- and China's massive customs goods surplus isn't falling.
Deglobalization may be the future, but it wasn't obvious in the q1 data ...
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Trade disputes are often shaped by perceptions of discrimination and narratives (such as the European narrative around the IRA). But charts like this one perhaps could help Europe clarify its assessments of its own interests (which may not be that far from those of the US)
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And Germany and the broader European automotive supply chain is certainly more exposed than the US to China's sudden emergence as a large exporter of motor vehicles ...
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But there has been an enormous swing in the Euro area's trade balance with China during the pandemic (and the same is true for the EU balance). Sino-European trade is much less symmetric than it once was ...
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I often read that Europe's economic incentives vis-a-vis China are fundamentally different from those of the US. I am not so sure.
The EU countries do export more in aggregate to China (and certainly more manufactures)
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The geographic decomposition of China's surplus helps tell the story -- the boom in goods exports to the US and the EU has faded, but that has been more than offset by reduced parts imports from the rest of Asia.
And the surplus with the commodity exporters has returned
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The data for manufacturing trade isn't out in March -- but this to me is the most globally significant chart. China's manufacturing surplus is 2x its pre-COVID (and pre-trade war) level in dollar terms.
Deglobalization is everywhere except in the actual data ...
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There is enormous seasonality in China's trade, and q1 is the seasonal low. They key in a trailing 3ms sum is too compare peaks to peaks and throughs to throughs -- China's exports (surprisingly) look like they topped 22 (perhaps tho b/c q4 22 was weak?)
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As noted, China's trade surplus for March surprised on the upside --
Forecasts that the surplus would fall this year now look premature, if not off --
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Excellent news!
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France's Finance Minister Bruno Le Maire tells me he is optimistic about SDR rechanneling and it will be a priority at the Paris summit in June on global finance.
"I think we will succeed in the end," he said, adding that he believes the SDR bond proposal is the most promising.
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But finding those technical solutions requires political will -- the issues are thorny enough that it is always seems easier just to keep the (unacceptable imo) status quo.
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The World Bank should be using an SDR bond to stretch its balance sheet.
But it won't happen unless the US and the EU countries decide that they want it to happen.
There are technical solutions to the technical obstacles to dong this --
Quote Tweet
We wrote about the SDR bond proposal here, in our interview with @Brad_Setser and @StephenPaduano
It will need support from wealthy SDR holders and a development bank
devex.com/news/how-the-w
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I always have liked Martin Wolf's solution for Japan's corporate savings surplus:
"... wages are too low and profits too high. The simplest way to fix this is to raise the rate of tax on corporate profits, while allowing full expensing of investment."
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Freudian slip?
"I don't think anyone (outside Japan) has a better [graph] GRASP of Japanese macroeconomics than the FT's Martin Wolf."
his graphs are always great too!
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This chart highlights a point that I have long made -- Abenomics was actually a policy of offsetting fiscal consolidation with monetary easing (no surprise that it wasn't especially effective at ending deflation)
See the bar for government saving
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I don't think anyone (outside Japan) has a better graph of Japanese macroeconomics than the FT's Martin Wolf.
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And very much agree with Andrew's recommendation to read Logan Wright's latest monograph on China's shadow banks/ the deleveraging campaign.
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Great chart --
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China's latest data show the nearly five-year-long contraction in the size of total shadow finance came to a halt in March. End of the deleveraging era? Maybe. At the least, a pretty clear sign of shifting regulatory priorities.
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西方对俄罗斯的经济制裁导致人民币已经在俄罗斯取代美元成为交易量最大的货币。但金融专家说，人民币几乎不可能撼动美元在全球的主导地位，除非“中国能成为一个开放的、有法治保护的西方式民主国家。。。但问题是他们会这样做吗？” 详细内容：voachinese.com/a/can-renminbi
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Big numbers about the financing needs of low income countries sometimes are thrown out rather casually. A bit of reflection about the scale of the chart from is warranted. Tens of billions = really big numbers for some parts of the world.
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Good chart; important point.
Obviously restructurings/ reschedulings on a big enough scale might change the net flow picture ...
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Zambia, which owes more to China Exim (~$4b) than to its external bond holders ($3b face + interest arrears), is in a fundamentally different position.
Its debt structure wouldn't allow it to have mimicked Ghana's strategy.
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Easing the process of IMF lending by promising to avoid large NPV haircuts on official (including Chinese debt) was a pragmatic choice, but one made possible by Ghana's debt structure.
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China, with $2b of the total, isn't a central player.
And Ghana, which got into trouble because of its market borrowing, is restructuring both its domestic and external market debt.
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