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World Bank President David Malpas has warned several times recently that a coronary virus pandemic could spark a debt crisis in some countries. In his last speech, he stated that it is already clear that some countries cannot pay the debt they have assumed. That is why he called on investors, as well as private banks and investment funds, to help them.
“We have to reduce the level of debt.” It can be called debt forgiveness or cancellation, “Malpas told Germany’s Handelsblatt.
GRACALI IN DEBT AND BEFORE THE CROWN OF THE CRISIS
He said in June that the consequences of the pandemic on the world economy were well in excess of 5,000 billion dollars, as the first estimates show, as well as 60 million people who sank into extreme poverty, whose number will be much higher. as the crisis spreads. Today, it is estimated that a pandemic could drive 100 million people into extreme poverty.
The call for help to the most indebted came just days after new disagreements were revealed in the eurozone, which deepened the already wide gap between the countries of the rich North and those of the over-indebted South. The rich were determined in the position that starting in June next year, when the term expires, they will not extend the life of the temporary covid fund and the additional pumping of money to the economies of the over-indebted members of the eurozone.
When there are such differences between countries belonging to the same bloc, such as the Eurozone, what can be expected from the idea of canceling debts with developing or underdeveloped countries?
Sputnik interlocutor, professor at the Belgrade Banking Academy, Zivanovic recalls that a large number of countries, mainly from the body of the underdeveloped world, and not developing countries, were over-indebted in the debt crisis and just before the pandemic. They were thinking about how to restructure their debt and not cancel it.
On the other hand, he adds, there are also different investors, that is, creditors with whom the State borrowed.
“The president of the World Bank is quoted here, and that is the institution that, in any case, if there is a prospect of such a thing, will cancel, that is, prolong – restructure existing debts, from one case to another. “These loans usually have a gift element, their interest rate is minimal, somewhere they even say goodbye, and these countries will probably have the best opportunity and welcome here,” says the banking professor.
DEBT CANCELLATION LAST SOLUTION
The other thing, he says, are two other groups of creditors: the Paris Club and the London Club. Maplace’s recommendation to help also applied to them, but the World Bank, as he points out, has no direct influence over many of these creditors. For some of the Paris Club, yes, but of the London Club, where there are purely private creditors and private banks, de jure none, and de facto only if they jointly finance some projects as co-financiers, he explains. Hence your assessment of debt cancellation.
“It certainly won’t be there as long as there is any chance that some of the debt or that debt will be paid back. That will be the last resort. The debt will be launched on the market, it will get a floor price, so if someone wants to buy, they will get rid of it. her that way. “If these debts, which are often the case with private London Club member banks, are directed directly to companies, the prospective profitability of such projects will be seen, repayment capacity will be seen and probably expanded the term “, believes Zivanovic.
THE WORLD BANK AND THE LONDON CLUB ARE NOT THE SAME
The Paris Club is already something else. As he explains, the governments of many countries that are in some regional alliances are also participating, there are also members of the EU, and there will already be institutional solutions, and probably some non-institutional individual ones. Considering that the Paris Club creditors finance developing countries, but also EU members whose economies have shown problems, he is convinced that we will continue, as before, listening to requests for aid, such as those traditionally from Spain, Italy …
“Of course, there will be an extension of the terms, a restructuring of the debt. They will be considered very mature bonds, under the auspices of the European Central Bank, the European Union.” But even with that, we must stop so that the EU, which You will not abandon quantitative easing and the introduction of additional money reserves even after a decade, do not cause inflation that will harm the whole Union, “says Zivanovic.
That, as he vividly puts it, would be pouring too much water into wine, which more developed and financially stable EU members will oppose.
SERBIA IS NOT A THEME
When asked what would happen if the state could no longer pay the debt, he explained:
“If it is indebted to the World Bank, it will seek to prolong the payment of the debt, restructure it, find institutional solutions, but it will also appeal to these two clubs to find some relief, and that is all. If the indebtedness is dominant in the London club, where there are private investors, the debt will be disposed of in the secondary market, some real price will be found and the paper will be sold as such. “
The professor points out that the world economy is moving towards a model of debt resolution in the market itself, and that it should not be ruled out that some countries in the less developed world, which have been in crisis for a long time, will offer part of their assets to settle some debts . He believes that we are still far from that, but that the solution where he will pay off the debt of the best part of his property will come one day.
The Sputnik interlocutor points out that he does not see Serbia among those with a debt problem and that it will continue to be so, and that due to the structure of our economy, the Kovid crisis cannot significantly endanger it.
“We are simply not an issue, we do not belong to any of the groups of indebted countries, and the problems with the London and Paris clubs are solved for now,” says Zivanovic.
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