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Source: The post is based on the article “Reforming multilateral lenders is an uphill task” published in the Livemint on 17th April 2023.
Syllabus: GS – 2: Important International institutions, agencies and fora- their structure, mandate.
Relevance: About reforming MDGs (multilateral development banks).
News: The G20 expert group, co-chaired by N.K. Singh and Larry Summers, are on the view of reforming multilateral development banks (MDBs), such as the International Monetary Fund and World Bank. But the group said that reforming MDBs would need a closer look at both geopolitics and the domestic political dynamics of the world’s leading nations.
About the G20 expert group on strengthening multilateral development banks(MDBs)
A nine-member G20 expert group, under the aegis of India’s Presidency, has been set up to suggest ways to strengthen multilateral development banks (MDBs) like the World Bank and International Monetary Fund.
| Read here: G20 expert group on strengthening multilateral development banks(MDBs) |
What are the challenges in reforming MDBs?
– The indebtedness of poor countries escalated during the pandemic and became unmanageable after the Russia-Ukraine war. For example, Zambia defaulted on its external debt.
– Chinese challenge: China’s negotiating strategy and its role as a significant creditor country. According to 2020 data, the Chinese state and its subsidiaries have lent over $1.5 trillion—over 5% of global GDP—to about 150 nations worldwide. China’s bargaining tactics on the restructuring of loans have all the hallmarks of the sovereign commercial debt crisis of the 1980s.
With sovereign debt defaults now a reality, there were demands for China to take hair-cuts and provide some concessions to indebted countries. But China demands MDBs to take hair-cuts.
-The nature of partisan and combative domestic politics in the US. This is because any change in the MDGs will require US Congress approval.
Why Chinese argument on reforming MDGs is flawed?
a) MDG loans are concessional in nature and are earmarked for nations in trouble with no other borrowing option. On the other hand, Chinese loans are essentially commercial, with market-linked coupons and repossession clauses.
b) It is an unfair comparison for China to put itself on the same pedestal as MDBs.
