Yellen calls on China for specific debt assurances for Lanka

ECONOMYNEXT –US Treasury Secretary has called for specific and credible financing assurances for Sri Lanka and said about “55 percent of low income countries are at close to or in debt distress.”

“I will continue to push for all bilateral official creditors, including China, to participate in meaningful debt treatments for developing countries and emerging markets in distress,” Yellen said at a meeting of to G20 officials in India.

“Most urgent is the need to provide debt treatment to Zambia, and to commit to specific and credible financing assurances for Sri Lanka.

“Later this week, I am also looking forward to robust discussions about the Common Framework process to help countries like Ghana. I will also be discussing international coordination on debt restructuring for middle-income countries.”

China has offered a two year moratorium to Sri Lanka and said it will enter into talks to re-structure debt without giving specific assurances that debt will be re-structured along the limits set by an IMF analysis.

Many countries which have bad central banks with historical depreciating currencies due to conflicting money and exchange policies are now in debt distress.

“The IMF estimates that around 55 percent of low-income countries are close to or in debt distress,” Yellen said.

After the Great Recession in particular massive liquidity made it easier for many countries with bad central banks to borrow dollar denominated debt heavily in commercial markets, analysts say.

Classical economists refer to the phenomenon, which is a consequence of inflationary policy, as mal-investing.

The first wave of defaulting Latin American countries came in the early 1980s as the Fed tightened policy and co-called BBC policies (now called exchange rate as the first line of defence) destroyed currency pegs as intermediate regime countries tried to maintain fixed policy rates.

In the 1970s amid bad Fed policy which pushed up oil prices, US banks also re-cycled so-called ‘petro collars’ to Latin American nations as bondholders re-cycled abundant liquidity to third world nations which had monetary instability historically in recent yearsm

China also shifted some of its reserves from US Treasury bills to policy banks and gave loans to countries with a history of monetary instability amid questionable feasibility of some projects.In the case of Sri Lanka however China has funded a coal power plant which said to be the best and most high return project the country has embarked on since the 1980s hydro-electric dams.