IMF urges care in commercial borrowing for conflict countries

WASHINGTON, Oct 19, 2007 (LBO) – IMF chief Rodrigo de Rato said countries emerging from conflict should be careful about commercial borrowing, but welcomed investor willingness to buy into local currency developing country bonds. .Updated De Rato however said countries emerging from conflict should be careful about foreign commercial borrowing.

Responding to a question on how China was making deals for natural resources in Africa and also providing finance, de Rato said China was looking for energy and other resources like any other fast growing country and it was a welcome move.

However he warned that countries in Africa that were just emerging from conflicts may not have the capacity to borrow on expensive commercial terms.

Some of the poorest countries in Africa are known as Highly Indebted Poor Counties (HIPIC) just emerging with better sovereign balance sheets after a multilateral debt forgiveness scheme from lenders.

“China, like any other donor, should be aware that for instance debt sustainability is a key question, especially for countries that have gone through a period of debt cancellation by the international community but also by countries who could not absorb and at the same time could not handle higher levels of debt,” de Rato said.

In recent times Sri Lanka has also signed up for Chinese finance but they are mostly provided by China’s Export Import Bank on onerous terms.

Economic analysts have said that unlike aid from countries like Japan, Chinese loans so far have tended to be on higher interest and shorter repayments periods.

IMF says the willingness of foreign investors to buy local currency bonds was helping developing nations tap a new source of capital.

The comments came less than six months after Sri Lanka raised 460 million dollars by selling rupee bonds to foreign buyers.