International Monetary Fund Managing Director Kristalina Georgieva says that a haircut in the Chinese context is politically very difficult even though there might be a way to reach the same objective by stretching maturities, reducing or eliminating interest rates, and payments.
At a recent media roundtable, Georgieva said that they have engaged with the Chinese agencies that would allow all sources of debt to China to be part of the discussion for a solution. She discussed the pathway for debt resolution in countries like Chad, Zambia, Sri Lanka, and Suriname.
"What is the biggest problem internally, domestically for China? It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore China will try to offer support to all developing countries it is genuinely with the objective to help, but also, they expect to be paid back because it is a developing country," she said.
"So a haircut in the Chinese context is politically very difficult, but they understood, after many interactions that there are ways in which they can reach the equivalency of a haircut by stretching maturities, reducing or eliminating interest rates, payments, and the Paris Club in their own engagement with China, so that there might be a way to reach the same objective in a way that in terms of reducing the burden of debt. Now, of course, it is much better if debt reduction is done upfront, not to that reprofiling, but to a as you said, haircut.
So, we of course, continue to discuss with China the value for China as a lender to have their exposure to countries defined in a way that is rational and then the countries can actually service that debt.