Commentary: Emerging markets need fresh finance not debt moratoriums

BOGOTA: Many are calling for a temporary moratorium on all debt repayments by developing and emerging economies, in order to prevent the COVID-19 pandemic from triggering a tsunami of sovereign defaults.

True, several emerging economies tapped sovereign-bond markets on reasonable terms in April: Mexico placed US$6 billion of debt, Israel issued US$5 billion, Indonesia raised US$4.3 billion, Peru US$3 billion, and Paraguay US$1 billion, while Panama and Guatemala raised smaller amounts.But these sums are small, relative to emerging economies’ need for an estimated US$2.5 trillion in financing this and next year.

And replenishing their capital will take years, owing to a number of hurdles – including in the US Congress – while funds are needed now.The solution lies with the central banks that issue reserve currencies and which therefore should be genuinely concerned about the health of the global economy. The SPV would need some equity in order to attain the minimum credit rating required by the central banks that would buy its bonds: MDBs, as well as national governments, could provide it.

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