G20 Finance Ministers and Central Bank Governors (FMCBG) yesterday agreed another extension of the Debt Service Suspension Initiative (DSSI) and called on the IMF to make a new SDR general allocation (see official communique). The G20 also commented on the Common Framework.
The decisions were welcomed by the IMF Managing Director Kristalina Georgieva in her remarks at yesterday's Opening Press Conference to the virtual IMF/WB Spring Meetings this week. Both policy decisions, perhaps among the more eagerly awaited by frontier investors from this week's gathering, have however been expected (see here and here). But it is the comments on the Common Framework that might be the most interesting for investors.
The G20 agreed to extend DSSI by another six months, to the end of 2021, although were clear in calling it the final extension. It called on all official bilateral creditors to implement this initiative fully and in a transparent manner and repeated its call for the private sector to participate on comparable terms when requested to do so by eligible countries. There was, however, no mention of widening its scope to include other countries, which may be a source of disappointment to some.
The G20 also gave its support for the IMF to make a proposal for a new Special Drawing Rights (SDR) general allocation of US$650bn, giving the Fund the green light to more forward. This amount had been expected and previously signalled by the IMF. The G20 also tasked the IMF to explore options to allow richer countries to allocate their SDRs on a voluntary basis to poorer countries. As indicated before, the IMF aims to present its proposal to the Board by June, which could result in national central banks benefiting from the allocation in August.
The G20 also welcomed efforts to implement the Common Framework, DSSI's ultimate successor. It noted the first meeting of the first creditor committee will soon take place.
In its communique, the G20 committed to implementing the Common Framework in a coordinated manner, including through sharing necessary information among participating official bilateral creditors, and stressed that joint creditor negotiations (we assume by which it means official bilateral creditors) shall be held in an open and transparent manner, with due regard given to specific concerns of participant creditors and the debtor country, and that the assessment of any debt treatment will be based on the IMF/WB DSA and the collective assessment of participating official creditors. It stressed the importance for private creditors and other official bilateral creditors to provide debt treatments on terms at least as favourable, in line with the principle of comparability of treatment. It reiterated the importance of joint efforts by all actors, including private creditors, to continue working towards enhancing debt transparency – although it may be a bit rich again to single out private creditors, when public bonds are the most transparent instrument, given the opacity of bilateral lending (and let's face it, Chinese lending).
None of this is necessarily a surprise.
However, the G20's words on the Common Framework may disappoint some investors, as they appear to dispel hopes of a greater role for the private sector (a seat at the table), and at an early stage; for example, through private sector representation on the creditor committee in some capacity and a more active role in the official sector's DSA. Otherwise, investors will be concerned that any restructuring treatment agreed in the context of the Common Framework will be presented to them as a fait accompli.
But there is still a lot investors don't know about the Common Framework and how it will work; we only have last November's two page term sheet for detail, although a recent IMF staff paper provides more information on operational issues. Moreover, the official sector's policy narrative appears to have evolved over recent weeks. Initially, when it was presented, investors largely understood the Common Framework as a solution for unsustainable debt situations, although its scope now includes situations where debt is sustainable, but where there are liquidity concerns (eg see here). This may muddy the water somewhat.