© Reuters. U.S. Treasury Secretary Janet Yellen stands at the ‘Door of No Return’ as she visits the House of Slaves (Maison des Esclaves) at Goree Island off the coast of Dakar, Senegal January 21, 2023. REUTERS/Ngouda Dione
DAKAR (Reuters) – U.S. Treasury Secretary Janet Yellen on Saturday underscored the urgent need to reduce the debt burden of heavily indebted countries, warning that failure to do so would set back development in poor countries and could lead to more war, fragility and conflict.
Yellen told reporters traveling with her in Africa that she and other U.S. officials had gone through “many details of this debt overhang situation” during her meeting with Chinese Vice Premier Liu He in Zurich on Tuesday.
She said she believed Chinese officials understood the imperative to reduce the debts of some of these countries, but declined to forecast what China would ultimately do, and when.
Yellen, long critical of the pace of China’s efforts on debt treatments for Zambia and other countries, on Friday called again for China and other countries to provide “timely,” “comprehensive” and “meaningful debt relief to help countries regain their footing.”
Yellen said U.S. officials expressed specific concern about Zambia, whose debt restructuring effort under the Group of 20 Common Framework has taken much longer to resolve than expected. Yellen will visit Zambia next week.
“It’s important for the entire world that we not allow low-income countries to slide into economic disorder,” Yellen said, noting that the goal of raising living standards in Africa enjoyed bipartisan support in the United States.
Failure to act would result in negative spillovers, including conflict, fragility, war, terrorism and migration, she said, sucking up resources that would hamper a country’s ability to grow and move forward, Yellen said.
“Unless it can get that burden at least partially off its back … it’s just hampered indefinitely in terms of what it’s able to do and achieve for its citizens,” she said. Partial debt reductions would allow a country to invest and grow and pay back some of the reduced debt, she said.
Lenders would get less if a country “falls into economic chaos” than if it can invest and grow, she said.
“I definitely think they get what the problem is, and that there needs to be a solution,” she said of her discussions with officials from China, which is now the world’s largest bilateral creditor. “Our counterparts are sophisticated economics officials who can listen to a reasoned argument and understand.”
U.S. officials also discussed with their Chinese counterparts Washington does not agree that multilateral development banks should not have to take a haircut along with sovereign lenders – an argument Beijing often raises.
“That needs to be worked through, but we have counterparts who we are able to talk to in a reasonable way and work through our differences. And I hope that out of that process that some progress will come, But I do I don’t have a forecast for you.”