(Bloomberg) -- World Bank President David Malpass called for a new process for restructuring debt burdens for developing nations amid concerns about a lack of transparency over how much they owe to China.
“The world needs to have a resolution process for debt that's more robust than we have right now and starts earlier,” Malpass said on Bloomberg Television's Surveillance Tuesday. “There really needs to be a change,” he said. “The world was set up under the old debt composition, where China wasn't a big player,” he said.
The International Monetary and Financial Committee, the main steering panel of the IMF's member countries, “heavily” discussed the subject of debt resolution at a session on Wednesday morning, Malpass said. The meeting is one of a slew that are part of the spring meetings of the World Bank and International Monetary Fund this week in Washington.
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“It's not all transparent as far as what the amounts are” that are owed to China, Malpass said. As far as official, government-to-government lending goes -- a category that excludes categories such as private-sector bank credit -- China now makes up 65% of the total, Malpass said.
The World Bank chief said “we're working to avoid” the circumstance where assistance being sent to developing nations simply gets onpassed to China in the form of debt servicing. “But the system has been one where -- that has allowed transparency to go down and down.”
China in Zambia
“In many cases, there are non-disclosure clauses in the debt contracts that leave it unclear” that payments are being made “often times to China,” Malpass said. It's in China's interests to have an improved system, given the prominence of their lending, and Beijing is interested in participating, he said. “The devil is in the details.”
China remains outside of the Paris Club, the main institution where debt-restructuring talks occur, Malpass noted. The Group of 20 is making “some progress” in trying to broaden that out, he said. G-20 finance chiefs are scheduled to meet later Wednesday.
Among the issues Malpass listed was some countries delaying addressing debt problems until a point of crisis, such as -- in the case of Sri Lanka -- the need to pay for food. There's also an imbalance between what the poorest countries are expected to pay -- some $35 billion of debt service this year alone -- versus the fresh foreign-aid flows that are coming in, Malpass said.
Among the issues discussed at the Wednesday IMFC session was a call for China to convene a creditors' committee for Zambia. “That would be a very helpful step” given how Zambia stopped paying creditors about a year ago, but lacks any pathway to debt resolution now, Malpass said.
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