May 15, 2021 News
Kaieteur News – At least two contract clauses used by China’s State lending entities are in conflict with a debt relief commitment, which the country made under the G20 common framework last year.
When the COVID-19 pandemic hit nations in 2020, it was observed that it had ravaging effects globally and particularly left poor and indebted countries at a grave disadvantage. In light of that, the G20- a group of the world’s major economies (which includes governments and central bank governors) sought to bring debt relief by introducing the debt suspension initiative, which China, the United States (US), India and many other lender nations signed on to. It required governments to coordinate debt relief terms for countries, utilising Paris Club conventions. It must be noted that the Paris Club is a group comprised of officials from major creditor countries and, it seeks to find coordinated and sustainable solutions to repayment difficulties being faced by debtor countries.
China’s commitment to debt relief now falls under great scrutiny, since it has been found that many of its contracts contain “no Paris Club” clauses, which inherently prevent collective debt restructuring through the Paris Club Agreement, binding these countries to the debt contract and leave no room for renegotiation.
A recent report led by the Centre for Global Development (CGD) in collaboration with AidData, a US-based development finance research lab, made that damning revelation. The report titled: “How China Lends; A Rare Look into 100 Debt Contracts with Foreign Governments”, was compiled following an analysis of 100 debt contracts worth $36.6 billion signed from 2000 to 2020, between China’s state-owned lending entities and government borrowers in 24 developing countries within Africa, Asia, Eastern Europe, Latin America and Oceania. The contracts were compared to other contracts, which those very countries inked with other bilateral, multilateral and commercial creditors and it was posited that China’s lending terms are very worrying.
The report highlighted that in the 100 contracts assessed; three-quarters of them contained the “no Paris Club” clause, which even prevents the debtor countries from comparing their debt.
Scott Morris, a co-author of the report and senior member of the CGD was keen to point out China’s contradiction with its G20 commitment as he spoke to Quartz Africa, an African news agency recently. He was quoted as saying, “It really was a major step forward to see China step up and make this commitment…Now the problem is, what we observe in these debt contracts is very clear and explicit language constraining the borrowing countries from seeking that kind of co-operation from the creditors.”
Furthermore, Morris called attention to China’s rampant use of confidentiality clauses in its debt contracts, which he cited as another contradiction to its debt relief commitment. Kaieteur News would have extensively reported on this clause and its implications, where it was noted that while confidentiality clauses are often used by creditors, China’s was flagged as “unusual” in the CGD report. It was explained that during the assessment, it was found that confidentiality clauses used by other creditors impose confidentiality obligations on the lender, whereas, in China’s debt contracts, those heavy restrictions are placed on the borrower. The report would have also exposed that all of China’s contracts after 2014 contained the confidentiality clause, which says, “The Borrower shall keep all the terms, conditions and the standard of fees hereunder or in connection with this Agreement strictly confidential. Without the prior written consent of the Lender, the Borrower shall not disclose any information hereunder or in connection with this Agreement to any third party unless required by applicable law.”
Morris affirmed that the clause creates problems for the G20 framework and hampers it from being executed effectively. The reason being is that the debt relief is being done through collaborative efforts with G20 members, the World Bank and the International Monetary Fund (IMF) – seeing the two institutions setting aside funds to aid countries in their debt relief. Morris explained that debtor countries are first required to present to the World Bank and the IMF, critical information about their debts before they receive relief, which they cannot do if China mandates strict confidentiality in the debt contracts signed.
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