China, Africa and fear of a borrowing binge
Many poor countries, freed from their debt burden, are facing a new trap. With floundering international trade negotiations, inadequate old-style official aid and a lack of private investment, their temptation to binge on borrowing has returned. Beyond finger-wagging, there is no international strategy to prevent it.
This seems odd just months after the implementation of the $50bn Group of Eight-sponsored debt forgiveness plan. In truth, politicians and activists oversold its benefits . The forgiven debt service is a tiny percentage of the aid that flows into these countries each year. Any benefit will also be partly offset by the big multilateral institutions offering less new money. With the US, Europe and Japan keen to cut budgets, it is uncertain that promised aid increases will materialise.
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Nevertheless, the beneficiary countries’ indebtedness will dramatically fall, making them, ironically, much more “bankable”. Debt stocks and annual debt payments will drop by almost two-thirds on average
