Fine Print, Incredibly Small


In some ways, the Covid pandemic has been fostering global communitarianism and maybe more of a sense of mutual international obligation, the rhetoric for it is certainly there. And there have been well-meaning declarations and some action. But then cynics might say actions, such as they are, might be more analogous to, say, Kellogg-Briand than any truly binding covenant making. Well, cynics can be full of themselves, right? They covet the last laugh.

One area of mutual understanding with timely help for some and patience required from others has been the G-20’s move for the Debt Service Suspension Initiative (DSSI) penned in May of last year, when the pandemic was coming into full swing. Under the initiative, the G-20 nations agreed to allow 46 emerging market countries to defer payments amounting to USD 12.5 bln on their foreign debt obligations.

That payment moratorium was first intended to last through year-end 2020, but was later extended through month-end June of this year. This past April, the G-20 have extended the moratorium once again, with the moratorium remaining in place through 12/31/21.

In addition, the International Monetary Fund and its capital subscribing members, notably again the G-20 countries, are seeking to issue a net new USD 650 bln allocation of Special Drawing Rights (SDRs) which would be more generously allocated to financially stressed emerging market borrowers.

The SDRs would prove to be an immediate ready source of liquidity, being fungible and easily converted into other reserve currencies. Altruism and action thus seem paired. Imagine a policy, and it can be so.

What’s interesting, albeit disturbing, are the corners where realpolitik can be found. It would be great, if that weren’t so. There would be so much less to be worried about. But, nevertheless, there is something interesting to see, even during this time of emollient forbearance.

The Financial Times recently reported on findings of a collaborative research effort (see 3/31/21 FT article by Jonathan Wheatley, “China’s secret loan contracts reveals its hold over low-income nations”). Researchers from the College of William and Mary, the Center for Global Development, the Kiel Institute for the World Economy, and the Washington-based Peterson Institute for International Economics were able, through their analysis, to tease out enduring examples of realpolitik and national self-interest.

The researchers analyzed one hundred loan agreements Chinese sovereign institutions such as the China Export-Import Bank and the China Development Bank signed with 24 emerging market borrowers. The collaborative analysis revealed, among other conditions, the frequent stipulation of “confidentiality clauses” in the agreements, precluding borrowing country disclosure of their official Chinese debts, thereby impairing creditor community knowledge of the full extent of a borrowing country’s indebtedness. Different contracts also carried material adverse change conditions of the more non-financial sort, not even for that matter of the force majeure variety. Loan agreements stipulated that cross-default could be triggered “by any action seen as adverse to a ‘People’s Republic of China entity’.”

What does all this mean? Or even, maybe, so what? I think it merits pause, because it highlights the simple salience of words and deeds. I think it means that global norms are only as good as their reification. Or more plainly, listen to what people say, but more importantly, watch what they do.

Plainly, this is an important rule of thumb for the cross-border risk-taker. Multi-lateral agreements and global institutions can certainly facilitate things, increase efficiencies and maybe boost overall confidence, or at least comfort. The due-diligence exercise retains centrality, though. Foundational to everything, to all laws and institutions, is human agency, which means human action, and consequences, which hew to the global lender, borrower or investor. Study your counterparty.

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