US, China Exploring New Debt Relief Options to Avoid Wave of Emerging-Market Defaults

The US and China are discussing new measures to prevent a wave of emerging market sovereign defaults, according to people familiar with the situation, one of the most significant attempts in years at economic cooperation between the rival superpowers.

The talks — including ways to preemptively extend loan periods before countries miss payments — are broadly aimed at both easing the $400 billion-plus annual debt service burden for poor countries and finding an alternative to the high borrowing rates those nations now face in the market.

In addition to extending repayment times, other ideas being discussed include increasing financing from the World Bank and other multilateral banks. A key point is to roll out those measures before countries default and enter formal restructuring talks with creditors.

Any resulting joint proposal on global sovereign debt issues between Washington and Beijing would likely need the support of the full Group of 20, as well as the International Monetary Fund and the World Bank — the trifecta that’s struggled to resolve global debt distress issues since the pandemic.

It would also eventually require broad buy-in from private creditors, who have captured a bigger share of emerging market sovereign lending and expect a bigger say at the negotiating table.

One goal of the talks, two of the people said, is to bring a proposal to G-20 leaders when they meet in Rio de Janeiro in November. Another person cautioned the talks are still in an early stage and it’s unclear if they’ll result in anything concrete. The people spoke on condition of anonymity to discuss private talks.