WASHINGTON (Reuters) – The Institute for International Finance on Friday released a legal tool aimed at helping some of the world’s poorest countries take advantage of a debt payment suspension offered by the Group of 20 major economies.
The IIR, which brings together more than 450 banks and other global financial institutions, says it has developed the waiver letter template here at the behest of UN officials and others who fear the pandemic could trigger a major debt crisis.
G20 countries and the Paris Club of official creditors agreed in April to freeze the debt payments of the 73 poorest countries for the remainder of 2020 to free up funds to contain the pandemic and mitigate its economic fallout.
Forty-one countries have expressed interest in the G20 Debt Service Suspension Initiative (DSSI), but the Paris Club has signed deals with just under half of them to date, including Côte d’Ivoire, Ethiopia and Pakistan.
Some countries have been reluctant to participate, fearing it could trigger an automatic “event of default” on their private sector debts, even if the freeze only affects official bilateral debt payments.
Many private sector loans include conditions that allow creditors to declare default if circumstances – such as payments to official creditors – change. Private sector lenders have said they would be prepared to waive such clauses on a case-by-case basis, but borrowers are expected to request such a step.
The IIR letter will speed up that process by giving borrowing countries a legal model they can adapt to ask commercial creditors to waive the possibility of default, said Sonja Gibbs, Managing Director of IIR.
“It allows borrowers to ask their official bilateral creditors for this suspension of debt service without triggering an event of default,” she said.
Reporting by Andrea Shalal; Editing by Sonya Hepinstall