Labour intends to put unsustainable debt on the agenda when the UK takes over the G20 presidency next year, with developing countries bearing the heaviest cost of recent turmoil in government bond markets, the Guardian columnist Heather Stewart reports.
Andy Burnham aims to champion debt relief for developing countries, in the same way Gordon Brown and Tony Blair did in 2005, according to the column.
Policymakers in every large economy have spent recent weeks totting up the costs of bond market turbulence, Stewart writes, but the sharpest pain is falling on heavily indebted developing nations. They have little prospect of influencing the choices of global investors yet pay the price regardless.
Markets responded to the war in the Middle East and the White House’s spending by selling off government bonds, driving borrowing costs higher almost everywhere, according to the column. Finance ministers and central bankers gathering in Bangkok this week for the annual meetings of the International Monetary Fund and the World Bank may be reluctant to point the finger at Donald Trump’s administration, but all are at least partly hostage to the US president’s war plans, she adds.
That has deepened a situation already made precarious by an energy crisis and by developing countries’ urgent need to invest in adapting to the climate emergency.
Even before the latest market swings, experts calculated that debt servicing absorbed 45% of government revenues across the global south and 70% in low-income countries — a burden that crowds out spending on public services and investment for the future.
Pressure for reform of the international debt framework has built in recent years, including from African Union heads of state and under the G20 chairs held by Brazil and South Africa.
The G20 — where Gordon Brown coordinated a global fiscal stimulus package at the height of the financial crisis in spring 2009 — has a much wider membership than the G7 and has coordinated earlier debt efforts, including the IMF-administered Common Framework that struggling countries can apply to, and a suspension of repayments for hard-hit borrowers during the Covid crisis.
This year’s chair is Trump’s United States, which has placed far more emphasis on other parts of the G20’s remit, including promoting global economic growth — somewhat ironically, Stewart notes, given that the war on Iran is the main obstacle to achieving it.
The presidency falls to the UK next year, and Labour has made clear its priorities will be different. They include seeking a global agreement on AI regulation, which she describes as a faint hope but clearly worth pursuing.
The UK also intends to put unsustainable debt on the agenda. The foreign secretary, Ed Miliband, who will be in Bangkok, told Labour conference delegates last month: “Friends, I promise this. We will use our G20 presidency next year to meet our responsibilities and mobilise the world, building on the great achievements on debt and development of the last Labour government.”
He was referring to 2005, when Brown and Tony Blair rode the vociferous Make Poverty History movement to the Gleneagles G8 summit and beyond, securing significant debt relief for more than 30 countries.
Kirsty McNeill, the development minister and herself a veteran of that campaign, said recently that the circumstances now are very different, for two reasons. First, she said, “we’re now dealing with private creditors – the debt isn’t held by us. So that is quite a big shift.” Second, she suggested it was harder now to delineate a group of countries clearly deserving of support.
“There isn’t this really clear demarcation between the very poor world and the very rich world that was true when I was starting out, and it was just a much starker and therefore more readily told story because the antagonists and the protagonists were just much clearer,” she told an event at the Labour conference.
She and other ministers have nonetheless made clear they are open to proposals and ready to throw the UK’s diplomatic weight behind making progress on the challenge.
One ambitious plan drawn up by the thinktank Development Finance International (DFI) and shared with the government would give 27 of the most heavily burdened countries a 10-year “holiday” during which their debt service costs would be slashed to below 10% of their revenues.
It would be implemented by cutting interest rates and extending loan terms rather than writing off debt altogether. The $13bn-a-year cost would fall primarily on private creditors, which might have to be coaxed, cajoled, perhaps even legislated into taking part, as in previous debt relief initiatives.
The “hope initiative” also envisages potential relief for another six small island developing states that do not meet the threshold on the basis of their debt burden but are regularly battered by natural disasters. They could be offered a five-year “holiday” from the moment of the next extreme weather event they face, at the cost of a further $700m a year.
An even more expansive version would embrace another five countries, including Pakistan and Angola.
Crucially, because the international financial institutions — including the IMF and the World Bank — tend to be preferred creditors, only chipping in when other help is exhausted, the costs to them would be relatively low.
Echoing Andy Burnham’s slogan, so far confined to the domestic sphere, Matthew Martin, DFI’s executive director and the author of the plan, says: “Let’s bring hope back to the poorest countries in the world, through an ambitious but financially and politically feasible initiative, which will free up $13bn for them to spend on their climate and development goals.”
It remains to be seen how bold the government is prepared to be in setting its G20 agenda, but the groundwork is being done.
Labour trashed its reputation as a champion for international development when Keir Starmer took the axe to aid spending to pay for defence, Stewart writes. Perhaps 2027 could be the year Burnham starts to rebuild it.
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