From about 1996 the world’s largest lenders to poor countries realized forgiveness was the only way out. So they put together an initiative called the Heavily Indebted Poor Countries (HIPC) plan. In short they ruled off existing obligations and made new help conditional on reforms.
Of 39-HIPC countries 37 made the cut and debt levels from that time were significantly reduced. Since then though debt levels have been steadily creeping back up and researchers at the IMF, Tito Cordella, Maia Cufre and Andrea F. Prsebitero, wanted to see whose been supplying this credit.
There’s a conventional wisdom that China has snuck in unfairly to the space as a ‘free rider’. Having no obligations to begin with its been easy for them to turn up with the credit truck and gain influence at the expense of the traditional lenders, mostly the rich West; but is this true?
The researchers find no evidence this is the case. Yes, in the last 20-years China has increased global lending but that would have happened anyway as they and the world got bigger. Did they though go out to capture space conceded by traditional lenders? It seems they have/did not.
The chart on the right shows the composition of lending and from nowhere China has become a significant player. As the title of the paper references though this is a coincident event not one that can be traced directly to the HIPC initiative.
The paper also delves into another debt trope i.e. that China (and others) have used credit to further their geopolitical ambitions targeting lending at politically important or useful potential thrall-states. Again, no evidence from the data this has been happening.
My good friend Sam Johnson made an observation some time ago that seems apposite here; “Prejudice is a great time-saver. You can form opinions without having to get the facts. Prejudice not being founded on reason cannot be removed by argument.” For that reason most will continue to believe China is sneakily providing credit to poorer countries for its nefarious aims.
If you look at the data though you’ll find it hard to come to that conclusion. A pity, few will likely bother.
The paper in full is here The HIPC Initiative and China’s Emergence as a Lender.
Happy Sunday.