The New York Times (@petersgoodman) highlights how the global financial response to the pandemic, to date, has fallen short of providing the financial support low income countries need to cope effectively with the shock

1/x

nytimes.com/2020/11/01/bus…
Deferring debts owed to bilateral creditors was always going to only be a small part of the solution, but especially if China deemed key institutions like the CDB to be "private."

It was thus a mistake to make the DSSI the central mechanism for providing pandemic support

2/x
Only about $5b of the $30b in non-MDB debt coming due in 2020 will be rescheduled; the initiative has failed even on its own terms.

And since debt burdens aren't uniformly distributed, even a broad DSSI limited to bilateral creditors would not have provided enough to most

3/x
That is one of the points @AGelpern and I tried to make in the Group of Thirty report --

Debt burdens aren't uniform, and in many of the cases where the debt burden is high (Zambia, Angola, Laos etc) much of the debt isn't public debt owned to official bilateral creditors

4/x
As Peter Goodman notes, the World Bank didn't combine its (welcome) emphasis on scaling back debt service (even if relief was always needed for more than a couple of years) with a push to use its own balance sheet aggressively to support its members

5/x
The IMF in a sense did better -- it did get a lot of concessional loans (RCFs) out the door, but that pool of funds is limited. It you measure the IMF's response by actual disbursements rather than commitments, it is still modest relative to the shock

6/x
The $100b number Goodman cites includes commitments and the large (undisbursed) flexible credit lines provided to Peru and Chile. Actual disbursements are still more like $40b (they should rise with Colombia's decision to tap its FCL)

7/x
And the US blocked a broad SDR allocation to increase global reserves. As the Group of Thirty report notes, the world's existing tools have been used as aggressively as they could have been to help low income countries, amid a massive shock

8/8

prweb.com/releases/g30_c…

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More from @Brad_Setser

3 Nov
The IMF needs to junk its current metric for assessing reserves.

It simply doesn't work. It dilutes what should be strong signals of extreme vulnerability.

cfr.org/blog/it-time-s…
The IMF's metric (without adjustments) suggested that Turkey had a slightly stronger reserve position that China going into 2020. Which is absurd.

(and yes, I do read the details of the IMF's ESR!) Image
The reason is simple: measures of reserve need based on broad money (m2) imply that countries with big domestic deposit bases (China, Korea and the like) need a ton of reserves, while countries with small banking systems (like Argentina) need far fewer Image
Read 9 tweets
1 Nov
A bit more on global debt issues, spurred by the @petersgoodman article.

As noted in the NYT, debt service deferral cannot be the only way to help low income countries, as not all low income countries are highly indebted.

Yet some countries really do have too much debt

1/x
As the chart above shows, African countries borrowed heavily between 2010 and 2019 -- so external debt, net of reserves, rose from around $100b to over $400b ...

That's a problem now, as exports (needed to repay external debt) are down. External debt is now 2x exports

2/x
And since most of the new debt has come from Chinese policy banks and the bond market not traditional bilateral lenders or the MDBs, it carries a fairly high (for Africa) interest rate. Interest payments are rising faster than total debt

3/x
Read 12 tweets
30 Oct
Nice turn of phrase from @S_Rabinovitch. China's reported reserves have indeed been "uncannily steady" ....

economist.com/finance-and-ec… Image
This tho may be the most important bit --

... "currency traders sense the hand of the state, albeit more discreet than in the past. “My guess is that the central bank now has special trading accounts at the state banks" ...
I have long thought that you can get a more accurate picture of what China is really doing by adding the net foreign assets of the state banks to the PBOC's reported (CNY balance sheet) foreign exchange reserves -- which have indeed been a bit too steady for the last year + Image
Read 5 tweets
29 Oct
Today's GDP data obviously has gotten its share of coverage -- but I did want to highlight now unusual the downturn in q2 and partial recovery in q3 are. The downturn was led by services (usually the most stable component), and services are lagging the broader recovery

1/x Image
All this is looks totally crazy in the (annualized) contributions data, as, well, data wasn't designed for these kinds of swings.

But it is clear that goods consumption led the recovery

2/x Image
I de-annualized the data to put it on a more reasonable scale over the last year. Goods consumption is now 1.8 pp of US GDP higher than in q4 2019. Services consumption is down 2.7 pp of GDP

3/x Image
Read 7 tweets
27 Oct
Yes, absolutely. An important point.

Also please note that the numbers here are cumulative loans not current exposures. At the same time, the WB numbers on exposures miss a lot of project finance.

1/x
Another important point -- both China and bond holders have lent to a (subset) of African countries at higher rates than the MDBs/ the traditional bilateral creditors. So the interest bill for those countries that have borrowed has increased faster than the stock of debt

2/x
A chart from a recent report by the Group of Thirty that (hopefully) highlights how not all low income countries are in the same position

(higher numbers on both the x and y axis are bad ... )

group30.org/publications/d…

3/3
Read 4 tweets
27 Oct
I am impressed @ChadBown

Seasonal adjustments are actually kind of important here (ag is the most important category ... and it is, umm, classically seasonal)

And, well, the interesting story in the September data is in the ag numbers

1/x
My (more modest) seasonal adjustment looks at the monthly data. The 'beans numbers were (as expected) solid. September basically made up for a weak start of the year. I hear the 'bean harvest came in early, and supplies in Brazil are by all accounts tight

2/x
Bean exports should top the 2017 base given the orders data USTR highlighted and current bean prices. Topping 2016 may be harder ...

(But don't forget 2018 -- the empty bar there isn't an accident; China showed that its state import companies control the market)

3/x
Read 8 tweets

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