IIF unveils new legal tool to ease G20 debt relief process

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 suspension of debt payments offered by the Group of 20 major economies.

The IIF, which groups more than 450 banks and other global financial institutions, said it developed the template waiver letter here at the request of U.N. officials and others who are worried the pandemic could spark a major debt crisis.

The G20 countries and the Paris Club of official creditors in April agreed to freeze debt payments from the 73 poorest countries for the rest 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 agreements with just under half of them so far, including Ivory Coast, Ethiopia and Pakistan.

Some countries have been reluctant to participate out of concern that doing so 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 terms that allow creditors to declare a default if circumstances - such as payments to official creditors - change. Private sector lenders have said they would be willing to waive those clauses on a case-by-case basis, but borrowers would need to request such a step.

The IIF letter will speed up that process by giving borrower countries a legal template they can adapt to ask commercial creditors to waive the possibility of a default, said IIF Managing Director Sonja Gibbs.

“It allows borrowers to ask their official bilateral creditors for this debt service suspension without triggering an event of default,” she said.

Reporting by Andrea Shalal; Editing by Sonya Hepinstall