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U.S. must demand transparency of Chinese debt in any debt restructuring deals: senators

WASHINGTON (Reuters) - The United States must insist that developing countries disclose debt and other obligations to China as part of any future debt restructuring deal or international aid package, 16 senior Republican senators told the Trump administration.

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Senate Banking Committee Chairman Mike Crapo, Senate Finance Committee Chairman Chuck Grassley and the other senators said in a letter the United States should support debt restructuring for poor countries hit hard by the coronavirus pandemic, falling commodity prices and the appreciation of the U.S. dollar.

But any financial agreements should require disclosure of a country’s debts to China or legal obligations under its Belt and Road infrastructure initiative, they told Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo in the letter dated April 22 and reviewed by Reuters

Chinese institutions should also agree to renegotiate the underlying debt of developing countries without a political quid pro quo, they said in the previously unreported letter.

“Short of this, U.S. and other Western taxpayers would be in essence bailing out Chinese financial institutions and enabling China’s debt-trap diplomacy,” the senators wrote.

The International Monetary Fund last week forecast that the pandemic would cause a 3% contraction in the global economy.

The crisis is hitting developing countries and emerging markets particularly hard, and has raised the spectre of a major wave of debt restructuring once the crisis abates.

The Group of 20 major economies - which include China - and the Paris Club group of creditors last week agreed to suspend official bilateral debt payments for the world’s poorest countries through the end of the year, with private creditors backing the measure on a voluntary basis.

But experts say more significant steps, including debt restructuring and cancellation, will likely be needed, given the dire economic conditions triggered by the pandemic.

The United Nations Conference on Trade and Development (UNCTAD) on Thursday called for cancellation of $1 trillion of debt owed by developing countries.

The United Nations estimates that developing countries will need to pay back or refinance $2.7 trillion in debt by the end of 2021, not counting billions of dollars in additional loans needed to combat the pandemic and mitigate its economic impact.

Much of the developing countries’ debt is held by China, which aggressively stepped up public and private lending in Africa and other developing regions over the past decades, often demanding much tougher terms and higher interest rates than Western creditors.

Led by U.S. Senator David Perdue, a senior member of the Senate Banking Committee, the letter noted that many loans carried nondisclosure agreements and some 50% of China’s loans to developing countries were not reported or included in data compiled by the World Bank, the IMF or credit-rating agencies.

China also engaged in predatory lending practices and demanded extensive collateral, raising the prospect that countries could lose sovereign property or strategic assets as part of a debt relief deal with China, the senators wrote.

“The U.S. must ... closely monitor countries now buckling under Chinese-issued debt. Through U.S.-led institutions like the IMF and the World Bank, the U.S. should support offering debt restructuring to these countries as needed,” they said.

The United States, the dominant shareholder in the IMF, should demand that any country that requests IMF or international aid “be transparent in all outstanding finances and legal obligations, including BRI agreements and Chinese debt.”

Reporting by Andrea Shalal; editing by Richard Pullin